Practice Exam 8.4.23 Flashcards
A computer program processes payrolls. The program is a(n)
A. Application program.
B. Utility program.
C. Operating system.
D. Report generator.
A. Application program.
Application programs are written to solve specific user problems; that is, they perform the ultimate computer functions required by system users. Thus, a program designed to process payroll is an application program.
The significance of hardware controls is that they
A. Ensure the proper execution of machine instructions.
B. Ensure accurate programming of operating system functions.
C. Ensure that run-to-run totals in application systems are consistent.
D. Reduce the incidence of user input errors in online systems.
A. Ensure the proper execution of machine instructions.
Hardware controls are built into the equipment by the manufacturer to detect and control errors arising from the use of the equipment. Examples include parity checks, read-after-write checks, and echo checks.
Multiple regression analysis involves the use of
A. Dependent Variables = One
Independent Variables = More than one
Improved accuracy of forecasts may often be achieved by regressing the dependent variable on more than one independent variable. The usual multiple regression equation is linear and is in the following form:
y = a + bx1 + bx2 + … + e
Which of the following is an advantage of a computer-based system for transaction processing over a manual system? A computer-based system
A. Will produce a more accurate set of financial statements.
B. Eliminates the need to reconcile control accounts and subsidiary ledgers.
C. Does not require as stringent a set of internal controls.
D. Will be more efficient at producing financial statements.
D. Will be more efficient at producing financial statements.
Computer processing permits consistent application of predefined business rules and the performance of complex calculations in high volume. Hence, computer processing of the accounting transactions reported in financial statements is more efficient than in a manual system.
Which of the following costs would decrease if production levels were increased within the relevant range?
A. Fixed costs per unit.
B. Total fixed costs.
C. Variable costs per unit.
D. Total variable costs.
A. Fixed costs per unit.
The relevant range defines the limits within which per-unit variable costs are stable and fixed costs are not changeable. Fixed costs in total remain unchanged in the short run regardless of production level. Fixed costs per unit, however, vary inversely with the activity level. Thus, an increase in production levels would decrease fixed costs per unit.
A transaction processing system allows an authorized individual to select a quantity of items from the company’s online inventory. It is also possible to trace back to a copy of the purchase order to see when the items were ordered and who authorized the order. Which of the following features does this system have?
A. An inventory tracking system.
B. An audit trail.
C. Real-time inventory auditing.
D. Automated order processing.
B. An audit trail.
An audit trail is a record by which accounting measurements, details of a trade, or other financial data can be traced back to its source. Audit trails can be used to verify and track transactions. Since the transaction processing system is able to trace back to a copy of the purchase order to see when the items were ordered and who authorized the order, it provides certain audit trails for transactions processed.
Business intelligence (BI) has all of the following characteristics except
A. Providing advice and answers to top management from a knowledge-based system.
B. Giving immediate information about an organization’s critical success factors.
C. Displaying information in graphical format.
D. Focusing on strategic objectives.
A. Providing advice and answers to top management from a knowledge-based system.
BI serves the needs of top management for managerial control and strategic planning. BI focuses on strategic (long-range) objectives and gives immediate information about a firm’s critical success factors. BI is not a program for providing top management with advice and answers from a knowledge-based (expert) system.
A company’s common stock has a market value of $45. The company’s most recent annual earnings per share (EPS) is $3.60 and the company pays an annual dividend of $1.50 per share. What is the company’s price-earnings (PE) ratio?
A. 12.50
B. 21.43
C. 12.08
D. 8.82
A. 12.50
The PE ratio equals market price per share divided by EPS. The company’s market price per share is $45 and its EPS is $3.60. Thus, its PE ratio is 12.50 ($45 ÷ $3.60).
A company has two divisions. Division A has operating income of $500 and total assets of $1,000. Division B has operating income of $400 and total assets of $1,600. The required rate of return for the company is 10%. The company’s residual income would be which of the following amounts?
A. $640
B. $0
C. $900
D. $260
A. $640
The company’s total residual income can be calculated as follows:
Residual income
The preparation of a comprehensive master budget culminates with the preparation of the
A. Production budget.
B. Capital investment budget.
C. Cash budget.
D. Strategic budget.
C. Cash budget.
Apart from the pro forma balance sheet and statement of cash flows, the cash budget is the culmination of the master budget process.
A favorable direct labor rate variance, if due to hiring less-skilled labor, will most likely result in a ______ sales volume or sales price variance.
A. Unfavorable.
B. None of the answers are correct.
C. Neutral.
D. Favorable.
A. Unfavorable.
Using less-skilled labor often results in lower quality products, less demand, and a decrease in actual unit sales. The effect is an unfavorable sales volume variance. If the seller wants to maintain the same sales level, the price must be reduced, resulting in an unfavorable sales price variance.
The current generation of ERP software (ERP II) may include an advanced planning and scheduling system that
A. Connects the organization with other members of a joint venture.
B. Determines the location of retail outlets.
C. Controls the flow of a manufacturer’s materials and components through the supply chain.
D. Permits tracking of orders by customers.
C. Controls the flow of a manufacturer’s materials and components through the supply chain.
An advanced planning and scheduling system may be an element of a supply chain management application for a manufacturer. It controls the flow of materials and components within the chain. Schedules are created given projected costs, lead times, and inventories.
A company predicted that it would manufacture 10,000 units of finished goods during March. The direct labor standards indicated that each unit of finished goods requires 2.4 direct labor hours at a standard wage of $20 per hour, totaling $48.00 per finished good unit. During March, the company actually made 9,000 units of finished goods. Production used 2.5 labor hours per finished unit, and the company actually paid $21 per hour, totaling $52.50 per unit of finished product. What amount is the company’s direct labor rate variance for March?
A. $22,500
B. $40,500
C. $25,000
D. $18,000
A. $22,500
The direct labor rate variance equals the actual number of hours worked times the difference between (1) the standard hourly wage rate and (2) the actual hourly wage rate. The actual number of hours worked equals 22,500 (2.5 labor hours per unit that were actually used times the 9,000 units that were actually finished). Thus, the direct labor rate variance is $22,500 [($20 SP – $21 AP) × 22,500 AQ] unfavorable.
Real-time processing is most appropriate for which of the following bank transactions?
A. Purchases of fixed assets.
B. Expiration of prepaid liability insurance.
C. Credit authorizations for consumer loan applicants.
D. Biweekly payroll for bank employees.
C. Credit authorizations for consumer loan applicants.
In real-time systems, having the latest information available at all times is crucial so that users can make immediate decisions. Therefore, if the bank needs to immediately provide credit authorizations for consumer loan applicants, real-time processing is the most appropriate system.
Dawn Corp. uses a standard cost system. During the year, both the labor rate variance and the labor efficiency variance were unfavorable. Dawn wrote the variances off directly to cost of goods sold. If Dawn had allocated the variances to work in process, finished goods, and cost of goods sold instead, what would have been the effects on current ratio and net income?
C. Current ratio = Increases
Net income = Increases
By reallocating a portion of cost of goods sold (COGS) to work-in-process and finished goods inventory, the overall expenses of the company are reduced as a portion of the expense is reclassified as a current asset (inventory). The reduction in expenses will increase net income. Additionally, the increase in current assets without an increase in current liabilities will result in an increase in the current ratio.
The total quality management process identifies each of the following as a cost of quality, except
A. Internal failure costs.
B. Prevention costs.
C. External failure costs.
D. Investment costs.
D. Investment costs.
The total quality management process identifies four costs of quality: (1) prevention costs, (2) appraisal costs, (3) internal failure costs, and (4) external failure costs. Investment costs are not a cost of quality.
A sales budget shows quarterly sales for the next year as follows:
Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter’s sales. Budgeted production for the second quarter of the next year would be
A. 7,200 units.
B. 8,000 units.
C. 8,400 units.
D. 8,800 units.
D. 8,800 units.
The finished units needed for sales (8,000), plus the units desired for ending inventory (12,000 units to be sold in the third quarter × 20% = 2,400), minus the units in beginning inventory (8,000 units to be sold in the second quarter × 20% = 1,600) equals budgeted production for the second quarter of 8,800 units.
Which of the following decision-making models equates the initial investment with the present value of the future cash inflows?
A. Cost-benefit ratio.
B. Internal rate of return.
C. Payback period.
D. Accounting rate of return.
B. Internal rate of return.
The internal rate of return is a convenient tool for assessing capital budgeting projects that involves determining the rate of return at which the present value of all the net cash flows equals $0.
The relationship between online, real-time database systems and batch processing systems is that
A. A firm will always prefer an online, real-time processing system because batch processing is slow.
B. A firm will have only one processing mode because a single computer cannot do both.
C. A firm may use both processing modes concurrently.
D. A firm will not use batch processing if it has a large computer.
C. A firm may use both processing modes concurrently.
Firms may find it beneficial to incorporate both processing modes into one system. A database may be established for information that must be obtained quickly, for instance, a sales processing system in which credit information must be available to sales personnel on an ongoing basis. However, other processing requirements may take advantage of the speed and control provided in a batch processing system. For example, payroll transactions may be processed quickly and efficiently in a batch mode.
Nextgen, Inc., installed an access management application to assess sensitive access and segregation-of-duty risks and conflicts during the development of security roles and the assignment of those roles to end users. To achieve this purpose, which of the following features should the application include?
A. Both II and III.
B. Both I and II.
C. I, II, and III.
D. I only.
C. I, II, and III.
The application should have the ability to define restrictions, prevent access in accordance with restrictions, and recommend a mitigating control activity if granting access would override a restriction.
A distinguishing feature of a futures contract is that
A. Performance is delayed.
B. The parties know each other.
C. It is a hedge, not a speculation.
D. The price is marked to market each day.
D. The price is marked to market each day.
A characteristic of futures contracts is that their prices are marked to market every day at the close of the day. Thus, the market price is posted at the close of business each day. A mark-to-market provision minimizes a futures contract’s chance of default because profits and losses on the contracts must be received or paid each day through a clearinghouse.
The capital budgeting technique known as internal rate of return uses
C. Cash Flow overEntire Life of Project = Yes
Time Valueof Money = Yes
The internal rate of return is a capital budgeting technique that equates the present value of future cash flows with the initial cost of the investment. It incorporates the time value of money by determining the compound interest rate of an investment.
The IT steering committee typically includes
A. All of the answers are correct.
B. Executive management from each division.
C. The head of systems development from the IT function.
D. The Chief Information Officer.
A. All of the answers are correct.
The IT steering committee typically includes the Chief Information Officer, the head of systems development from the IT function, and executive management from each division.
Clifford Co. calculates the net present value (NPV) of a potential project for different discount rates. Based on the following results, what is the approximate internal rate of return (IRR) of the project?
A. 5.1%
B. 7.1%
C. 6.1%
D. 8.1%
C. 6.1%
The IRR of a project is the discount rate at which the investment’s NPV equals zero. The sign of the NPV changes from positive to negative between the discount rates of 6% and 7%. Consequently, the IRR of the project must be between 6% and 7%.
