Practice Exam 8.16.23

Question 1

Actual and budgeted information about the sales of a product are presented for June as follows.

The sales price variance for June was

A. $8,000 favorable.
B. $10,000 favorable.
C. $10,000 unfavorable.
D. $10,500 unfavorable.

Answer 1

A. $8,000 favorable.

The sales price variance is the difference between actual price and budgeted price, times actual units. Actual price was $11.50 ($92,000 ÷ 8,000). Budgeted price was $10.50 ($105,000 ÷ 10,000). Sales price variance is therefore $8,000 [8,000 actual units × ($11.50 – $10.50)]. The variance is favorable because actual sales price was greater than budgeted sales price.

Question 2

Authentication is the process by which the

A. User indicates to the system that the transaction was processed correctly.
B. System verifies the identity of the user.
C. System verifies that the user is entitled to enter the transaction requested.
D. User identifies himself or herself to the system.

Answer 2

B. System verifies the identity of the user.

Identification is the process of uniquely distinguishing one user from all others. Authentication is the process of determining that individuals are who they say they are. For example, a password may identify but not authenticate its user if it is known by more than one individual.

Question 3

**Each share of nonparticipating, 8%, cumulative preferred stock in a company that meets its dividend obligations has all of the following characteristics except

A. Dividend payments that are not tax deductible by the company.
B. No principal repayments.
C. A superior claim to common stock equity in the case of liquidation.
D. Voting rights in corporate elections.

Answer 3

D. Voting rights in corporate elections.

Preferred shareholders rarely have voting rights. Voting rights are exchanged for preferences regarding dividends and liquidation of assets.

Question 4

Which of the following classifications of security controls includes smoke detectors, generators, security guards, and ID badges?

A. Technical.
B. Logical.
C. Physical.
D. Administrative.

Answer 4

C. Physical.

Physical controls limit physical access and environmental damage to computer equipment, data, and important documents. Smoke detectors, generators, security guards, and ID badges are some common examples.

Question 5

A U.S. company currently has domestic operations only. It is considering an equal-size investment in either Canada or Britain. The data on expected rate of return and the risk associated with each of these proposed investments are given below.

The company plans to select the optimal combination of countries based on risk and return for the domestic and international investments taken together. Because the company is new to the international business environment, it is relatively risk averse. Based on the above data, which one of the following alternatives provides the best risk-adjusted return to the firm?

A. Undertake the British investment.
B. Unable to determine based on data given.
C. Do not undertake either investment.
D. Undertake the Canadian investment.

Answer 5

A. Undertake the British investment.

A risk-averse company will select the investment with the lower risk per unit of return. Thus, by choosing to invest in Britain, the risk per unit of return is the lowest of all the options mentioned, and it is equal to 0.1428 = 3% ÷ 21%.

Question 6

If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?

A. Prime costs.
B. Conversion costs.
C. Direct materials.
D. Direct labor.

Answer 6

B. Conversion costs.

Conversion costs consist of direct labor and manufacturing overhead. Overhead includes the costs of utilities, such as electricity. An increase in the price of crude oil, which is used to generate electricity, is therefore likely to increase conversion costs.

Question 7

**Fact Pattern: Rokat Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Rokat, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month’s sales are in the finished goods inventory. Rokat also purchases sufficient direct materials inventory to ensure that direct materials inventory is 60% of the following month’s scheduled production.

Assume Rokat’s required production for August and September is 1,600 and 1,800 units, respectively, and the July 31 direct materials inventory is 4,200 units. The number of table legs to be purchased in August is

A. 6,520 legs.
B. 9,400 legs.
C. 6,400 legs.
D. 2,200 legs.

Answer 7

A. 6,520 legs.

Some of the legs needed for August’s production are already included in the 4,200 units in direct materials. Legs needed for August are 6,400 (1,600 × 4), but there are already 4,200 legs in the July 31 direct materials inventory. Therefore, 2,200 legs should be purchased for August production. Rokat needs 4,320 legs (1,800 × 4 × 60%) for September production. Thus, the total amount of legs to be purchased is 6,520 (2,200 + 4,320).

Question 8

During the month just ended, Nale Co. used $300,000 of direct materials. At month end, Nale’s direct materials inventory was $50,000 more than it was at the beginning of the month. Direct material purchases during the month amounted to

A. $300,000
B. $350,000
C. $250,000
D. $0

Answer 8

B. $350,000

The beginning direct materials inventory, plus direct material purchases, minus ending direct materials inventory equals the direct materials used.

The direct materials purchases for the month equal $350,000 ($300,000 + $50,000).

Question 9

**Which of the following balanced scorecard perspectives examines a company’s success in targeted market segments?

A. Customer.
B. Learning and growth.
C. Internal business process.
D. Financial.

Answer 9

A. Customer.

Any critical success factor that addresses some aspect of the target market is included in the customer perspective.

Question 10

**Which of the following variances would be useful in calling attention to a possible short-term problem in the control of overhead costs?

Answer 10

A. Spending Variance = Yes
Volume Variance = No

The spending variance, not the volume variance, is useful for calling attention to a possible short-term problem in the control of overhead costs.

Question 11

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. Standard error.
C. R-squared.
D. t-statistic.

Answer 11

C. R-squared.

R-squared is also known as the coefficient of determination. It is a measure of how good the fit between the independent and dependent variable is.

Question 12

**Attacks on computer networks may take many forms. Which of the following uses the computers of innocent parties infected with Trojan horse programs?

A. A man-in-the-middle attack.
B. A brute-force attack.
C. A distributed denial-of-service attack.
D. A password-cracking attack.

Answer 12

C. A distributed denial-of-service attack.

A denial-of-service (DoS) attack is an attempt to overload a system (e.g., a network or web server) with false messages so that it cannot function (a system crash). A distributed DoS attack comes from multiple sources, for example, the machines of innocent parties infected by Trojan horses.

Question 13

**Which of the following computerized control procedures is most effective in ensuring that files of data uploaded from personal computers to a server are complete and that no additional data are added?

A. Batch control totals, including control totals and hash totals.
B. Field-level edit controls that test each field for alphanumerical integrity.
C. Self-checking digits to ensure that only authorized part numbers are added to the database.
D. Passwords that effectively limit access to only those authorized to upload the data to the server.

Answer 13

A. Batch control totals, including control totals and hash totals.

Batch control totals for the data transferred can be reconciled with the batch control totals in the existing file. This comparison provides information on the completion of the data transfer. Batch totals may include record counts, totals of certain critical amounts, or hash totals. A hash total is a control total without a defined meaning, such as the total of employee numbers or invoice numbers, that is used to verify the completeness of data. Thus, the hash total for the employee listing by the personnel department could be compared with the total generated during the payroll run.

Question 14

Which of the following is usually a benefit of transmitting transactions in an electronic data interchange (EDI) environment?

A. Elimination of the need to continually update antivirus software.
B. Elimination of the need to verify the receipt of goods before making payment.
C. Assurance of the thoroughness of transaction data because of standardized controls.
D. Automatic protection of information that has electronically left the entity.

Answer 14

C. Assurance of the thoroughness of transaction data because of standardized controls.

Advantages of EDI include reduction of clerical errors and thoroughness of transaction data because of standardized controls, speed of transactions, and the elimination of repetitive clerical tasks.

Question 15

Pro forma financial statements are part of the budgeting process. Normally, the last pro forma statement prepared is th

A. Capital expenditure plan.
B. Income statement.
C. Statement of cost of goods sold.
D. Statement of cash flows.

Answer 15

D. Statement of cash flows.

The statement of cash flows is usually the last of the listed items prepared. All other elements of the budget process must be completed before it can be developed.

Question 16

Which of the following is not an element of SWOT analysis?

A. Weaknesses.
B. Opportunities.
C. Threats.
D. Strategies.

Answer 16

D. Strategies.

SWOT analysis is an acronym for strengths, weaknesses, opportunities, and threats.

Question 17

Which of the following activities by small business clients best demonstrates management integrity in the absence of a written code of conduct?

A. Developing and maintaining formal descriptions of accounting procedures.
B. Documenting internal control procedures using flowcharts rather than narratives.
C. Emphasizing a strong ethical culture through oral communication and management example.
D. Reporting regularly to the board of directors about operations and finances.

Answer 17

C. Emphasizing a strong ethical culture through oral communication and management example.

A small business may not have a written code of conduct. However, it may have a culture emphasizing integrity and a strong ethical culture by means of oral communication and management example.

Question 18

**Which of the following standard costing variances would be least controllable by a production supervisor?

A. Materials usage.
B. Overhead efficiency.
C. Overhead volume.
D. Labor efficiency.

Answer 18

C. Overhead volume.

The overhead volume variance measures the difference between the amount of fixed overhead applied and the amount of fixed overhead budgeted. The production supervisor has limited control over fixed overhead costs because they do not depend on the actual level of production during the current period.

Question 19

If a manufacturing company uses responsibility centers, which one of the following items is least likely to appear in a performance report for a manager of an assembly line?

A. Repairs and maintenance.
B. Equipment depreciation.
C. Materials.
D. Supervisory salaries.

Answer 19

B. Equipment depreciation.

Responsibility centers hold managers responsible for factors they can influence. The depreciation of equipment will probably not appear on the performance report of an assembly-line manager because the manager usually has no influence over the depreciation calculations.

Question 20

Which of the following networks provides the least secure means of data transmission?

A. Local area.
B. Private.
C. Public-switched.
D. Value-added.

Answer 20

C. Public-switched.

Public-switched networks are wide area networks that use public telephone lines. This arrangement may be the most economical, but data transmission may be of lower quality, no connection may be available, and security measures may be ineffective.

Question 21

To manage its transactional data, Fort Company established the data stewardship structure in its data management program. Which of the following roles is responsible for authorizing access to transactional data?

A. Data owner.
B. Data custodian.
C. Data steward.
D. Data regulator.

Answer 21

C. Data steward.

Data stewards ensure that data assets are used and adopted properly, e.g., ensuring that transactional data are accurate and authorizing who can access it.

Question 22

**A company has budgeted sales of 24,000 finished units for the forthcoming 6-month period. It takes 4 pounds of direct materials to make one finished unit. Given the following:

How many pounds of direct materials should be budgeted for purchase during the 6-month period?

A. 92,000
B. 48,000
C. 88,000
D. 96,000

Answer 22

A. 92,000

Required production of finished units is 22,000 units (target ending inventory of 12,000 + sales of 24,000 – beginning inventory of 14,000 lb.). Thus, 88,000 pounds of direct materials (22,000 × 4 lb. per unit) must be available. Required purchases of direct materials equal 92,000 pounds (target ending inventory of 48,000 + usage of 88,000 – beginning inventory of 44,000).

Question 23

The fixed assets and related depreciation of a company are currently tracked on a password-protected spreadsheet. The information technology governance committee is designing a new enterprise-wide system and needs to determine whether the current fixed asset process should be included because the current system seems to be working properly. What long-term solution should the committee recommend?

A. Adopting the fixed-asset module of the new system for integration.
B. Continuing to use the current spreadsheet process because there have been no issues in this area.
C. Developing a new fixed-asset system to manage the assets and related depreciation.
D. Purchasing a stand-alone fixed asset program for managing the assets and related depreciation.

Answer 23

A. Adopting the fixed-asset module of the new system for integration.

Adopting a fully integrated fixed-asset module for the new system is the best long-term solution.

Question 24

The letter x in the standard regression equation is best described as a(n)

A. Dependent variable.
B. Independent variable.
C. Coefficient of determination.
D. Constant coefficient.

Answer 24

B. Independent variable.

Question 25

The four major tasks that any system must perform are

A. Input, transformation, output, and storage.
B. Input, transformation, storage, and feedback.
C. Input, backup, output, and storage.
D. Input, transformation, output, and maintenance.

Answer 25

A. Input, transformation, output, and storage.

The four major tasks that any system must perform are input, transformation, output, and storage.

Question 26

When comparing absorption costing with variable costing, the difference in operating income can be explained by the difference between the

A. Ending inventory in units and the beginning inventory in units, multiplied by the unit sales price.
B. Units sold and the units produced, multiplied by the budgeted variable manufacturing cost per unit.
C. Ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.
D. Units sold and the units produced, multiplied by the unit sales price.

Answer 26

C. Ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.

Absorption and variable costing differ in their treatment of fixed overhead: It is capitalized as inventory under absorption costing and not under variable costing. Thus, the difference in operating income between the two can be explained by the difference between the ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.

Question 27

The type of testing that tests a completely integrated system to verify that the system meets its requirements is

A. Integration testing.
B. Unit testing.
C. Acceptance testing.
D. System testing.

Answer 27

D. System testing.

System testing, or end-to-end testing, tests a completely integrated system to verify that the system meets its requirements.

Question 28

All of the following are adequate controls for protection against unauthorized access to sensitive information except

A. Automatic log-off.
B. Passwords and ID numbers.
C. Device authorization table.
D. System access log.

Answer 28

D. System access log.

The system access log records all uses and attempted uses of the system. The system access log would not prevent unauthorized access.

Question 29

When a client’s accounts payable computer system was relocated, the administrator provided support through a dial-up connection to a server. Subsequently, the administrator left the company. No changes were made to the accounts payable system at that time. Which of the following situations represents the greatest security risk?

A. User passwords are not required to be in alpha-numeric format.
B. User accounts are not removed upon termination of employees.
C. Management procedures for user accounts are not documented.
D. Security logs are not periodically reviewed for violations.

Answer 29

B. User accounts are not removed upon termination of employees.

Access to an entity’s data by unauthorized individuals presents a major security risk. The single most important policy is that which governs the information resources to which individuals have access and how the level of access will be tied to their job duties. One provision of the policy must be for the immediate removal of terminated employees’ access to the system.

Question 30

Which of the following database models is considered to be the most versatile?

A. The network model.
B. The hierarchical model.
C. The relational model.
D. The tree model.

Answer 30

C. The relational model.

Relational databases are the most commonly used databases today.

Question 31

Which of the following procedures would an entity most likely include in its computer disaster recovery plan?

A. Translate data for storage purposes with a cryptographic secret code.
B. Store duplicate copies of critical files in a location away from the processing facility.
C. Develop an auxiliary power supply to provide uninterrupted electricity.
D. Maintain a listing of all entity passwords with the network manager.

Answer 31

B. Store duplicate copies of critical files in a location away from the processing facility.

Off-site storage of duplicate copies of critical files protects them from a fire or other disaster at the computing facility. The procedure is part of an overall disaster recovery plan.

Question 32

The following data are available for the current year for Volpone Company. Volpone uses a 365-day year when computing ratios.

Volpone Company’s operating cycle for Year 2 is

A. 92.21
B. 99.71
C. 93.09
D. 70.61

Answer 32

A. 92.21

Volpone holds its inventory 72.50 days [$870,000 ending inventory ÷ ($4,380,000 COGS ÷ 365 days)] and its receivables 19.71 days [$335,000 ending accounts receivable ÷ ($6,205,000 net credit sales ÷ 365 days)]. Its operating cycle is 92.21 days (72.50 + 19.71).

Question 33

**Inventoriable costs

A. Include only the prime costs of manufacturing a product.
B. Are regarded as assets before the products are sold.
C. Include only the conversion costs of manufacturing a product.
D. Are expensed when products become part of finished goods inventory.

Answer 33

B. Are regarded as assets before the products are sold.

Inventoriable (product) costs are capitalized as part of inventory. But period costs are expensed as they are incurred and are not capitalized as assets. Under an absorption costing system, inventoriable costs include variable and fixed costs of production. Under variable costing, inventoriable costs include only variable production costs.

Question 34

Which of the following is a false statement about a database management system application environment?

A. Data are used concurrently by multiple users.
B. The physical structure of the data is independent of user needs.
C. Data are shared by passing files between programs or systems.
D. Data definition is independent of any one program.

Answer 34

C. Data are shared by passing files between programs or systems.

In this kind of system, applications use the same database. There is no need to pass files between applications.

Question 35

Which of the following statements about an organization’s value chain is correct?

A. The value chain considers only the internal processes of a company.
B. The value chain is not concerned with preproduction functions.
C. The value chain is not concerned with postproduction functions.
D. The value chain consists of the major value-added functions for an organization.

Answer 35

D. The value chain consists of the major value-added functions for an organization.

Because the value chain identifies and connects the organization’s strategic activities, value-chain analysis improves the firm’s knowledge of its relations with customers, suppliers, and competitors.

Question 36

**A controller is developing a disaster recovery plan for a corporation’s computer systems. In the event of a disaster that makes the company’s facilities unusable, the controller has arranged for the use of an alternate location and the delivery of duplicate computer hardware to this alternate location. Which of the following recovery plans would best describe this arrangement?

A. Back-up site procedures.
B. Cold site.
C. Hot spare site agreement.
D. Hot site.

Answer 36

B. Cold site.

A cold site is a shell facility lacking most infrastructure but readily available for the quick installation of hardware and software.

Question 37

In the organization of the information systems function, the most important segregation of duties is

A. Using different programming personnel to maintain utility programs from those who maintain the application programs.
B. Assuring that those responsible for programming the system do not have access to data processing operations.
C. Not allowing the data librarian to assist in data processing operations.
D. Having a separate information officer at the top level of the organization outside of the accounting function.

Answer 37

B. Assuring that those responsible for programming the system do not have access to data processing operations.

Segregation of duties is a general control that is vital in a computerized environment.

Question 38

**When ranking two mutually exclusive investments with different initial amounts, management should give first priority to the project

A. That has the greater profitability index.
B. Whose net after-tax flows equal the initial investment.
C. That generates cash flows for the longer period of time.
D. That has the greater accounting rate of return.

Answer 38

A. That has the greater profitability index.

The accounting rate of return is not a good measure of profitability. It ignores the time value of money, so the greater profitability index should give first priority to a project.

Question 39

In its production process, Hern Corp., which does not use a standard cost system, incurred total production costs for the month of $900,000, of which Hern attributed $60,000 to normal spoilage and $30,000 to abnormal spoilage. Hern should account for this spoilage as

A. Inventoriable cost of $90,000.
B. Period cost of $90,000.
C. Period cost of $60,000 and inventoriable cost of $30,000.
D. Inventoriable cost of $60,000 and period cost of $30,000.

Answer 39

D. Inventoriable cost of $60,000 and period cost of $30,000.

Normal spoilage arises under efficient operating conditions and is therefore a product cost. Abnormal spoilage is not expected to occur under efficient operating conditions. It is accounted for as a period cost. Thus, the normal spoilage of $60,000 is an inventoriable cost, and the abnormal spoilage of $30,000 is a period cost.

Question 40

Big data and analytics is

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

Answer 40

C. An analysis of structured, semi-structured, and unstructured data that can be mined to reveal relationships and dependencies or to predict outcomes and behaviors.

Big data and analytics is an evolving term that describes any voluminous amount of structured, semi-structured, and unstructured data that can be mined to reveal relationships and dependencies or to predict outcomes and behaviors.

Question 41

**The creation of deposit money by U.S. commercial banks increases the

A. Real U.S. national income.
B. Real wealth of the United States.
C. U.S. money supply.
D. Purchasing power of the U.S. dollar.

Answer 41

C. U.S. money supply.

As money is deposited in banks, the banks lend the money to qualified customers. Banks may lend only a certain percentage of their funds because of the reserve requirement. The more funds they have, the more they can lend. Thus, as the amount of money deposited increases, the amount and number of loans and the money supply increase.

Question 42

**Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control?

A. Management override.
B. Collusion among employees.
C. Faulty judgment.
D. Incompatible duties.

Answer 42

D. Incompatible duties.

Internal control has inherent limitations. The performance of incompatible duties, however, is a failure to assign different people the functions of authorization, recording, and asset custody, not an inherent limitation of internal control. Segregation of duties is a category of control activities.

Question 43

The following direct labor information pertains to the manufacture of product Glu:

What is the standard direct labor cost per unit of product Glu?

A. $12
B. $30
C. $15
D. $24

Answer 43

B. $30

The hourly wage per worker is $12.50 ($500 ÷ 40 hrs.). The direct labor cost per hour is $15 [$12.50 × (1.0 + benefits equal to 20% of wages)]. Consequently, the standard direct labor cost per unit is $30 ($15 × 2 hrs.).

Question 44

JacKue Co. plans to produce 200,000 pairs of roller skates during January of next year. Planned production for February is 250,000 pairs. Sales are forecasted at 180,000 pairs for January and 240,000 pairs for February. Each pair of roller skates has eight wheels. JacKue’s policy is to maintain 10% of the next month’s production in inventory at the end of a month. How many wheels should JacKue purchase during January?

A. 1,640,000
B. 1,560,000
C. 195,000
D. 205,000

Answer 44

A. 1,640,000

Question 45

Which of the following is a validity check?

A. The computer flags any transmission for which the control field value did not match that of an existing file record.
B. After data are entered, the computer sends certain data back to the terminal for comparison with data originally sent.
C. The computer ensures that a numerical amount in a record does not exceed some predetermined amount.
D. As the computer corrects errors and data are successfully resubmitted to the system, the causes of the errors are printed out.

Answer 45

A. The computer flags any transmission for which the control field value did not match that of an existing file record.

Validity checks test identification numbers or transaction codes for validity by comparison with items already known to be correct or authorized. For example, a validity check may identify a transmission for which the control field value did not match a pre-existing record in a file.

Question 46

**On a balanced scorecard, which is more of an internal process measure than an external-based measure?

A. Profitability.
B. Cycle time.
C. Market share.
D. Customer satisfaction.

Answer 46

B. Cycle time.

Cycle time is the manufacturing time to complete an order. Thus, cycle time is strictly related to internal processes. Profitability is a combination of internal and external considerations. Customer satisfaction and market share are related to how customers perceive a product and how competitors react.

Question 47

**After investing in a new project, a company discovered that its residual income remained unchanged. Which one of the following must be true about the new project?

A. The return on investment of the new project must have been equal to the firm’s cost of capital.
B. The return on investment of the new project must have been less than the firm’s cost of capital.
C. The net present value of the new project must have been negative.
D. The net present value of the new project must have been positive.

Answer 47

A. The return on investment of the new project must have been equal to the firm’s cost of capital.

Residual income is the excess of the return on an investment over the firm’s cost of capital. If residual income is unchanged, the return on the project must have been the same as the firm’s cost of capital.

Question 48

Which statement best describes the emphasis of total quality management (TQM)?

A. Doing each job right the first time.
B. Implementing better statistical quality control techniques.
C. Reducing the cost of inspection.
D. Encouraging cross-functional teamwork.

Answer 48

A. Doing each job right the first time.

The basic principles of TQM include (1) doing each job right the first time, (2) being customer-oriented, (3) committing the organizational culture to continuous improvement, and (4) promoting teamwork and employee empowerment.

Question 49

**In which one of the following situations will ending inventory on the balance sheet computed under absorption costing be exactly equal to ending inventory computed under variable costing?

A. When there is no fixed factory overhead cost.
B. When the number of units produced equals the number of units sold.
C. When the denominator variance is zero.
D. When there is no variable overhead cost.

Answer 49

A. When there is no fixed factory overhead cost.

Fixed factory overhead cost is treated as a product cost under absorption costing and as a period cost under variable costing.

Question 50

Advanced electronic point-of-sale (POS) systems allow instant capture and transmission of information for which purposes?

A. I and II only.
B. I, II, and III only.
C. III and IV only.
D. I, II, III, and IV.

Answer 50

D. I, II, III, and IV.

An electronic POS system may update and analyze the perpetual inventory records for each outlet. It may also perform other accounting tasks, such as crediting revenue accounts and debiting cash, accounts receivable, and cost of goods sold. Moreover, a POS system may (1) provide marketing information to identify and respond to trends; (2) make sales forecasts; (3) determine which products are in demand; (4) improve customer service; (5) target products and promotions to customers with different demographic traits; and (6) evaluate the effects of promotions, including coupons. Another function of a POS system is to record personal and transactional information about specific customers, including tracking of warranties, deposits, rentals, progressive discounts, and special pricing. Still another function is use of bar coding in association with the stocking and warehousing functions to reduce the costs of data entry, including the effects of human error.

Question 51

A corporation’s net income as presented on its income statement is usually

A. Less than its economic profits because accountants include labor costs, while economists exclude labor costs.
B. More than its economic profits because opportunity costs are not considered in calculating net income.
C. Equal to its economic profits.
D. More than its economic profits because economists do not consider interest payments to be costs.

Answer 51

B. More than its economic profits because opportunity costs are not considered in calculating net income.

Question 52

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?

A. The cost of goods sold amount is lower if absorption costing is used.
B. The ending inventory amount is lower if absorption costing is used.
C. Net income is higher if absorption costing is used.
D. The selling and administrative expense is higher if absorption costing is used.

Answer 52

C. Net income is higher if absorption costing is used.

Because some fixed costs are included in ending inventory under absorption costing while the entire fixed costs are expensed under variable costing, net income is higher under absorption costing.

Question 53

**What is a major disadvantage to using a private key to encrypt data?

A. Both sender and receiver must have the private key before this encryption method will work.
B. The private key is used by the receiver for decryption but not by the sender for encryption.
C. The private key is used by the sender for encryption but not by the receiver for decryption.
D. The private key cannot be broken into fragments and distributed to the receiver.

Answer 53

A. Both sender and receiver must have the private key before this encryption method will work.

Private-key, or symmetric, encryption is the less secure of the two encryption methods because only one key is used. This single key must be revealed to both the sender and recipient.

Question 54

**Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales of $715,000 in July, $728,000 in August, and $624,000 in September. Hannon’s policy is to have on hand enough inventory at the end of the month to cover 25% of the next month’s sales. What will be the cost of the inventory that Hannon should budget for purchase in August?

A. $560,000
B. $680,000
C. $509,600
D. $540,000

Answer 54

D. $540,000

The first step is to determine the cost of goods sold for each month. Since sales are 130% of cost, cost of goods sold can be calculated as follows:

Question 55

**Given a 10% discount rate with cash inflows of $3,000 at the end of each year for 5 years and an initial investment of $11,000, what is the net present value?

A. $(9,500)
B. $370
C. $4,000
D. $11,370

Answer 55

B. $370

The present value factor of an ordinary annuity at 10% for 5 years is 3.790, resulting in total discounted inflows of $11,370 ($3,000 × 3.790). The initial outflow of the project is $11,000. Therefore, the NPV is equal to $370 (11,370 PV of cash inflows – $11,000 initial investment).

Question 56

The costs of quality that are incurred in detecting units of product that do not conform to product specifications are referred to as

A. Failure costs.
B. Rework costs.
C. Appraisal costs.
D. Prevention costs.

Answer 56

C. Appraisal costs.

Appraisal embraces such activities as statistical quality control programs, inspection, and testing. Appraisal costs are those costs (such as test equipment maintenance and destructive testing) incurred to detect which products do not conform to specifications.

Question 57

A flexible budget is appropriate for a(n)

Answer 57

D. Administrative Budget = Yes
Marketing Budget = Yes

A flexible budget approach is appropriate for both an administrative budget and a marketing budget because each contains some elements that vary with the activity level and some that do not.

Question 58

The graph above depicts a relationship between the price and the quantity of a good. The movement depicted by the arrow can be described as

A. An increase in quantity demanded of a normal good.
B. An increase in quantity supplied.
C. An increase in supply.
D. An increase in demand for a normal good.

Answer 58

B. An increase in quantity supplied.

An upward-sloping curve relating price to quantity depicts a supply schedule. As prices rise, suppliers are willing to offer more of the product in the marketplace.

Question 59

Baby Frames, Inc., evaluates manufacturing overhead in its factory by using variance analysis. The following information applies to the month of May:

What is the fixed overhead spending variance?

A. $2,000 favorable.
B. $1,000 unfavorable.
C. $2,000 unfavorable.
D. $1,000 favorable.

Answer 59

C. $2,000 unfavorable.

The fixed overhead spending variance is the difference between the amount budgeted for fixed manufacturing overhead costs and the actual costs incurred. The fixed overhead spending variance is thus $2,000 unfavorable ($20,000 budgeted – $22,000 actual).

Question 60

**Which of the following is considered a corporate equity security?

A. A share of callable preferred stock.
B. A shareholder’s appraisal right.
C. A callable bond.
D. A shareholder’s preemptive right.

Answer 60

A. A share of callable preferred stock.

Preferred stock is a form of equity security that has attributes of both debt and equity. It has a fixed charge, but payment of dividends is not an obligation.