Practice Exam 8.15.23

Question 1

Environmental scanning with the use of the Internet is

A. A process that systematically surveys and interprets relevant data to identify external opportunities and threats.
B. A structured planning method that evaluates the strengths, weaknesses, opportunities, and threats of a project or business venture.
C. A framework that analyzes the level of competition within an industry and business strategy development.
D. An analysis of structured, semi-structured, and unstructured data that can be mined to reveal relationships and dependencies or to predict outcomes and behaviors.

Answer 1

A. A process that systematically surveys and interprets relevant data to identify external opportunities and threats.

Environmental scanning with the use of the Internet is a process that systematically surveys and interprets relevant data to identify external opportunities and threats.

Question 2

Swan Company is a maker of men’s slacks. The company would like to maintain 20,000 yards of fabric in ending inventory. The beginning fabric inventory is expected to contain 25,000 yards. The expected yards of fabric needed for sales is 90,000. Compute the yards of fabric that Swan needs to purchase.

A. 135,000
B. 85,000
C. 95,000
D. 90,000

Answer 2

B. 85,000

Question 3

In an income statement prepared as an internal report using the variable costing method, variable selling and administrative expenses are

A. Used in the computation of operating income but not in the computation of the contribution margin.
B. Used in the computation of the contribution margin.
C. Treated the same as fixed selling and administrative expenses.
D. Not used.

Answer 3

B. Used in the computation of the contribution margin.

Question 4

Which of the following individuals or groups within an organization reviews and approves long-range plans and oversees its information systems?

A. Systems analyst.
B. Systems steering committee.
C. Database administrator.
D. Project development team.

Answer 4

B. Systems steering committee.

Responsibilities of the systems steering committee include, but are not limited to, deciding which information system to deploy, facilitating its implementation, and overseeing the controls over the system.

Question 5

Estimated sales for Johnson Co. in the second quarter are shown below by month:

Johnson has a policy of maintaining 40% of the following month’s estimated cost of sales on hand in merchandise inventory at the end of each month. The cost of goods sold is 60% of sales. What is the cost of the merchandise inventory that Johnson needs to purchase in May?

A. $44,000
B. $26,400
C. $24,000
D. $21,600

Answer 5

B. $26,400

The beginning merchandise inventory of May is $9,600 ($40,000 × 40% × 60%). The cost of goods sold for May is $24,000 ($40,000 × 60%). The ending merchandise inventory of May should be $12,000 ($50,000 × 40% × 60%). As a result, the cost of the merchandise inventory that Johnson needs to purchase in May is $26,400 ($24,000 cost of goods sold + $12,000 ending merchandise inventory – $9,600 beginning merchandise inventory).

Question 6

**Which of the following factors would not be relevant when determining the risk premium on a specific security?

A. Earnings per share.
B. Relative liquidity.
C. Relative seniority.
D. Length of maturity.

Answer 6

A. Earnings per share.

The greater the risk of the investment, the higher the rate of return required by the investor. For each type of investment risk, the investor requires an additional risk premium that compensates him or her for bearing that risk. The earnings per share of the security is not a factor that can increase or decrease the riskiness of an investment and therefore would not be relevant when determining the risk premium on a specific security.

Question 7

Ordinarily, the analysis tool for the systems analyst and steering committee to use in selecting the best system alternative is

A. Decision tree analysis.
B. User selection.
C. Pilot testing.
D. Cost-benefit analysis.

Answer 7

D. Cost-benefit analysis.

In many cases, the best possible system may not be cost effective. Thus, once the decision makers have determined that two or more systems alternatives are acceptable, the cost-benefit analysis should be used to select the best system for a particular application.

Question 8

Listed below is selected financial information for the Western Division of a corporation for last year.

If the corporation treats the Western Division as an investment center for performance measurement purposes, what is the before-tax return on investment (ROI) for last year?

A. 16.67%
B. 22.54%
C. 19.79%
D. 34.78%

Answer 8

A. 16.67%

An investment center’s ROI is its operating income divided by its average invested capital.
The Western Division’s operating income is $400 ($4,000 sales – $3,525 cost of goods sold – $75 general expenses). Given average plant and equipment of $1,775 and average working capital of $625, the total average invested capital is $2,400. ROI is thus 16.67% ($400 ÷ $2,400).

Question 9

**A student aircraft mechanic scored 90% on her midterm exam on electronic systems, but her employer wanted a perfect score on every exam, stating, “Nothing less than perfection works in aviation.” Because the mechanic is required to make a test flight in every airplane she repairs, how would the 10% error rate be classified in a cost of quality analysis?

A. Conformance – prevention.
B. Conformance – appraisal.
C. Nonconformance – external.
D. Nonconformance – internal.

Answer 9

D. Nonconformance – internal.

Because the mechanic must fly in every aircraft she repairs, the cost of an in-flight failure of an electrical system could be serious. Thus, the 10% error rate is nonconformance (failure of the system) and internal. The mechanic could incur personal consequences from failure of the electrical system.

Question 10

What is the required unit production level given the following factors?

A. 1,100
B. 1,215
C. 915
D. 1,015

Answer 10

D. 1,015

The required unit production level should be the sum of projected sales and the difference between desired ending inventory and beginning inventory.
The correct unit production level is 1,015 units [1,000 units + (100 units – 85 units)].

Question 11

A joint process is a manufacturing operation yielding two or more identifiable products from the resources employed in the process. The two characteristics that identify a product generated from this type of process as a joint product are that it

A. Has relatively significant physical volume when compared with the other products, and it can be sold immediately without any additional processing.
B. Is identifiable as an individual product before the production process, and it has relatively significant physical volume when compared with the other products.
C. Is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products.
D. Is identifiable as an individual product only upon reaching the split-off point, and it has relatively minor sales value when compared to the other products.

Answer 11

C. Is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products.

Joint products are two or more separate products generated by a common process from a common input that are not separable prior to the split-off point. Moreover, in contrast with by-products, they have significant sales values in relation to each other either before or after additional processing.

Question 12

The internal audit activity has undertaken an audit of the shipping and receiving department of a department store chain. The best engagement tool for this purpose most likely is

A. Process benchmarking.
B. Strategic benchmarking.
C. Competitive benchmarking.
D. Internal benchmarking.

Answer 12

A. Process benchmarking.

Process (function) benchmarking studies operations of organizations with similar processes regardless of industry. Thus, the benchmark need not be a competitor or even a similar entity. This method may introduce new ideas that provide a significant competitive advantage. The advantage of process benchmarking is that it permits a wider choice of benchmarked organizations. Thus, the best practices for a shipping and receiving function may not be found in the same industry.

Question 13

A segment of an organization is referred to as a profit center if it has

A. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply.
B. Authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply.
C. Authority to provide specialized support to other units within the organization.
D. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital.

Answer 13

A. Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply.

A profit center is responsible for both revenues and expenses. For example, the perfume department in a department store is a profit center. The manager of a profit center usually has the authority to make decisions affecting the major determinants of profit, including the power to choose markets (revenue sources) and suppliers (costs).

Question 14

**Fact Pattern: Tidwell Corporation sells a single product for $20 per unit. All sales are on account, with 60% collected in the month of sale and 40% collected in the following month. A partial schedule of cash collections for January through March of the coming year reveals the following receipts for the period:

March sales total $150,000. The number of units Tidwell must purchase in February is

A. 3,850
B. 4,900
C. 6,100
D. 7,750

Answer 14

C. 6,100

Projected sales for February total $110,000 ($66,000 + $44,000). Unit sales are thus expected to be 5,500 ($110,000 ÷ $20). March unit sales are projected at 7,500 ($150,000 ÷ $20). February purchases can thus be calculated as follows:

Question 15

**Which of the following statements is inconsistent with the key principles of the COBIT 5 framework?

A. The needs of stakeholders are the focus of all organizational activities.
B. Information technology controls are considered to be intertwined with those of the organization’s everyday operations.
C. Enterprise governance and management are treated as the same activity.
D. COBIT 5 can be applied even when other IT-related standards have been adopted.

Answer 15

C. Enterprise governance and management are treated as the same activity.

Under the COBIT 5 framework, the complexity of the modern enterprise requires governance and management to be treated as distinct activities.

Question 16

**Central Winery manufactured two products, A and B. Estimated demand for product A was 10,000 bottles and for product B was 30,000 bottles. The estimated sales price per bottle for A was $6.00 and for B was $8.00. Actual demand for product A was 8,000 bottles and for product B was 33,000 bottles. The actual price per bottle for A was $6.20 and for B was $7.70. What amount would be the total selling price variance for Central Winery?

A. $3,700 favorable.
B. $8,300 unfavorable.
C. $14,100 favorable.
D. $3,700 unfavorable.

Answer 16

B. $8,300 unfavorable.

The selling price variance equals the actual unit sales times the difference between the actual and budgeted prices.
For A, it equals $1,600 F [8,000 × ($6.20 actual – $6.00 budgeted)].
For B, it equals $9,900 U [33,000 × ($8.00 budgeted – $7.70 actual)]. The total is $8,300 U ($9,900 U – $1,600 F).

Question 17

A client would like to implement a management information system that integrates all functional areas within an organization to allow information exchange and collaboration among all parties involved in business operations. Which of the following systems is most effective for this application?

A. A decision support system.
B. An executive support system.
C. An enterprise resource planning system.
D. An office automation system.

Answer 17

C. An enterprise resource planning system.

ERP is intended to integrate enterprise-wide information systems by creating one database linked to all of an organization’s applications.

Question 18

A single-product company prepares income statements using both absorption and variable costing. Manufacturing overhead cost applied per unit produced in Year 2 was the same as in Year 1. The Year 2 variable-costing statement reported a profit, whereas the Year 2 absorption-costing statement reported a loss. A possible explanation for the difference in reported income is that the units produced in Year 2 were

A. Greater than units sold in Year 2.
B. Greater than the activity level used for allocating overhead to the product.
C. Fewer than the activity level used for allocating overhead to the product.
D. Fewer than units sold in Year 2.

Answer 18

D. Fewer than units sold in Year 2.

The sole difference between variable and absorption costing is that the latter applies fixed manufacturing costs as an inventoriable cost. When sales exceed production, absorption costing recognizes as a cost of goods sold not only the fixed factory overhead of the current period (the amount included for variable-costing purposes) but also the portion of such overhead included in the cost of the units of beginning inventory deemed to have been sold. Thus, variable-costing results in a lower cost of goods sold and a higher net income than absorption-costing when sales exceed production.

Question 19

**Which of the following is a key area in the governance objectives under COBIT?

A. Deliver, service, and support.
B. Build, acquire, and implement.
C. Evaluate, direct, and monitor.
D. Align, plan, and organize.

Answer 19

C. Evaluate, direct, and monitor.

COBIT divides governance and management objectives into five domains (key areas). The only domain related to governance is evaluate, direct, and monitor (EDM), which includes evaluating stakeholder needs, setting directions, and monitoring performance and compliance.

Question 20

An organization does business in seven states. Its offices maintain regional databases on their own computers, which are linked to the server at headquarters. Regional office computers periodically relay summarized data to the home-office, where they are used to update a corporate database. This organization uses a system known as

A. Distributed data processing.
B. Strategic-planning system.
C. Inventory method.
D. Parallel-systems method.

Answer 20

A. Distributed data processing.

A distributed data processing system maximizes the advantages of both centralized and decentralized systems. Each remote location has its own processing unit that is linked to a central server. The advantage is that processing tasks may be undertaken where they are best performed.

Question 21

Management of a company has a lack of segregation of duties within the application environment, with programmers having access to development and production. The programmers have the ability to implement application code changes into production without monitoring or a quality assurance function. This is considered a deficiency in which of the following areas?

A. Management override.
B. Data integrity.
C. Computer operations.
D. Change control.

Answer 21

D. Change control.

If programmers can implement application code changes into production without monitoring or a quality assurance function, program change controls are deficient.

Question 22

**Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products?

A. Direct materials and direct labor only.
B. Direct labor and overhead only.
C. Overhead and direct materials only.
D. Direct materials, direct labor, and overhead.

Answer 22

D. Direct materials, direct labor, and overhead.

Joint costs are those costs incurred prior to the split-off point to produce two or more goods manufactured simultaneously by a single process or series of processes. Joint costs, which include direct materials, direct labor, and overhead, are not separately identifiable and must be allocated to the individual joint products.

Question 23

**A company uses flexible budgeting for cost control. The company produced 10,800 units of product during October, incurring indirect materials costs of $13,000. Its master budget for the year reflected indirect materials costs of $180,000 at a production volume of 144,000 units. A flexible budget for October production would reflect indirect materials costs of

A. $13,000
B. $13,500
C. $11,700
D. $13,975

Answer 23

B. $13,500

The cost of indirect materials for 144,000 units was expected to be $180,000. Consequently, the budgeted unit cost of indirect materials is $1.25 ($180,000 ÷ 144,000). Multiplying the $1.25 unit cost times the 10,800 units produced results in an expected total indirect materials cost of $13,500.

Question 24

Which of the following IT controls would a company appropriately use to mitigate the risk of unauthorized access to its payroll data?

A. Biometric devices.
B. A neural network.
C. Validity checks.
D. Employee purchase cards.

Answer 24

A. Biometric devices.

Using biometric technologies to identify the users accessing the payroll data mitigates the risk of unauthorized access.

Question 25

**During May, Roy Co. produced 10,000 units of Product X. Costs incurred by Roy during May:

Under absorption costing, Product X’s unit cost was

A. $5.10
B. $3.80
C. $4.40
D. $3.50

Answer 25

C. $4.40

Unit cost under absorption costing does not include variable or fixed selling and general expenses.

Question 26

Which of the following is included in the economic order quantity formula?

Answer 26

D. Inventory Carrying Cost = Yes
Stockout Cost = No

EOQ is calculated with the periodic demand (sales), cost of a production run or of placing an order, and the periodic unit carrying cost (including storage costs). The risk of obsolescence and deterioration is part of the inventory carrying cost. The stockout cost is not used in the EOQ calculation.

Question 27

**The performance of a standard cost center should be evaluated by comparing

A. Actual costs with fixed (static) budget costs.
B. Flexible budget costs with fixed (static) budget costs.
C. Actual contribution of the cost center with budgeted contribution of the cost center.
D. Actual costs with flexible budget costs.

Answer 27

D. Actual costs with flexible budget costs.

The flexible budget is prepared (1) based on the actual output sold (produced) during the period and (2) after the end of the period when all actual results are known. Moreover, a cost center is responsible for costs only. Thus, the performance of a standard cost center should be evaluated by comparing actual costs with flexible budget costs.

Question 28

Which of the following methods involves comparing a company’s internal processes that need to be improved to those of external companies identified as being best in class?

A. Economic value added.
B. Performance measurement.
C. Balanced scorecard.
D. Benchmarking.

Answer 28

D. Benchmarking.

Benchmarking involves analysis and measurement of key outputs against those of the best organizations. This procedure also identifies the underlying key actions and causes that contribute to the performance difference.

Question 29

In a capitalistic society, it is not considered possible to have 100% employment of the labor force. Therefore, full employment is defined as something less than 100% employment because of the existence of

A. Frictional and part-time unemployment.
B. Cyclical and frictional unemployment.
C. Structural and frictional unemployment.
D. Structural and cyclical unemployment.

Answer 29

C. Structural and frictional unemployment.

Full employment occurs when cyclical unemployment is zero. Thus, the natural rate of unemployment (the full employment unemployment rate) is the sum of structural and frictional unemployment.

Question 30

Under a total quality management (TQM) approach,

A. Measurement occurs throughout the process, and errors are caught and corrected at the source.
B. Quality control is performed by highly trained inspectors at the end of the production process.
C. A large number of suppliers are used in order to obtain the lowest possible prices.
D. Upper management assumes the primary responsibility for the quality of the products and services.

Answer 30

A. Measurement occurs throughout the process, and errors are caught and corrected at the source.

TQM is the continuous pursuit of quality in every aspect of organizational activities. One of the basic tenets of TQM is doing it right the first time. Thus, errors should be caught and corrected at the source.

Question 31

**What is the spot rate of the British pound (GBP) in terms of the Chinese yuan (CNY)?

Answer 31

8.8047

Question 32

**What is the forward rate of the British pound in terms of the Chinese yuan?

Answer 32

8.4782

Question 33

**Is the Chinese yuan trading at a forward premium in relation to the British pound?

Yes
No

Answer 33

Yes

Question 34

**Through the use of decision models, managers thoroughly analyze many alternatives and decide on the best alternative for the company. Often the actual results achieved from a particular decision are not what was expected when the decision was made. In addition, an alternative that was not selected would have actually been the best decision for the company. The appropriate technique to analyze the alternatives by using expected inputs and altering them before a decision is made is

A. Expected value analysis.
B. Linear programming.
C. Program evaluation review technique (PERT).
D. Sensitivity analysis.

Answer 34

D. Sensitivity analysis.

After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis. Sensitivity analysis examines how the model’s outcomes change as the parameters change.

Question 35

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is

A. Expected value analysis.
B. Learning curve analysis.
C. Sensitivity analysis.
D. Regression analysis.

Answer 35

C. Sensitivity analysis.

After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis. Sensitivity analysis examines how the model’s outcomes change as the parameters change.