Final Exam Flashcards
- Feedback regarding previous actions may affect
a. future predictions.
b. implementation of the decision.
C. the decision model.
d. all of the above
d. all of the above
- Place the following steps from the five-step decision process in order:
A = Make predictions about future costs
B = Evaluate performance to provide feedback
C = Implement the decision
D = Choose an alternative
a. DCAB
b. CDAB
c. ADCB
d. DCBA
c. ADCB
The formal process of choosing between alternatives is known as a:
a relevant model.
b. a decision model.
с. an alternative model.
d. a prediction model
b. a decision model
For decision making, a listing of the relevant costs:
a. will help the decision maker concentrate on the pertinent data
b. will only include future costs.
c. will only include costs that differ among alternatives.
d. should include all of the above.
d. should include all of the above
Sunk costs
A. Are relevant
B. Are differential
C. Have future implications
D. Are ignored when evaluating alternatives
D. Are ignored when evaluating alternatives
A computer system installed last year is an example of:
A. A sunk cost
B. A relevant cost
C. A differential cost
D. An avoidable cost
A. A sunk cost
Costs that CANNOT be changed by any decision made now or in the future are
A. Fixed costs
B. Indirect costs
C. Avoidable costs
D. Sunk costs
D. Sunk costs
In evaluating different alternatives, it is useful to concentrate on
A. Variable costs
B. Fixed costs
C. Total costs
D. Relevant costs
D. Relevant costs
Which of the following costs always differ among future alternatives?
A. Fixed costs
B. Historical costs
C. Relevant costs
D. Variable costs
C. Relevant costs
Which of the following costs are never relevant in the decision-making process?
A. Fixed costs
B. Historical costs
C. Relevant costs
D. Variable costs
B. Historical costs
Quantitative factors
A. Include financial information, but not no financial information
B. Can be expressed in monetary terms
C. Are always relevant when making decisions
D. Include employee morale
B. Can be expressed in monetary terms
Qualitative factors
A. Generally are easily measured in quantitative terms
B. Are generally irrelevant for decision making
C. May include either financial or non financial information
D. Include customer satisfaction
D. Include customer satisfaction
Historical costs are helpful
A. For making future predictions
B. For decision making
C. Because they are quantitative
D. With none of the above
A. For making future predictions
When making decisions
A. Quantitative factors are the most important
B. Qualitative factors are the most important
C. Appropriate weight must be given to both quantitative and qualitative factors
D. Both quantitative and qualitative factors are unimportant
C. Appropriate weight must be given to both quantitative and qualitative factors
Employee morale at Dos Santos Inc is very high. This type of information is known as
A. A qualitative factor
B. A quantitative factor
C. A non measurable factor
D. A financial factor
A. A qualitative factor
Roberto owns a small body shop. His major costs include labor, parts and rent. In the decision making process, these costs are considered to be
A. Fixed
B. Qualitative factors
C. Quantitative factors
D. Variable
C. Quantitative factors
One time only special order should only be accepted if
A. Incremental revenues exceed incremental costs
B. Differential revenues exceed variable costs
C. Incremental revenues exceed fixed costs
D. Total revenues exceed total costs
A. Incremental revenues exceed incremental costs
When deciding to accept a one time special order from a wholesaler, management should do all except
A. Analyze product costs
B. Consider the special order’s impact on future prices of their product
C. Determine whether excess capacity is available
D. Verify past design costs for the product
D. Verify past design costs for the product
When there is excess capacity, it makes sense to accept a one time special order for less than the current selling price when
A. Incremental revenues exceed incremental costs
B. Additional fixed costs must be incurred to accommodate the order
C. The company placing the order is in the same market segment as your current customers
D. It never makes sense
A. Incremental revenues exceed incremental costs
The sum of all the costs incurred in a particular business function (for example, marketing) is called the
A. Business function cost
B. Full product cost
C. Gross product cost
D. Multi product cost
A. Business function cost
The sum of all costs incurred in all business functions in the value chain (product design, manufacturing, marketing and customer service for example) is known as the
A. Business cost
B. Full product cost
C. Gross product cost
D. Multi product cost
B. Full product cost
Problems that should be avoided when identifying relevant costs include all of the following except
A. Assuming all variable costs are relevant
B. Assuming all fixed costs are irrelevant
C. Using unit costs that do not separate variable and fixed components
D. Using total costs that separate variable and fixed components
D. Using total costs that separate variable and fixed components
The BEST way to avoid misidentification of relevant costs is to focus on
A. Expected future costs that differ among the alternatives
B. Historical future costs
C. Unit fixed costs
D. Total unit costs
A. Expected future costs that differ among the alternatives
Factors used to decide whether to outsource a part include
A. The supplier’s cost of direct materials
B. If the supplier is reliable
C. The original cost of equipment currently used for production of that part
D. Past design costs used to develop the current composition of the part
B. If the supplier is reliable
Relevant costs of a make or buy decision include all except
A. Fixed salaries that will not be incurred if the part is outsourced
B. Current director material costs of the part
C. Special machinery for the part that has no resale value
D. Material handling costs that can be eliminated
C. Special machinery for the part that has no resale value
Which of the following are risks of outsourcing the production of a part?
A. Unpredictable quality
B. Unreliable delivery
C. Unscheduled price increases
D. All of the above are risks of outsourcing
D. All of the above are risks of outsourcing
Which of the following minimize the risks of outsourcing?
A. The use of short term contracts that specify price
B. The responsibility for on time delivery is now the responsibility of the supplier
C. Building close relationships with the supplier
D. All of the above minimize the risks of outsourcing
C. Building close relationships with the supplier
- When evaluating a make-or-buy decision, which of the following does NOT need to be considered?
a. Alternative uses of the production capacity
b. The original cost of the production equipment
c. The quality of the supplier’s product
d. The reliability of the supplier’s delivery schedule
b. The original cost of the production equipment
- For make-or-buy decisions, a supplier’s ability to deliver the item on a timely basis is considered
a. a qualitative factor.
b. a relevant cost.
C. a differential factor.
d. an opportunity cost.
a. a qualitative factor
- The incremental costs of producing one more unit of product include all of the following EXCEPT
a. direct materials.
b. direct labor.
c. variable overhead costs.
d. fixed overhead costs
d. fixed overhead costs
- Unit cost data can MOST mislead decisions by
a. not computing fixed overhead costs.
b. computing labor and materials costs only.
c. computing administrative costs.
d. not computing unit costs at the same output level
d. not computing unit costs at the same output leve
- Direct materials $40, direct labor $10, variable overhead costs $30, and fixed overhead costs $20. In the short term, the incremental cost of one unit is
a. $30.
b. $50.
c. $80.
d. $100
c. $180
- Schmidt Sewing Company incorporates the services of Deb’s Sewing. Schmidt purchases pre-cut dresses from Deb’s. This is primarily known as
a. insourcing.
b. outsourcing.
c. relevant costing.
d. sunk costing
b. outsourcing
- Pearce Sign Company manufactures signs from direct materials to the finished product. This is considered
a. insourcing.
b. outsourcing.
c. relevant costing.
d. sunk costing.
a. insourcing
- Which of the following would NOT be considered in a make-or-buy decision?
a. Fixed costs that will no longer be incurred
b. Variable costs of production
C. Potential rental income from space occupied by the production area
d. Unchanged supervisory costs
d. Unchanged supervisory costs
- Relevant costs in a make-or-buy decision of a part include
a. setup overhead for the manufacture of the product using the outsourced part.
b. currently used manufacturing capacity that has alternative uses.
C. annual plant insurance costs that will remain the same.
d. corporate office costs that will be allocated differently
b. currently used manufacturing capacity that has alternative uses
- If Horsley Corporation doesn’t use one of its limited resources in the best possible way, the lost contribution to income could be called
a. a variable cost.
b. a fixed cost.
c. an opportunity cost.
d. a sunk cost.
c. an opportunity cost
- When a firm has constrained capacity as opposed to surplus capacity, opportunity costs will be
a. lower.
b. the same.
C. greater.
d. it varies
c. greater
- Opportunity costs
a. result in a cash outlay.
b. only are considered when selecting among alternatives.
C. are recorded in the accounting records.
d. should be maximized for the best decision
b. only are considered when selecting among alternatives
- Opportunity cost(s)
a. of a resource with excess capacity is zero.
b. should be maximized by organizations.
c. are recorded as an expense in the accounting records.
d. are most important to financial accountants
a. of a resource with excess capacity is zero
For make-or-buy decisions, relevant costs include
a. direct material costs plus direct labor costs.
b. incremental costs plus opportunity costs.
c. differential costs plus fixed costs.
d. incremental costs plus differential costs
b. incremental costs plus opportunity costs
- The opportunity cost of holding significant inventory includes
a. the interest forgone on an alternative investment.
b. additional insurance costs.
c. additional storage costs.
d. all of the above
a. the interest forgone on an alternative investment
- Determining which products should be produced when the plant is operating at full capacity is referred to as
a. an outsourcing analysis.
b. production scheduling analysis.
c. a product-mix decision.
d. a short-run focus decision
c. a product-mix decision
Product mix decisions
a. have a long-run focus.
b. help determine how to maximize operating profits.
c. focus on selling price per unit.
d. are all of the above
b. help determine how to maximize operating profits
- Constraints may include
a. the availability of direct materials in manufacturing.
b. linear square feet of display space for a retailer.
c. direct labor in the service industry.
d. all of the above
d. all of the above
- For determining the best mix of products, the one with the LEAST amount of influence is
a. the market price of the products.
b. corporate office costs allocated to each product.
c. the use of capacity resources.
d. contribution margins
b. corporate office costs allocated to each product
- In product-mix decisions,
a. always focus on maximizing total contribution margin.
b. focus on the product with the greatest contribution margin per machine-hour.
c. focus on the full costs of the product.
d. never focus on the short-term, but include only long-term considerations
a. always focus on maximizing total contribution margin
- When deciding whether to discontinue a segment of a business, managers should focus
on
a. equipment used by that segment that could become idle.
b. reallocation of corporate costs.
C. how total costs differ among alternatives.
d. operating income per unit of the discontinued segment
C. how total costs differ among alternatives
- When deciding whether to discontinue a segment of a business, relevant costs include all EXCEPT
a. fixed supervision costs that can be eliminated.
b. variable marketing costs per unit of product sold.
C. cost of goods sold.
d. future administrative costs that will continue
d. future administrative costs that will continue
- Discontinuing unprofitable products will increase profitability
a. if the resources no longer required by the discontinued product can be eliminated.
b. if capacity constraints are adjusted.
C. automatically.
d. when a large portion of the fixed costs are unavoidable
a. if the resources no longer required by the discontinued product can be eliminated.
- For machine-replacement decisions, depreciation is a cost that is
a. not relevant.
b. differential.
C. incremental.
d. variable.
a. not relevant
- Managers tend to favor the alternative that makes their performance look best. Therefore, they tend to focus on
a. how to implement the chosen alternative.
b. the measures used in the decision model.
c. the measures used in the performance evaluation model.
d. gathering the required information
c. the measures used in the performance evaluation model
- If management takes a multiple-year view in the decision model and judges success according to the current year’s results, a problem will occur in the
a. decision model.
b. performance evaluation model.
c. production evaluation model.
d. quantitative model
b. performance evaluation model
The three steps involved in linear programming include all of the following EXCEPT
a. determining the objective.
b. determining the basic relationship.
C. computing the optimal solution.
d. determining the relevant and irrelevant costs
d. determining the relevant and irrelevant costs
- In linear programming, the goals of management are expressed in
a. an objective function
b, constraints.
C. operating policies.
d. business functions
a. an objective function
- A mathematical inequality or equality that must be appeased is known as
a. an objective function,
b. a constraint.
c. an operating policy.
d. a business function
b. a constraint
- Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities?
a. Capital budgeting
b. Working capital
c. Master budgeting
d. Project-cost budgeting
a. capital budgeting
- The accounting system that corresponds to the project dimension in capital budgeting is the
a. net present value method.
b. internal rate of return.
c. accrual accounting rate of return.
d. life-cycle costing
d. life-cycle costing
- The stage of the capital budgeting process which distinguishes which types of capital expenditure projects are necessary to accomplish organization objectives is the
a. identification stage.
b. search stage.
c. information-acquisition stage.
d. selection stage
a. identification stage
- The stage of the capital budgeting process which explores alternative capital investments that will achieve organization objectives is the
a. identification stage.
b. search stage.
c. information-acquisition stage.
d. selection stage
b. search stage
- The stage of the capital budgeting process which chooses projects for implementation is the
a. selection stage.
b. search stage.
c. identification stage.
d. management-control stage
a. selection stage
- The stage of the capital-budgeting process in which projects get underway and performance is monitored is the
a. implementation and control stage.
b. search stage.
c. identification stage.
d. management-control stage
a. implementation and control stage
Capital budgeting emphasizes two factors
a. qualitative and nonfinancial.
b. quantitative and nonfinancial.
c. quantitative and financial
d. qualitative and financial
c. quantitative and financial
- Which of the following are NOT included in the formal financial analysis of a capital budgeting program?
a. Quality of the output
b. Safety of employees
c. Cash flow
d. Neither (a) nor (b) are included
d. Neither (a) nor (b) are included
- Which capital budgeting technique(s) measure all expected future cash inflows and outflows as if they occurred at a single point in time?
a. Net present value
b. Internal rate of return
c. Payback
d. Both (a) and (b).
d. both (a) and (b)
- Discounted cash flow methods for capital budgeting focus on
a. cash inflows.
b. operating income.
c. cash outflows.
d. both (a) and (c).
d. both (a) and (c)
- Net present value is calculated using
a. the internal rate of return.
b. the required rate of return.
c. the rate of return required by the investment bankers.
d. none of the above
b. the required rate of return
- All of the following are methods that aid management in analyzing the expected results of capital budgeting decisions EXCEPT
a. accrual accounting rate-of-return method.
b. discounted cash-flow method.
c. future-value cash-flow method.
d. payback method
c. future-value cash-flow method
- The capital budgeting method which calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return is the
a. payback method.
b. accrual accounting rate-of-return method.
c. sensitivity method.
d. net present value method
d. net present value method
- In using the net present value method, only projects with a zero or positive net present value are acceptable because
a. the return from these projects equals or exceeds the cost of capital.
b. a positive net present value on a particular project guarantees company profitability.
c. the company will be able to pay the necessary payments on any loans secured to finance the project.
d. of both (a) and (b
a. the return from these projects equals or exceeds the cost of capital.
- Which of the following is NOT an appropriate term for the required rate of return?
a. Discount rate
b. Hurdle rate
c. Cost of capital
d. All of the above are appropriate terms
d. all of the above are appropriate terms
- Which of the following results of the net present value method in capital budgeting is the LEAST acceptable?
a. $(10,000)
b. $(7,000)
c. $(18,000)
d. $0
c. $(18,000)
- The definition of an annuity is
a. similar to the definition of a life insurance policy.
b. a series of equal cash flows at intervals.
c. an investment product whose funds are invested in the stock market.
d. both (a) and (b) are correct
b. a series of equal cash flows at intervals
The net present value method focuses on
a. cash inflows.
b. accrual-accounting net income.
c. cash outflows.
d. both (a) and (c).
d. both (a) and (C)
- If the net present value for a project is zero or positive, this means
a. the project should be accepted.
b. the project should not be accepted.
c. the expected rate of return is below the required rate of return.
d. both (a) and (c).
a. the project should be accepted
- The capital budgeting method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows is the
a. net present value method.
b. accrual accounting rate-of-return method.
c. payback method.
d. internal rate of return
d. internal rate of return
- In capital budgeting, a project is accepted only if the internal rate of retum
a. equals or exceeds the required rate of return.
b. equals or is less than the required rate of return.
c. equals or exceeds the net present value.
d. equals or exceeds the accrual accounting rate of return
a. equals or exceeds the required rate of return.
- An important advantage ofthe net present value method of capital budgeting over the internal rate-of-return method is
a. the net present value method is expressed as a percentage.
b. the net present values of individual projects can be added to determine the effects of accepting a combination of projects.
c. no advantage.
d. both (a) and (b
b. the net present values of individual projects can be added to determine the effects of accepting a combination of projects
- In situations where the required rate of return is not constant for each year of the project, it is advantageous to use
a. the adjusted rate-of-return method.
b. the internal rate-of-return method.
c. the net present value method.
d. sensitivity analysis
c. the net present value method
- A “what-if’ technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes is called
a. sensitivity analysis.
b. net present value analysis.
c. internal rate-of-return analysis.
d. adjusted rate-of-return analysis
a. sensitivity analysis
- The focus in capital budgeting should be on
a. the tax consequences of different investment strategies.
b. the internal rate of return of different strategies.
c. expected future cash flows that differ between alternatives.
d. none of the above
c. expected future cash flows that differ between alternatives
- All of the following are major categories of cash flows in capital investment decisions EXCEPT
a. the initial investment in machines and working capital.
b. recurring operating cash flows.
c. the initial working capital investment
d. depreciation expense reported on the income statement
d. depreciation expense reported on the income statement
- An example of a sunk cost in a capital budgeting decision for new equipment is
a. increase in working capital required by a particular investment choice.
b. the book value of the old equipment.
c. the necessary transportation costs on the new equipment.
d. all of the above are examples of sunk costs
b. the book value of the old equipment
- Depreciation is usually not considered an operating cash flow in capital budgeting because
a. depreciation is usually a constant amount each year over the life of the capital investment.
b. deducting depreciation from operating cash flows would be counting the lumpsum amount twice.
c. depreciation usually does not result in an increase in working capital.
d. depreciation usually has no effect on the disposal price of the machine
b. deducting depreciation from operating cash flows would be counting the lumpsum amount twice
- The relevant terminal disposal price of a machine equals
a. the difference between the salvage value of the old machine and the ultimate salvage value of the new machine.
b. the total of the salvage values of the old machine and the new machine.
c. the salvage value of the old machine.
d. the salvage value of the new machine.
a. the difference between the salvage value of the old machine and the ultimate salvage value of the new machine
- The method that measures the time it will take to recoup, in the form of future cash inflows, the total dollars invested in a project is called
a. the accrued accounting rate-of-return method.
b. payback method.
c. internal rate-of-return method.
d. the book-value method
b. payback method
- The payback method of capital budgeting approach to the investment decision highlights
a. cash flow over the life of the investment.
b. the liquidity of the investment.
c. the tax savings of the depreciation amounts.
d. having as lengthy payback time as possible
b. the liquidity of the investment
- For capital budgeting decisions, the use of the accrual accounting rate of return for evaluating performance is often a stumbling block to the implementation of the
a. net cash flow.
b. most effective goal-congruence choice.
c. discounted cash flow method for capital budgeting.
d. most effective tax strategy
d. most effective tax strategy
- In the analysis of a capital budgeting proposal, for which of the following items are there no after-tax consequences?
a. Cash flow from operations
b. Gain or loss on the disposal of the asset
c. Reduction of working capital balances at the end of the useful life of the capital asset
d. There are no after-tax consequences of any of the above
c. Reduction of working capital balances at the end of the useful life of the capital asset
- Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as
a. the audit trail.
b. management control.
c. a postinvestment audit.
d. a cost-benefit analysis
c. a postinvestment audit
- A capital budgeting tool management can use to summarize the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as
a. the accrual accounting rate-of-return method.
b. the net present value method.
c. sensitivity analysis
d. the payback method
b. the net present value method
- Match each one of the examples below with one of the stages of the capital budgeting decision model.
Stages: - Identification
- Search
- Information-acquisition
- Selection
- Financing
- Implementation and control
a. Issuing corporate stock in order to supply the funds to purchase new equipment
b. Learning how to effectively operate Machine #8 only takes 15 minutes
c. The need to reduce the costs to process the vegetables used in producing goulash
d. Monitoring the costs to operate a new machine
e. Percentage of defective merchandise considered too high
f. Will introducing the new product substantially upgrade our image as a producer of quality products
g. Research indicates there are five machines on the market capable of producing our product at a competitive cost
h. Utilization of the internal rate of return for each alternative
a. Financing
b. Information-acquisition
c. Identification
d. Implementation and control
e. Identification
f. Information-acquisition
g. Search
h. Selection
