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Question 1

The use of activity-based costing normally results in

Answer 1

substantially greater unit costs for low-volume products than is reported by traditional product costing.

Question 2

Inc. is considering implementing a lock box collection system at a cost of 80k per year. Annual sales are 90mil and the lock box will reduce collection time by 3 days. If Inc. can invest funds at 8%, should it use the lock box? Assume 360 day year.

Answer 2

No, it is a loss of 20k

3 days / 360 x 90 mil x 8% = 60k. Cost is 80k.

Question 3

For allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the

Answer 3

Relative sales value at split-off

Question 4

Assumptions underlying black-scholes model

Answer 4

Stock prices behave randomly
risk free rate and volatility of the stock price are constant
no taxes or transaction costs
stock pays no dividends
options are exercisable only at maturity - european model

Question 5

Daphne Corp evaluates employees with responsibilities for financial reporting for fulfillment of those responsibilities for compensation and promotion. The companies policies support the idea that

Answer 5

Human resources practices should be designed to facilitate effective control over financial reporting.

Question 6

The cash budget provides management with information. Which of the following is not an example of information a cash budget provides?

-Availability of funds for distribution to owners
-the need for internal financing
-Availability of funds for repayment of debt.
-Availability of funds for investment purposes.

Answer 6

Need for internal financing. Cash budget provides information concerning external financing.

Question 7

A company retains a CPA with the appropriate knowledge, skills, and abilities to prepare timely and effective financial reporting is applying the ideas from which principle of effective internal control over financial reporting?

Answer 7

Financial reporting competencies.

Question 8

To decrease the money supply, the fed might

-lower the discount rate
-decrease the required reserve ratio
-buy government securities on the open market
-sell government securities on the open market

Answer 8

sell government securities on the open market.

the decrease the money supply the fed can
-sell government securities on open market.
-increase discount rate
-increase reserve ratio

Question 9

managers that anticipate greater return for greater risk are referred to as having what attitude

Answer 9

risk averse. defined as managers who demand more return on an investment as risk increases.

Question 10

each of the following is an effect from opening markets to foreign investment except

-a decrease in investment growth rates
-a change in the volatility of emerging stock market returns
-an increase in the correlation of emerging stock markets with world markets
-a decrease in local firms’ cost of capital

Answer 10

a decrease in investment growth rates

Question 11

Which of the following transactions does not change the current ratio or total current assets?

-short term notes payable are retired with cash
-a cash dividend is declared
-equipment is purchased with a three year not and a 10 percent cash down payment
-a cash advance is made to a divisional office

Answer 11

a cash advance is made to a divisional office

Question 12

Which of the following is an example of prevention costs?

-lost customers
-testing
-tooling changes
-redesign of processes

Answer 12

redesign of processes

lost customers is external failure
testing is appraisal costs
tooling changes is internal failure costs

Question 13

computing the cost of credit discount

3/15, net 60
360 day year

Answer 13

360 / 60 - 15 = 8
.03 / 1 - .03 = .0309
8 x .0309 = .2474

Question 14

When does competition not become an even stronger force impacting the profitability of a firm?

Answer 14

The market is fast growing

competition becomes stronger when
-market is not fast growing
-several equal sized firms in market
-customers do not have strong brand preferences
-cost of exiting market exceed the costs of continuing to operate
-some firms profit from making certain moves to increase market share
-various firms in the market use different types of strategic plans

Question 15

calculate days in the company cash conversion cycle

Answer 15

inventory / (cogs / 365) + rec / (sales / 365) - payable / (cogs / 365)

Question 16

the internal rate of return is the

Answer 16

rate of interest that equates the present value of cash outflows and present value of cash inflows

Question 17

a company evaluating the advantages and disadvantages of short term financing options would note which of the following two characteristics to be true

Answer 17

Short term financing increased interest rate risk
Long term financing decreased credit risk

Question 18

what is the relationship between the allowance for doubtful accounts and working capital

Answer 18

when bad debt expense is recorded, working capital decreases

Question 19

after tax cost of debt

Answer 19

pre tax cost of bonds x (1 - tax rate)

Question 20

an increase in tax rates is most likely to cause :

-a decrease in spending on substitute goods
-an increase in export revenue
-an increase in spending on imports
-none of the above

Answer 20

none of the above

an increase in tax rates will cause a decrease in aggregate demand. increased taxes means consumers have less disposable income, therefore less overall demand.

Question 21

in a free market economy what is the most significant factor that determines how resources are used and allocated?

-ability of businesses to acquire and capitalize on resources
-government regulation
-preference of individual consumers with the ability to purchase goods and services
-all of the above

Answer 21

preference of individual consumers with the ability to purchase goods and services

free market economy is defined by the market adapting to the preference of individual consumers

Question 22

price of a perpetuity

Answer 22

price = dividend / required return

Question 23

economic return =

Answer 23

growth price + dividend income / beg. price

Question 24

All of the following are used to compute required rate of return except:

-default risk
-maturity risk
-purchasing power risk
-credit risk

Answer 24

credit risk

credit risk relates to the ability to obtain credit. required rate of return does not include a credit risk adjustment.

Question 25

Generally, an organization will not operate beyond the limits of its risk appetite. Risk appetite has generally been exceeded when:

Answer 25

The likelihood and impact of negative events significantly exceed residual risk.

Question 26

Which of the following statements is correct regarding an economy at the peak of the business cycle?

-economy will be at the natural rate of unemployment
-economy will be in a static equilibrium
-rate of inflation will decrease
-incomes will be stable

Answer 26

economy will be at the natural rate of unemployment

Question 27

If an investor’s certainty equivalent is greater than the expected value, the investor is said to be

Answer 27

Risk seeking

if certainty equivalent exceeds expected rate of return, then they are seeking risk.

Question 28

economic order quantity method of inventory control anticipates

Answer 28

orders at the point where carrying costs are nearest to restocking costs.

Question 29

conformance costs are

Answer 29

prevention and appraisal costs

Question 30

Using the weighted average method, calculate the equivalent unit conversion cost for May

Beg WIP 16,000
Started in May 100,000
Completed in May 92,000
Ending inventory 24,000

beg inv was 20% complete. Ending inventory was 40% complete.

Beg costs are 35,560
cost incurred are 574,040

Answer 30

6.00