Practice Exam 8.12.23

Question 1

A company uses a standard costing system. At the end of the current year, the company provides the following overhead information:

What amount is the variable overhead efficiency variance?

A. $2,000 unfavorable.
B. $6,000 favorable.
C. $8,000 favorable.
D. $8,000 unfavorable.

Answer 1

C. $8,000 favorable.

Question 2

Which of the following configurations of elements represents the most complete disaster recovery plan?

A. Alternate processing site, backup and off-site storage procedures, identification of critical applications, test of the plan.
B. Off-site storage procedures, identification of critical applications, test of the plan.
C. Vendor contract for alternate processing site, backup procedures, names of persons on the disaster recovery team.
D. Vendor contract for alternate processing site, names of persons on the disaster recovery team, off-site storage procedures.

Answer 2

A. Alternate processing site, backup and off-site storage procedures, identification of critical applications, test of the plan.

Disaster recovery is the process of resuming normal information processing operations after the occurrence of a major interruption. Having an alternate processing site up and running, actively backing up data and storing it off-site, identifying critical applications, and testing the recovery plan is the most complete option given.

Question 3

Which of the following can be discovered using a data-mining process?

A. Data structure.
B. Previously unknown information.
C. Artificial intelligence.
D. Standard query reporting.

Answer 3

B. Previously unknown information.

Data mining examines large amounts of data to discover patterns in the data (i.e., unexpected relationships among data). Previously unknown information can be discovered using a data-mining process.

Question 4

In an e-commerce environment that requires that the information technology (IT) system be available on a continuous basis, more emphasis will be placed on which of the following aspects of the planning than in a traditional organization?

A. Maintain redundant systems for instant availability to assure the flow of transactions.
B. Assure that appropriate data backups are stored in an offsite location.
C. Maintain appropriate written source documents so the data can be re-entered if it is lost or compromised.
D. Review additional expenses to obtain the required amount of business interruption insurance coverage for the organization.

Answer 4

A. Maintain redundant systems for instant availability to assure the flow of transactions.

An information system that must be continuously available should be paralleled by sufficient redundancy that normal operations can be carried on even if the main system is out of service.

Question 5

Securing client-server systems is a complex task because of all of the following factors except

A. The number of access points.
B. Concurrent operation of multiple-user sessions.
C. The use of relational databases.
D. Widespread data access and update capabilities.

Answer 5

C. The use of relational databases.

Client-server systems do not necessarily use relational databases.

Question 6

All of the following are true statements about mission and vision statements except

A. The mission statement expands on the vision statement by communicating the organization’s goals and why it exists.
B. The goals outlined in the mission statement should provide guidance for the IT infrastructure to create a detailed strategic plan.
C. An IS strategic plan incorporates the organization’s vision and mission to ensure the strategy employed matches the needs of a single department.
D. The vision statement is the organization’s aspirations for what it intends to achieve over time.

Answer 6

C. An IS strategic plan incorporates the organization’s vision and mission to ensure the strategy employed matches the needs of a single department.

An IS strategic plan incorporates the organization’s vision and mission to ensure the strategy employed includes the needs of the business as a whole. Individual departments may function well in terms of their own goals but still not serve the goals of the organization.

Question 7

Fact Pattern: The following amounts pertain to Arp Co.’s manufacturing operations for March:

For the month of March, Arp’s prime costs were

A. $45,000
B. $75,000
C. $39,000
D. $69,000

Answer 7

B. $75,000

Prime costs consist of direct materials and direct labor. Direct labor is given as $30,000. The direct materials must be determined from the change in direct materials inventory, a decrease of $3,000 ($18,000 – $15,000), plus the $42,000 of purchases, or $45,000. Accordingly, the prime costs total $75,000 ($30,000 + $45,000).

Question 8

Which of the following statements is correct regarding financial decision making?

A. Opportunity cost is recorded as a normal business expense.
B. A strength of the payback method is that it is based on profitability.
C. Capital budgeting is based on predictions of an uncertain future.
D. The accounting rate of return considers the time value of money.

Answer 8

C. Capital budgeting is based on predictions of an uncertain future.

Capital budgeting is, by its nature, performed in an environment of uncertainty.

Question 9

Fact Pattern: A company reports the following account balances at year end:

For the year just ended, the company had a rate of return on common equity, rounded to two decimals, of

A. 58.06%
B. 31.21%
C. 71.68%
D. 67.50%

Answer 9

B. 31.21%

Question 10

Which of the following IT developments poses the least risk to organizational security?

A. Adoption of wireless technology.
B. Outsourcing of the IT infrastructure.
C. Use of public-key encryption.
D. Enterprise-wide integration of functions.

Answer 10

C. Use of public-key encryption.

Encryption is essential when electronic commerce is conducted over public networks, such as the Internet. Thus, the use of public-key encryption is a response to risk, not a source of risk.

Question 11

Selected costs associated with a product are as follows:

What amount is the total direct labor price variance?

A. $2,375 unfavorable.
B. $2,375 favorable.
C. $2,500 unfavorable.
D. $2,500 favorable.

Answer 11

B. $2,375 favorable.

The direct labor rate variance is calculated as follows: actual number of hours worked times the standard hourly rate minus the actual hourly rate. In this situation, the actual number of hours worked can be calculated by dividing the actual hourly rate into the total actual direct labor cost ($111,625 ÷ $23.50 = 4,750 actual labor hours).
Now the direct labor rate variance can be calculated: 4,750 hours worked × ($24.00 standard rate – $23.50 actual rate) = $2,375 favorable. Since the actual hourly rate is less than the standard hourly rate, the variance is favorable.

Question 12

A company headquartered in Vancouver, British Columbia, is building a pipeline for a company in Russia. The invoice amount is due in 90 days and is denominated at 28 million rubles. The Canadian dollar is trading for 28 rubles currently and 29 rubles 90 days forward. Which of the following strategies will the Canadian firm most likely pursue in the 90-day forward market to hedge the transaction exposure inherent in this situation?

A. Sell 29,000,000 rubles.
B. Sell 28,000,000 rubles.
C. Purchase 29,000,000 rubles.
D. Purchase 28,000,000 rubles.

Answer 12

B. Sell 28,000,000 rubles.

The Canadian company knows that it will be receiving 28,000,000 rubles in 90 days. The firm wants to ensure that it will be able to sell these rubles at that time for a certain number of Canadian dollars. The Canadian firm therefore hedges by selling 28,000,000 rubles in the 90-day forward market. The company is buying a guarantee that it will be able to sell a definite number of rubles in 90 days and receive a definite number of Canadian dollars in return, regardless of fluctuations in the exchange rate in the meantime.

Question 13

Projected monthly sales of Wallstead Corporation for January, February, March, and April are as follows:

Budgeted cash collections for Wallstead Company during April would be

A. $347,000
B. $349,300
C. $353,000
D. $343,300

Answer 13

D. $343,300

February’s gross sales ($51,000) and both components of March sales, those collected within the discount period ($370,000 × 98% × 50% = $181,300), and those collected after it ($370,000 × 30% = $111,000). Total April cash collections are therefore $343,300 ($51,000 + $181,300 + $111,000).

Question 14

Wilson Company uses a comprehensive planning and budgeting system. The proper order for Wilson to prepare certain budget schedules would be

A. Cost of goods sold, balance sheet, income statement, and statement of cash flows.
B. Income statement, balance sheet, statement of cash flows, and cost of goods sold.
C. Statement of cash flows, cost of goods sold, income statement, and balance sheet.
D. Cost of goods sold, income statement, balance sheet, and statement of cash flows.

Answer 14

D. Cost of goods sold, income statement, balance sheet, and statement of cash flows.

The cost of goods sold budget is an input for the pro forma income statement. The entire operating budget process must be completed before the pro forma balance sheet and statement of cash flows can be prepared.

Question 15

The use of blockchain technology makes it more difficult to falsify records because

A. The editing of information on the blockchain is required to be authorized by central authority.
B. Blocks are private to each owner and are read-only to other parties.
C. The original blockchain ledgers and the changes to the ledgers are transparent to participants.
D. Falsifying blockchain ledger will result in the automatic deletion of the corrupted chain.

Answer 15

C. The original blockchain ledgers and the changes to the ledgers are transparent to participants.

Under blockchain technology, editing of a chain is immediately obvious because the majority of the third parties have a different chain. Thus, if anyone tries to alter a previous transaction, the public can see that the ledger has been tampered with and is presumably wrong.

Question 16

Which of the following capital budgeting techniques implicitly assumes that the cash flows are reinvested at the company’s minimum required rate of return?

Answer 16

D. Net Present Value = Yes
Internal Rate of Return = No

The net present value method consists of discounting the after-tax cash flows over a project’s life using the company’s minimum required rate of return, so reinvestment is also assumed to be at this rate. The internal rate of return method assumes use of the internal rate of return.

Question 17

Which of the following statements most accurately describes the impact that automation has on the controls normally present in a manual system?

A. Transaction trails are more extensive in a computer-based system than in a manual system because a one-for-one correspondence always exists between data entry and output.
B. The quality of documentation becomes less critical in a computer-based system than it is in a manual system because data records are stored in machine-readable files.
C. Controls must be more explicit in a computer-based system because many processing points that present opportunities for human judgment in a manual system are eliminated.
D. Responsibility for custody of information assets is more concentrated in user departments in a computer-based system than it is in a manual system.

Answer 17

C. Controls must be more explicit in a computer-based system because many processing points that present opportunities for human judgment in a manual system are eliminated.

Using a computer does not change the basic concepts and objectives of control. However, the use of computers may modify the control techniques used. The processing of transactions may be combined with control activities previously performed separately, or control functions may be combined within the information system activity.

Question 18

Star Co. is a retail store specializing in contemporary furniture. The following information is taken from Star’s June budget:

What amount should Star budget for cash disbursements for June purchases?

A. $320,000
B. $340,000
C. $280,000
D. $260,000

Answer 18

B. $340,000

Question 19

Before sending or receiving electronic data interchange (EDI) messages, a company should

A. Reduce inventory levels in anticipation of receiving shipments.
B. Execute a trading partner agreement with each of its customers and suppliers.
C. Demand that all its suppliers implement EDI capabilities.
D. Evaluate the effectiveness of its use of EDI transmissions.

Answer 19

B. Execute a trading partner agreement with each of its customers and suppliers.

Before sending or receiving EDI messages, a company should execute a trading partner agreement with its customers and suppliers. All parties should understand their responsibilities, the messages each will initiate, how they will interpret messages, the means of authenticating and verifying the completeness and accuracy of messages, the moment when the contract between the parties is effective, the required level of security, etc.

Question 20

Fact Pattern:
Tom Co. provides plastic tools to the life science industry. The following information is related to Tom’s sales for the current year:

Using the given data, what is the sales volume variance?

A. None of the answers are correct.
B. $22,450, unfavorable.
C. $15,003, unfavorable.
D. $22,450, favorable.

Answer 20

B. $22,450, unfavorable.

The sales volume variance is the change in the contribution margin attributable solely to the difference between the actual and budgeted unit sales (if price is constant). The expected contribution margin is $224.50 ($350 expected sales price – $125.50 variable costs per unit). Thus, the unfavorable sales volume variance is $22,450 [$224.50 expected contribution margin × (1,000 expected unit sales – 900 actual unit sales)]. The actual unit sales are less than the expected unit sales, so the variance is unfavorable.

Question 21

The Maxwell Company’s cash budget for March includes the following information. This information concerns its accounts receivable:

Determine the estimated cash receipts from accounts receivable collections in March.

A. $248,000
B. $240,000
C. $255,000
D. $247,000

Answer 21

C. $255,000

Question 22

The performance audit report of an information technology department indicated that the department lacked a disaster recovery plan. Which of the following steps should management take first to correct this condition?

A. Designate a cold site.
B. Designate a hot site.
C. Bulletproof the information security architecture.
D. Prepare a statement of responsibilities for tasks included in a disaster recovery plan.

Answer 22

D. Prepare a statement of responsibilities for tasks included in a disaster recovery plan.

Contingency planning (business resiliency) is the name commonly given to the activity of maintaining data availability. Preparing a statement of responsibilities for tasks included in a disaster recovery plan is one of the steps in creating a disaster recovery plan for the information technology department.

Question 23

Flexible budgets

A. Are used to evaluate capacity use.
B. Accommodate changes in activity levels.
C. Provide for external factors affecting company profitability.
D. Are budgets that project costs based on anticipated future improvements.

Answer 23

B. Accommodate changes in activity levels.

A flexible budget conceptually is a series of budgets prepared for various levels of activity. A flexible budget adjusts the master budget for changes in activity so that actual results can be compared with meaningful budget amounts.

Question 24

A depreciation tax shield is

A. An after-tax cash outflow.
B. The expense caused by depreciation.
C. The cash provided by recording depreciation.
D. A reduction in income taxes.

Answer 24

D. A reduction in income taxes.

A tax shield is something that protects income from taxation. Thus, a depreciation tax shield is a reduction in income taxes due to the tax deductibility of depreciation.

Question 25

Increasing the efficiency of all phases of a given process is specifically discouraged by which of the following models?

A. Demand flow technology.
B. Theory of constraints.
C. Lean operation.
D. Six Sigma.

Answer 25

B. Theory of constraints.

Under the theory of constraints, increasing the efficiency of processes that are not constraints (bottlenecks) merely creates backup in the system.

Question 26

Which statement best describes total quality management (TQM)?

A. TQM emphasizes participation by all employees in the decision-making process.
B. TQM is the continuous pursuit of quality.
C. TQM implementation is quick and easy.
D. TQM emphasizes reducing the cost of inspection.

Answer 26

B. TQM is the continuous pursuit of quality.

TQM is the continuous pursuit of quality in every aspect of organizational activities through (1) a philosophy of doing it right the first time, (2) employee training and empowerment, (3) promotion of teamwork, (4) improvement of processes, and (5) attention to satisfaction of customers, both internal and external.

Question 27

Spoofing is one type of malicious online activity. Spoofing is

A. Trying large numbers of letter and number combinations to access a network.
B. Identity misrepresentation in cyberspace.
C. Accessing packets flowing through a network.
D. Eavesdropping on information sent by a user to the host computer of a website.

Answer 27

B. Identity misrepresentation in cyberspace.

Passwords, user account numbers, and other information may be stolen through spoofing. Spoofing is identity misrepresentation in cyberspace, for example, by using a false website to obtain information about visitors.

Question 28

Determining the appropriate level of working capital for a firm requires

A. Changing the capital structure and dividend policy for the firm.
B. Offsetting the profitability of current assets and current liabilities against the probability of technical insolvency.
C. Evaluating the risks associated with various levels of fixed assets and the types of debt used to finance these assets.
D. Maintaining short-term debt at the lowest possible level because it is ordinarily more expensive than long-term debt.

Answer 28

B. Offsetting the profitability of current assets and current liabilities against the probability of technical insolvency.

A company must maintain a level of working capital sufficient to pay bills as they come due. Failure to do so is technical insolvency and can result in involuntary bankruptcy. Unfortunately, holding current assets for purposes of paying bills is not profitable for a company because they usually offer a low return compared with longer-term investments. Thus, the skillful management of working capital requires a balancing of a firm’s desire for profit with its need for adequate liquidity.

Question 29

To ensure privacy in a public-key encryption system, knowledge of which of the following keys is required to decode the received message?

Answer 29

A. Private = Yes
Public = No

In a public-key system, the public key is used to encrypt the message prior to transmission. The private key is needed to decrypt (decode) the message.

Question 30

Arrow Co.’s master budget was prepared based on the following projections:

Arrow’s estimated cash disbursements for inventories are

A. $1,480,000
B. $920,000
C. $1,000,000
D. $1,400,000

Answer 30

A. $1,480,000

Projected cost of sales is 60% of $2,400,000 of sales, or $1,440,000. Projected purchases is the $1,440,000 cost of sales less $60,000 projected decrease in inventory which is $1,380,000. Projected cash payments is the projected purchases of $1,380,000 plus the $100,000 projected decrease in accounts payable, which is $1,480,000.