Practice Exam 6.20.23 Flashcards
Charlie’s Service Co. is an automobile service center. Charlie’s had the following operating statistics for Year 6:
Charlie’s has a
A. Return on investment of 6.67%.
B. Return on investment of 8%.
C. Residual income of $(6,000).
D. Residual income of $(10,000).
C. Residual income of $(6,000).
Residual income is the excess of operating income (a pretax amount) over a targeted amount equal to an imputed interest charge on invested capital. Using total assets available as the investment base, Charlie’s targeted amount is $56,000 ($700,000 total assets × 8% cost of capital). Subtracting this amount from operating income results in residual income of $(6,000).
The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is not one of the perspectives on the business into which critical success factors are commonly grouped in the balanced scorecard?
A. Employee innovation and learning.
B. Financial performance.
C. Internal business processes.
D. Competitor business strategies.
D. Competitor business strategies.
A typical balanced scorecard classifies critical success factors and measures into one of four perspectives on the business: financial, customer satisfaction, internal business processes, and learning and growth.
An investor is comparing the options to lease or directly purchase an asset (without borrowing). Using the symbols below, which expression indicates that an investor is indifferent between the two options?
A. P = L + [(D + I) × T] + S × (1 – T)
B. P = L + [(D + I) × T]
C. P = L + (I × T)
D. P = L
C. P = L + (I × T)
Relevant cash flows for a finance lease include (1) the lease payments or loan payments, (2) the depreciation tax shield, (3) tax savings on interest expense, and (4) after-tax cash flows from the salvage value received from the sale of the asset. Relevant cash flows for a direct purchase without borrowing include (1) the purchase price of the asset, (2) the depreciation tax shield, and (3) the after-tax salvage value of the asset. The relevant cash flows of the two options differ with respect to the tax savings on interest expense, the purchase price of the asset, and the lease payments. An investor is indifferent when the purchase price of the asset (P) equals the sum of (1) the present value of the lease payments (L) and (2) the tax savings on interest expense (I × T).
Lowe Co. manufactures products A and B from a joint process. Sales value at split-off was $700,000 for 10,000 units of A and $300,000 for 15,000 units of B. Using the sales value at split-off approach, joint costs properly allocated to A were $140,000. Total joint costs were
A. $98,000
B. $233,333
C. $200,000
D. $350,000
C. $200,000
The relative sales value is a cost allocation method that allocates joint costs in proportion to the relative sales value of the individual products. Total sales value is $1,000,000 ($700,000 for A + $300,000 for B). The $140,000 of joint costs allocated to product A was 70% ($700,000 ÷ $1,000,000) of total joint costs. The calculation for total joint costs (Y) is
When import quotas are imposed on a product, which of the following will occur?
B. Decrease Decrease No Change
Import quotas set limits on different products. In the short run, import quotas improve a country’s balance of payments by decreasing foreign outflow payments. Workers are shifted from relatively efficient export industries into less efficient protected industries. Real wages decline as a result, as does total world output. Under a quota, prices increase as a result of the induced shortage and the excess is paid to the exporter in the foreign country.
Which of the following is a responsibility of the IT steering committee of a company?
A. Determining how an application system should be designed.
B. Overseeing the control over the information systems.
C. Developing information systems.
D. Implementing IT policies.
B. Overseeing the control over the information systems.
The roles and responsibilities of the IT steering committee include (1) engaging high-level management in planning information systems and setting IT policies, (2) facilitating the implementation of information systems, and (3) overseeing the control over the information systems.
The following information is available on market interest rates:
What is the market rate of interest on a 1-year U.S. Treasury bill?
A. 6%
B. 7%
C. 5%
D. 3%
D. 3%
The total return on a U.S. Treasury security consists of the risk-free rate of interest plus an inflation premium. In practice, the safest investment in the world has been U.S. Treasury Securities. While there is some risk in these investments, they have been regarded as the risk-free rate when used in a CAPM analysis. Therefore, the nominal rate of U.S. Treasuries is often used in practice as the risk-free rate in the CAPM analysis.
An automobile parts manufacturer has received complaints about declining quality from customers. After a quick review, management realizes the problem has no single source. To perform a thorough process of problem identification, the most appropriate tool is a(n)
A. Pareto diagram.
B. ISO 9000 audit.
C. Fishbone diagram.
D. Histogram.
C. Fishbone diagram.
A fishbone diagram (also called a cause-and-effect diagram) is a total quality management process improvement technique. It is useful in studying causation (why the actual and desired situations differ). This format organizes the analysis of causation and helps to identify possible interactions among causes.
Information technology (IT) strategy is determined by
A. Individual department needs.
B. Business needs.
C. Competitors’ strategies.
D. The technology available.
B. Business needs.
Information systems (IS) and IT are vital to the successful implementation of an organization’s strategy. IT strategy should be driven by the business needs and not by the functions of available technology when formulating a plan to achieve goals.
Fact Pattern: Superflite expects April sales of its deluxe model airplane, the C-14, to be 402,000 units at $11 each. Each C-14 requires three purchased components shown below.
Assume Superflite plans to manufacture 400,000 units in April. Superflite’s April budget for the purchase of A-9 should be
A. 412,000 units.
B. 388,000 units.
C. 379,000 units.
D. 402,000 units.
B. 388,000 units.
Each of the 400,000 units to be produced in April will require one unit of A-9, a total requirement of 400,000 units. In addition, ending inventory is expected to be 9,000 units. Thus, 409,000 units must be supplied during the month. Of these, 21,000 are available in the beginning inventory. Subtracting the 21,000 beginning inventory from 409,000 leaves 388,000 to be purchased.
The most critical aspect of separation of duties within information systems is between
A. Management and users.
B. Project leaders and programmers.
C. Programmers and computer operators.
D. Programmers and systems analysts.
C. Programmers and computer operators.
The computer operator should not be assigned programming responsibility and have the opportunity to make changes in programs as (s)he operates the equipment. In general, achieving control through separation of duties in the computer department requires that computer personnel have no access to assets and that access to computer operation, possession of files, and development of program logic be strictly separated.
A company with many branch stores has decided to benchmark one of its stores for the purpose of analyzing the accuracy and reliability of branch store financial reporting. Which one of the following is the most likely measure to be included in a financial benchmark?
A. High turnover of employees.
B. High amount of credit loss write-offs.
C. High number of suppliers.
D. High level of employee participation in setting budgets.
B. High amount of credit loss write-offs.
High credit loss (bad debt) write-offs could indicate fraud, which compromises the accuracy and reliability of financial reports. Credit loss (bad debt) write-offs may result from recording fictitious sales.
