BEC MCQ - Wrong Questions

Question 1

Primary benefits of globalization for companies would include all of the following except:

A.
the growing ability to capture the benefits of global labor arbitrage created as new technologies have allowed production to be shifted geographically to take advantage of low-cost labor.

B.
the increased demand for raw materials and infrastructure development that has dramatically increased the demand for many nonrenewable resources.

C.
increasing capital flows that transfer savings from countries where the marginal product of capital is low to those where it is high, resulting in increasing world output.

D.
the recipients of foreign direct investment now having access to new research, technology, and skills.

Answer 1

Answer: B

The increased demand for products and infrastructure development in the emerging economics has been a mixed blessing in the sense that companies that engage in providing nonrenewable resources have benefited. However, the users of these resources have seen significant increases in their cost of materials that has eroded company profit margins.

Globalization has allowed for new technologies to be effectively utilized in areas where low-cost labor is available; allowed for foreign direct investment to bring new technology and labor market skills to underdeveloped areas; and caused capital to flow to areas where its marginal product is higher, resulting in increased world output.

Question 2

Your firm has recently converted its purchasing cycle from a manual process to an online computer system. Which of the following is a probable result associated with conversion to the new automated system?

A.
Processing errors are increased.

B.
The nature of the firm’s risk exposure is reduced.

C.
Processing time is increased.

D.
Traditional duties are less segregated.

Answer 2

Answer: D

Conversion to automated data processing usually reduces the existing segregation of duties because the computer combines many functions which previously could have been performed by separate persons. Thus, an individual with access to the various computer functions could perform incompatible duties.

Conversion to automated data processing usually reduces processing errors, has little or no effect on the types of risk to which the firm is exposed, and usually reduces processing time.

Question 3

What is an inferior good?

Answer 3

An inferior good is a good that when the Income rises, the demand for that good decreases.

Example: When Income increases, the demand for Mac and Cheese decreases because I can now afford a steak.

Question 4

What is a normal good?

Answer 4

A normal good is when Income rises, so does the demand for that good.

Example: When income rises, the demand for a bigger house increases.

Question 5

What is a complimentary good?

Answer 5

It is a good that when the price of one good increases, the complimentary good decreases.

Example: The price for hamburgers goes up, then the demand for hamburger buns decreases.

Question 6

Which of the following is responsible for authorizing and recording transactions and for correcting errors?

A.
Data control group

B.
Computer operators

C.
Security management

D.
Users

Answer 6

Answer: D

Users authorize and record transactions, use system output, and are responsible for correcting errors.

The data control group logs data inputs, processing, and outputs, and makes sure that transactions have been authorized. They do not authorize or record transactions themselves.
Computer operators maintain and run daily computer operations.
Security management is responsible for preventing unauthorized physical and logical access to the system.

Question 7

The Bytax Company and the Tytax Company are both members of the same multinational corporation (MNC). The Bytax Company has a home-country 50% tax rate and the Tytax Company has a home-country 20% income tax rate. The Bytax Company desires to purchase a component part from the Tytax Company. An acceptable range for the transfer price has been established to be between $300 and $600 per unit. The following statement is true regarding the optimal transfer price:

A.
The Bytax Company as well as the MNC will maximize earnings by setting the transfer price at $300 per unit.

B.
The Bytax Company as well as the MNC will maximize earning by setting the transfer price at $600 per unit.

C.
The Tytax Company as well as the MNC will maximize earnings by setting the transfer price at $300 per unit.

D.
The Tytax Company as well as the MNC will maximize earning by setting the transfer price at $600 per unit.

Answer 7

Answer: D

The Bytax Company (purchasing subsidiary) will maximize earnings by having the transfer price set at the lowest possible price. The Tytax Company (selling subsidiary) will maximize earning by having the transfer price set at the highest possible price. The multinational corporation (MNC) will benefit by having the higher income shifted to the Company with the lowest home-country tax rate; therefore, the Tytax Company as well as the MNC will maximize earning by setting the transfer price at $600 per unit since the Tytax Company has the lower home-country tax rate of 20%.

Question 8

What is the primary objective of data security controls?

A.
To establish a framework for controlling the design, security, and use of computer programs throughout an organization

B.
To ensure that storage media are subject to authorization prior to access, change, or destruction

C.
To formalize standards, rules, and procedures to ensure the organization’s controls are properly executed

D.
To monitor the use of system software to prevent unauthorized access to system software and computer programs

Answer 8

Answer: B

Data processing and storage controls ensure all transactions are processed as authorized, no authorized transactions were omitted, and no unauthorized transactions were added; the controls also safeguard stored data. Only the answer choice “to ensure that storage media are subject to authorization prior to access, change, or destruction” refers to controlling the data.

The answer choice “To establish a framework for controlling the design, security, and use of computer programs throughout an organization” is incorrect because it describes controls over computer software, not data security. “To formalize standards, rules, and procedures to ensure the organization’s controls are properly executed” describes the monitoring of internal controls, not data security. “To monitor the use of system software to prevent unauthorized access to system software and computer programs” describes access controls to the system, not data security controls.

Question 9

In the modern world economy, balance-of-payments deficits and surpluses can be eliminated:

A.
through the market mechanism of flexible exchange rates.

B.
if all nations adopt tight monetary policies.

C.
when the opportunity costs of production are made the same in all countries.

D.
if nations trade inputs instead of outputs

Answer 9

Answer: A

Flexible exchange rates automatically adjust so as to eliminate balance of payments surpluses and deficits. In the case of a deficit, the supply of the home currency and demand for the foreign currency increase. This causes the home currency to depreciate against the foreign currency. Hence the home country’s goods become cheaper relative to foreign goods and the country’s exports increase and imports decrease, eventually eliminating the deficit.

Question 10

A system where several minicomputers are connected for communication and data transmission purposes, but where each computer can also process its own data, is known as a:

A.
distributed data processing network.

B.
centralized network.

C.
decentralized network.

D.
multidrop network.

Answer 10

Answer: A

Distributed data processing is a network of interdependent computers where certain functions are centralized and other functions are decentralized and processing is shared among two or more computers. In a distributed data processing network, each computer can also process its own data. Distributed data processing is an alternative to both centralization and decentralization.

Question 11

The primary sources of funds for sovereign wealth funds would be:

A.
the export earnings that are driven by government policies designed to have a strong currency.

B.
the Central Bank in an attempt to sterilize the inflationary impact of the inflow of foreign exchange reserves on the money supply of the country.

C.
earnings from commodity-based exports and trade surpluses driven by the export of manufactured goods.

D.
foreign direct investment attracted by donor governments that hope to gain political leverage by making such investments.

Answer 11

Answer: C

The primary sources of funds for sovereign wealth funds are export earnings from commodity (energy)-based exports and the trade surplus generated by the export of manufactured goods. The trade surplus is often tied to the country having a weak currency that causes a country’s goods and services to be priced lower in terms of a foreign currency.

Additionally, increases in commodity prices have shifted the terms-of-trade in favor of nations exporting goods from extractive- and commodity-based industries.

Question 12

When implicit costs are greater than zero and economic profits in an industry equal zero:

A.
resources will be unproductive if they remain in the industry.

B.
there will be no production in the short run.

C.
resources will move to other industries

D.
accounting profits will be greater than zero.

Answer 12

Answer: D

A firm that earns a normal profit (zero economic profit) has revenue equal to total cost (explicit plus implicit costs). Economic profit is generally lower (never higher) than accounting profit due to the fact that implicit costs are included in the calculation of in economic profits.

Question 13

What is generally understood to be a central element of an MIS?

Answer 13

The use of decision models to organize data is a central element of MIS.

The management of data in an organized database is a central element of MIS.
Users of an MIS do not have to be computer experts to realize benefits.
The MIS concept is not based on computers, and consists of an organized federation of subsystems rather than a single, highly integrated system.

Question 14

Which of the following did not contribute to the decline in the demand for the dollar in the period 2002–2004?

A.
The large U.S. current account deficit

B.
Relatively high inflation rates in the U.S. compared to major trading partners during that period

C.
Relatively higher growth rates in the United States compared to those in Europe and Japan

D.
Strong foreign demand for U.S. government securities, stock and real assets during the period

Answer 14

Answer: D

Foreign demand for U.S. government securities, stock and real assets increase the demand for dollars and thus provided a partial offset to the impact of the increasing supply of dollars that were made available to purchase imports. Inflation rates in the U.S. were similar to or lower than those of most other countries during the period.

Question 15

What are the advantages of a decentralized data processing facility?

Answer 15

Some advantages of decentralized data processing facilities are:

decentralization increases direct access by users,
standalone capabilities are distributed to points of need,
participation is increased in designs and use, and
the ability to share computing power, which decreases the significance of system failure.

Question 16

A characteristic common to companies that have converted to a database system is that before conversion the companies had:

A.
a small computer system.

B.
an unreliable computer system.

C.
numerous files.

D.
redundant data fields.

Answer 16

Answer: D

The primary purpose of a database management system is to reduce data redundancy. None of the other answer choices should be considered as a reason for converting to a database system

Question 17

Which of the following is not a basic approach to allocating costs for costing inventory in joint-cost situations?

Sales value at split-off.
Flexible budget amounts.
Physical measures such as weights or volume.
Constant gross margin percentage net realizable value method.

Answer 17

Answer: Flexible budget amounts.

Explanation: The requirement is to identify the item that is not a basic approach to allocating costs for costing inventory in joint-cost situations. A flexible budget is one that is adjusted to the actual level of activity. It is not related to allocation of joint costs.

Question 18

In computing the reorder point for an item of inventory, which of the following is used?

I. Cost
II. Usage per day
III. Lead time

I and II.
II and III.
I and III.
I, II, and III.

Answer 18

Answer: II and III.

Explanation: The lead time multiplied by the usage per day expected during lead time yields the reorder point. The most common approach to setting the optimum safety-stock level is to examine previous lead time periods to determine the probabilities of running out of stock (a stockout) for different assessed levels of safety stock. Cost is used to determine the amount to be ordered, known as the economic order quantity, not when to reorder.

Question 19

Which of the following is not a principle related to the control environment?

A commitment to integrity and ethical values.

Individuals are held accountable for their control responsibilities.

A commitment to attract, develop, and retain competent individuals.

The organization identifies and assesses changes that could significantly affect internal control.

Answer 19

Answer: The organization identifies and assesses changes that could significantly affect internal control.

Explanation: It is a principle related to the risk assessment component

Question 20

A management accountant performs a linear regression of maintenance cost versus production using a computer spreadsheet. The regression output shows an “intercept” value of $322,897. How should the accountant interpret this information?

Y has a value of $322,897 when X equals zero.
X has a value of $322,897 when Y equals zero.
The residual error of the regression is $322,897.
Maintenance cost has an average value of $322,897.

Answer 20

Answer:
Y has a value of $322,897 when X equals zero

Explanation: The general form of the linear regression equation is y = a (the intercept) + bx. Therefore, when x equals 0, y is equal to a (the intercept).

Question 21

Which of the following is not a characteristic of a purely competitive market?

Differentiated products.
No significant control over product price exerted by individual firms.
No barriers to entry for new firms.
A very large number of producing firms.

Answer 21

Answer: Differentiated products.

Explanation: Product differentiation is not a characteristic of a purely competitive market. It is a characteristic of monopolistically competitive markets and may characterize an oligopolistic market.

Question 22

Which of the following is not required of corporations that are listed on the New York Stock Exchange (NYSE)?

External auditors must report directly to the audit committee of the board of directors.

One member of the audit committee of the board of directors must be a financial expert.

The principle executive officer must disclose all significant internal control deficiencies.

The chairman of the board of directors cannot also serve as the chief executive officer.

Answer 22

Answer: The chairman of the board of directors cannot also serve as the chief executive officer.

Explanation: This is not a requirement of the NYSE. Dodd-Frank indicates that a corporation must disclose why or why not the chairman is also the CEO.

Question 23

For a given level of tax collections, prices, and interest rates, a decrease in government purchases will result in a(n)

Increase in aggregate demand.
Increase in aggregate supply.
Decrease in aggregate demand.
Decrease in aggregate supply.

Answer 23

Answer: Decrease in aggregate demand.

Explanation: A decrease in the money supply directly causes interest rates to increase, therefore, an increase in interest rates causes aggregate demand to decrease.

Question 24

In choosing to invest in the project assume that Trayco’s marginal tax rate is 30% and all cash flows come at the end of the year. In evaluating the decision how is the additional investment in working capital considered?

Ignored because it will be recovered at the end of the investment.
As an adjustment to annual cash flows.
As an additional initial investment that will be recovered at the end of year 5.
As a deduction from the cost of the investment.

Answer 24

Answer: As an additional initial investment that will be recovered at the end of year 5.

Explanation: To properly evaluate the project the investment in working capital must be considered a part of the initial investment, and its recovery at the end of year 5 must be discounted back to its present value.

Question 25

Under the Net Realizable Method, how are by products considered in applying joint product costs?

Answer 25

Answer: The revenue earned from their sale is credited to Joint Costs incurred, either at the time of production or the time of sale.

ex. JC = 54,000
By product Value - 7,000
Additional splitoff cost is 3,000

Therefore, 54,000 - (Rev 7k- Cost 3k) = JC of 50k

Question 26

An expansionary [List A] policy will have [List B] effect on net exports.

List A List B

Fiscal A negative
Fiscal No
Monetary A negative
Monetary No

Answer 26

Answer: Fiscal / Negative

Explanation: An increase in governmental spending causes an increase in domestic interest rates and international capital inflows. These capital inflows cause the domestic currency to appreciate, which has a negative effect on net exports.

Question 27

Why would a firm generally choose to finance temporary assets with short-term debt?

Matching the maturities of assets and liabilities reduces risk.
Short-term interest rates have traditionally been more stable than long-term interest rates.
A firm that borrows heavily long-term is more apt to be unable to repay the debt than a firm that borrows heavily short-term.
Financing requirements remain constant.

Answer 27

Matching the maturities of assets and liabilities reduces risk.

Question 28

DJ Co. has a job-order cost system. The following debits (credits) appeared in the Work in Process account for the month of March:

March 1, balance	$12,000 
March 31, direct materials	40,000 
March 31, direct labor	30,000 
March 31, manufacturing overhead applied	27,000 
March 31, to finished goods	(100,000)

DJ Co. applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 101?

$2,250
$2,500
$4,250
$4,725

Answer 28

The requirement is to calculate the amount of direct materials charged to Job No. 101. To calculate the direct materials, you must first calculate the total costs charged to Job No. 101. Since it is the only job in process at the end of the month, its cost is equal to the amount of cost left in work in process (WIP) at year-end, or $9,000 ($12,000 beginning WIP + $40,000 direct materials + $30,000 direct labor + $27,000 overhead applied – $100,000 transferred out). If the amount of overhead applied to the job is $2,250 and overhead is applied at a rate of 90% of direct labor, direct labor charged to the job should be $2,500 ($2,250 ÷ 90%). Therefore, the direct materials charged to Job No. 101 must be $4,250 ($9,000 – $2,250 – $2,500).

Question 29

Typical product-costing systems synchronize the recording of accounting-system entries with the physical sequence of purchases and production. The alternative (which is normally used in high-speed automated environments) of delaying journal entries until after the physical sequences have occurred is referred to as

Backflush costing.
Direct costing.
Operation costing.
Process costing.

Answer 29

backflush costing

Question 30

What are subordinated debentures?

Answer 30

Debentures or loans that rank after other debts should a company fall into bankruptcy, meaning, they are the last to be paid out of all the debt.

Question 31

Which of the following is the primary reason that many auditors hesitate to use embedded audit modules?

A.
Embedded audit modules cannot be protected from computer viruses.

B.
Auditors are required to monitor embedded audit modules continuously to obtain valid results.

C.
Embedded audit modules can easily be modified through management tampering.

D.
Auditors are required to be involved in the system design of the application to be monitored.

Answer 31

Answer: D

An embedded audit module is coded into the information processing software, allowing the auditor to access real data. Often the routines search for unusual items as transactions are processed and report those items to the auditor. There is some danger of data contamination since the routines are working with real data. Also, the auditors must work closely with management in the design of the embedded audit module, which may affect their independence.

“Embedded audit modules cannot be protected from computer viruses” is incorrect because embedded audit modules can be protected from viruses in the same ways as other software, such as with effective firewalls. “Auditors are required to monitor embedded audit modules continuously to obtain valid results” is incorrect because embedded audit modules can accumulate information to be reviewed by the auditor periodically. “Embedded audit modules can easily be modified through management tampering” is incorrect because embedded audit modules can be protected with passwords and biometric controls in the same manner as other software components.

Question 32

An in-exchange premise as used when making a fair value calculation assumes that the maximum value of the item(s) being valued would come from:

A.
the current use of that item.

B.
using the item in its highest and best use.

C.
using that item in conjunction with other assets as a group.

D.
using the item alone.

Answer 32

Answer: B

Per FASB ASC 820, a fair value determination can use either an in-exchange or an in-use premise. An in-exchange premise assumes that the maximum value of the subject item would come from the purchaser’s perspective when the item is used alone. An in-use premise assumes that the maximum value of the subject item would come from the purchaser’s perspective when the item is used in conjunction with other assets as a group

Question 33

Whatney Co. is considering the acquisition of a new, more efficient press. The cost of the press is $360,000, and the press has an estimated 6-year life with zero salvage value. Whatney uses straight-line depreciation for both financial reporting and income tax reporting purposes and has a 40% corporate income tax rate. In evaluating equipment acquisitions of this type, Whatney uses a goal of a 4-year payback period. To meet Whatney’s desired payback period, the press must produce a minimum annual before-tax, operating cash savings of:

A.
$90,000.

B.
$110,000.

C.
$114,000.

D.
$150,000.

Answer 33

Payback period is the number years required to repay the initial investment in a capital project. A $360,000 capital investment would need an after-tax cash flow of $90,000 to meet the goal of a 4-year payback. The key to solving this problem involves remembering to consider the cash savings resulting from decreased taxes due to the depreciation expense. Note that the problem asks for the operating cash savings.

In this problem, operating cash savings would be total cash savings less nonoperating cash savings (e.g., cash savings from lower taxes). Annual depreciation on a $360,000 asset with an estimated 6-year life with zero salvage value using straight-line depreciation is $60,000. The tax savings generated by this depreciation is $60,000 times 40%, or $24,000. Now calculate after-tax operating cash savings: $90,000 - $24,000 = $66,000. However, the problem asks for before-tax operating cash savings, calculated as follows:

$66,000 ÷ (1 - Tax rate of 0.40) = $66,000 ÷ 0.60 = $110,000

Question 34

A systems program:

A.
manipulates application programs.

B.
employs complex mathematical algorithms.

C.
is used in systems analysis and design activities.

D.
manipulates transaction data in one of many applications.

Answer 34

Answer: A

By definition, systems software consists of programs that act on the instructions provided in application programs. Stated another way, a systems program manipulates application programs.

Question 35

What is the formula for Residual Income?

Answer 35

Net Operating Income - Interest on invested captial (capital x Imputed int rate)

Question 36

If a company requires a rate of return of 15% and has 500k available to invest and cannot raise capital, then what projects should be invested in?

Answer 36

Projects with the highest NPV

Question 37

In the cost of quality, liability claims are examples of

Prevention costs.
Appraisal costs.
Internal failure costs.
External failure costs.

Answer 37

External failure costs.

Liability claim costs are examples of costs incurred for products that do not meet requirements of the customer and have been shipped to the customer.

Internal failures occur when substandard products are produced but discovered before shipment to the customer.

Question 38

According to COSO, the use of ongoing and separate evaluations to evaluate the design and implementation of changes can best be accomplished in which of the following stages of the monitoring-for-change continuum?

Control baseline.
Change identification.
Change management.
Control revalidation/update.

Answer 38

Change management involves evaluating the design and implementation of changes and establishing a new baseline.

Question 39

Which of the following would lessen internal control in a computer processing system?

The computer librarian maintains custody of computer program instructions and detailed listings.

Computer operators have access to operator instructions and detailed program listings.

The control group is solely responsible for the distribution of all computer output.

Computer programmers write and debug programs which perform routines designed by the systems analyst.

Answer 39

Computer operators have access to operator instructions and detailed program listings.

computer operators who have access to detailed program listings have the opportunity to modify the programs.

Question 40

Encryption protection is least likely to be used in which of the following situations?

When transactions are transmitted over local area networks.

When wire transfers are made between banks.

When confidential data are sent by satellite transmission.

When financial data are sent over dedicated leased lines.

Answer 40

Various factors need to be considered. Encoding is important when confidential data are transmitted between geographically separated locations that can be electronically monitored. Although LANs may need encryption protection, the type of data and the described communication media make the other options appear more vulnerable.

Question 41

How do you calculate operating income margin?

Answer 41

Operating Margin = Operating Income / Net Sales

Question 42

The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the

Dual-rate allocation method.
Direct allocation method.
Step-down allocation method.
Reciprocal allocation method.

Answer 42

Reciprocal allocation method.

The linear algebra or reciprocal allocation method recognizes reciprocity among service departments by explicitly including the mutual services rendered among support departments.

Question 43

In statistical analysis, a weighted-average using probabilities as weights is the

Standard deviation.
Expected value.
Coefficient of variation.
Objective function.

Answer 43

Expected value.

Of the four alternatives only expected value uses probabilities as weights in determining the probability of outcome. Each possible outcome is multiplied by an appropriate weight (probability). These are then summed to determine the expected value.

Question 44

The Bread Company is planning to purchase a new machine which it will depreciate on a straight-line basis over a 10-year period. A full year’s depreciation will be taken in the year of acquisition. The machine is expected to produce cash flow from operations, net of income taxes, of $3,000 in each of the 10 years.; The accounting (book value) rate of return is expected to be 10% on the initial increase in required investment. The cost of the new machine will be

$12,000
$13,500
$15,000
$30,000

Answer 44

15,000

The accounting rate of return equals accounting net income over book value. The book value of the new machine would be its cost. The $3,000 cash flow net of income taxes does not reflect the 10% straight-line depreciation. The solutions approach is to set up a formula in which cost is equal to $3,000 minus depreciation (which is 10% of cost) divided by the 10% rate of return. The numerator is the expected increase in accounting income. The denominator is the capitalization rate, 10%. Solving the formula indicates that the cost of the machine is $15,000.

Cost = $3,000 – .10 (cost) .10
.10 cost = $3,000 – .10 cost
.20 cost = $3,000
Cost = $15,000

Question 45

What is another word for Direct Costing?

Answer 45

Variable Costing - Only the V COGS gets capitalized, where as under the Absorbtion Costing, both FCOGS and VCOGS gets capitalized to inventory.

Question 46

What is another word for Variable Costing?

Answer 46

Direct Costing

Question 47

A static budget contains which of the following amounts?

Actual costs for actual output.
Actual costs for budgeted output.
Budgeted costs for actual output.
Budgeted costs for budgeted output.

Answer 47

Budgeted costs for budgeted output.

Question 48

Which of the following statements is correct regarding variable costing and absorption costing income statements for a company that has no beginning inventory and whose production exceeds sales for the current period?

Net income is higher if absorption costing is used.

The ending inventory amount is lower if absorption costing is used.

The cost of goods sold amount is lower if absorption costing is used.

The selling and administrative expense is higher if absorption costing is used.

Answer 48

Net income is higher if absorption costing is used.

When production exceeds sales absorption net income exceeds variable cost net income. Under absorption costing fixed costs are carried over to the next period in inventory.

Question 49

The balanced scorecard generally uses performance measures with four different perspectives. Which of the following performance measures would be part of those used for the internal business processes perspective?

Cycle time.
Employee satisfaction.
Hours of training per employee.
Customer retention.

Answer 49

Cycle time.

Cycle time would be an important measure for the business processes perspective. It measures the time it takes to produce a product.

Question 50

An important benefit of an enterprise risk management system is

Alignment of shareholder returns with management returns.
Alignment of management risk taking with employee risk appetite.
Alignment of management risk taking with shareholder risk appetite.
Alignment of management risk taking with creditor risk appetite.

Answer 50

Alignment of management risk taking with shareholder risk appetite.

A major aspect of an enterprise risk management system is the alignment of management risk taking with shareholder risk appetite.

Question 51

In a daily computer run to update checking account balances and print out basic details on any customer’s account that was overdrawn, the overdrawn account of the computer programmer was never printed. Which of the following control procedures would have been most effective in detecting this fraud?

Use of the test-data approach by the author in testing the client’s program and verification of the subsidiary file.
Use of a running control total for the master file of checking account balances and comparison with the printout.
A program check for valid customer code.
Periodic recompiling of programs from documented source files, and comparison with programs currently in use.

Answer 51

Periodic recompiling of programs from documented source files, and comparison with programs currently in use.

This answer is correct because a periodic recompiling of the program from the original source files and comparison with the program currently in use would allow the auditor to detect the modification in the program that has permitted the fraud to occur.

Question 52

What is the formula for COGS MFG?

Answer 52

DL + DM+ MFG OH = COGS MFG

Question 53

Which of the following is a disadvantage of the internal rate of return as a method of evaluating investments?

Does not adjust for the time value of money.
Does not consider the profitability of the project.
Has limitations when evaluating mutually exclusive investments.
Its results are not intuitive.

Answer 53

Has limitations when evaluating mutually exclusive investments.

This answer is correct. IRR does have limitations when evaluating mutually exclusive investments.

Question 54

Which of the following types of budgets is the last budget to be produced during the budgeting process?

Cash.
Capital.
Cost of goods sold.
Marketing.

Answer 54

Cash

The last type of budget to be produced is the cash budget. A cash budget cannot be prepared until all other budgets are completed.

Question 55

The four components of time series data are secular trend, cyclical variation, seasonality, and random variation. The seasonality in the data can be removed by:

A.
multiplying the data by a seasonality factor.

B.
taking the weighted average over four time periods.

C.
subtracting a seasonality factor from the data.

D.
adding a seasonality factor to the data.

Answer 55

taking the weighted average over four time periods.

Seasonality in data may be removed by calculating a weighted average of the data for the four seasonal (quarterly) time periods. This provides a representative annual value which is free of seasonal influence.

Question 56

All activity related to a particular application in a manual system is recorded in a journal. The name of the corresponding item in a computerized system is a:

A.
master file.

B.
year-to-date file.

C.
transaction file.

D.
current balance file.

Answer 56

C.
transaction file.

A transaction file is the file of original entry and hence, corresponds to manual journal.

A master file is a list of all accounts and required information (records) for an application. This is similar to a ledger in a manual system.
A year-to-date file is an accumulated transaction file from the beginning of a fiscal year.
A current balance file shows some account information including and focusing on the current balance.

Question 57

Midwest Fabricators is building a corporate planning model to predict cash flows. The company maintains end-of-month inventories that cover 20% of the following month’s sales. Merchandise costs average 55% of selling prices, and payment is made at the time of purchase. If S(n) = Sales in month(n), an appropriate notation for total monthly cash payments for merchandise purchases in month(n) would be:

A.
0.11S(n+1).

B.
0.11S(n-1).

C.
0.44S(n) + 0.11S(n+1).

Answer 57

C.
0.44S(n) + 0.11S(n+1).

A model is a representation of the interrelationship between sets of data, converting constants and independent variables (often estimated) into a mathematical formula to determine (estimate) a useful approximation of the dependent variable. Here, cash flows is the variable dependent upon sales (S) and inventory levels (I) and the cost of inventory (COG).

If S(n) = sales in month(n), then the following month’s sales = S(n+1). Then, End-Of-Month inventory (EOMI) = 20% of S(n+1) or 0.20S(n+1). Thus, required purchases for month(n) (Sales converted into Cost of Inventory (COG)) = (80%S(n) + 20% × (n+1)) × average COG of 55%.

Since payment is made at the time of purchase, in a given month cash is needed to pay for 80% of that month’s sales (since 20% was purchased the preceding month for EOM - I) plus 20% of the next month’s sales. Thus, an appropriate notation for total monthly cash payments for merchandise purchases in month(n) would be:

  (COG% x Required Purchases) + (COG% x EOM Inventory)
= (0.55 x  0.80S(n)) + (0.55 x 0.20S(n+1)) = 0.44S(n) + 0.11S(n+1)

Question 58

Which of the following did not contribute to the decline in the demand for the dollar in the period 2002–2004?

A.
The large U.S. current account deficit

B.
Relatively high inflation rates in the U.S. compared to major trading partners during that period

C.
Relatively higher growth rates in the United States compared to those in Europe and Japan

D.
Strong foreign demand for U.S. government securities, stock and real assets during the period

Answer 58

D.
Strong foreign demand for U.S. government securities, stock and real assets during the period

Foreign demand for U.S. government securities, stock and real assets increase the demand for dollars and thus provided a partial offset to the impact of the increasing supply of dollars that were made available to purchase imports. Inflation rates in the U.S. were similar to or lower than those of most other countries during the period.

Question 59

Mutual interdependence means that:

A.
each firm is an oligopolistic industry produces a product that is a close substitute for those produced by rival firms.

B.
when a monopolist chooses a price for its product, the quantity it will produce is dependent on the demand curve the firm faces.

C.
each firm in an oligopolistic industry must consider the reactions of its rivals when it makes decision concerning how to price its product.

D.
when a monopolistic competitive firm chooses the type of product differentiation to pursue, it is dependent on the desires and whims of the consumer.

Answer 59

C.

The term “mutual interdependence” relates to the fact that the outcome of pricing decisions in an oligopoly is dependent upon the reactions of organization’s rivals.

Question 60

Which of the following set of economic variables or factors would not be characteristic of emerging market economies?

A.
Low-cost labor and high savings rates

B.
Large currency reserves and high investment in infrastructure

C.
High debt-to-GDP (gross domestic product) ratios and decreasing trade among and between emerging market countries

D.	 	
Significant growth in the number of middle-class consumers and improving supply-chain effectiveness

Answer 60

Answer: C

Some of the key characteristics of emerging market economies include low debt-to-GDP ratios, a significant increase in trade among and between emerging market economies, low-cost labor, high savings rates, large currency reserves, and high investment in infrastructure.

In addition, most emerging market economies are experiencing rapid growth in the number of middle-class consumers while many are improving supply-chain linkages in an attempt to capture more of value-added costs during the production process.

Question 61

What is the formula for the Profitability Index?

Answer 61

(NPV+Initial Investment) / Initial Investment

Question 62

Which of the following is not an integrating mechanism?

A.
General personnel systems

B.
General management systems

C.
Increasing coordination potential

D.
Reducing the need for coordination

Answer 62

Answer: A

Integrating mechanisms connect the information, tasks, and resources with the work groups in the organization. The major integrating mechanisms include:

general management systems,
increasing coordination potential, and
reducing the need for coordination.

Question 63

The payback reciprocal can be used to approximate a project’s:

A.
net present value.

B.
accounting rate of return if the cash flow pattern is relatively stable.

C.
payback period.

D.
internal rate of return if the cash flow pattern is relatively stable.

Answer 63

Answer: D

Payback reciprocal = 1/Payback period

Where:

Payback = Net cash invested/Annual cash inflow
If the cash flow pattern is relatively stable, the payback reciprocal number serves as a good approximation of a present value of an annuity table factor. Using the payback number and a PV of an Annuity table, it becomes a relatively simple matter to look up an interest rate corresponding to the appropriate number of years’ life of a project. This interest rate will be a close approximation of the internal rate of return.

Question 64

What is a relevant cost?

Answer 64

Relevant costs are those expected to differ among alternative future courses of action. They are also known as incremental costs or differential costs.

Question 65

Greater reliance of management on information systems increases the exposure to:

A.
unauthorized third-party access to systems.

B.
systematic programming errors.

C.
inadequate knowledge bases.

D.
business interruption.

Answer 65

Answer: D

Greater reliance of management on information systems increases the exposure to business interruption. As management relies more on information systems for crucial functions, system failures have the potential to interrupt business.

The exposure of unauthorized third-party access to systems is increased by the absence of adequate access controls to systems, not by greater reliance of management on information systems.
Systematic programming errors are the result of misspecification of requirements or lack of correspondence between specifications and programs, not of greater reliance of management on information systems.
Inadequate knowledge bases are a function of lack of care in building them; exposure does not result from greater reliance of management on information systems.

Question 66

In using regression analysis, which measure indicates the extent to which a change in the independent variable explains a change in the dependent variable?

A.
p-value

B.
r-squared

C.
Standard error

D.
t-statistic

Answer 66

answer: B

The coefficient of determination (r2) is a ratio that indicates the proportion of variance in the dependent variable determined by the independent variable using the regression equation.

Question 67

Which one of the following is a sales forecasting technique?

A.
Linear programming

B.
Exponential smoothing

C.
Queuing theory

D.
Cost-volume-profit analysis

Answer 67

Answer: B

Exponential smoothing is a statistical method that is useful as a sales forecasting technique. This forecasting procedure is a special type of weighted moving average: it is reverse geometric progression in which the effect of past events (in this case sales) is discounted based on some multiple so that the effect which the past event has on current projections decreases as the time since the event increases.

The other methods are not useful in forecasting sales:

Linear programming is a model for the allocation of scarce resources.
Queuing theory relates to the balancing of the cost of waiting with the cost of service; for example, the cost of lost sales resulting from long lines at the cash register versus the cost of opening another cash register.
Cost-volume-profit analysis is a model used to aid decision making relating to product lines, pricing of products, marketing strategy, and utilization of production facilities.