Practice Exam 8.7.23 Flashcards
Smart Co. uses a static budget. When actual sales are less than budget, Smart would report favorable variances on which of the following expense categories?
D. Sales commissions = Yes
Building rent = No
Sales commissions expense is a variable cost that varies directly with sales. If Smart Co.’s sales are less than budget, its sales commissions expense also is less than budget. Building rent is a fixed cost, so no variance due to sales volume occurs.
The primary purpose of a database system is to have a single storage location for each
A. File.
B. Record.
C. Database.
D. Item of data.
D. Item of data.
Databases allow companies to save data (information) in one place instead of having hundreds of specific files with similar data.
The change in period-to-period operating income when using variable costing can be explained by the change in the
A. Finished goods inventory level multiplied by a constant unit contribution margin.
B. Unit sales level multiplied by a constant unit contribution margin.
C. Finished goods inventory level multiplied by the unit sales price.
D. Unit sales level multiplied by the unit sales price.
B. Unit sales level multiplied by a constant unit contribution margin.
In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are expensed in the period incurred. Because changes in the relationship between production levels and sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more directly follow the trends in sales, especially when the UCM (Selling price per unit – Variable costs per unit) is constant. Unit sales times the UCM equals the total CM, and operating income (a pretax amount) equals the CM minus fixed costs of operations. If the UCM is constant and fixed costs are stable, the change in operating income will approximate the change in the CM (Unit sales × UCM).
An American importer expects to pay a British supplier 500,000 British pounds in 3 months. Which of the following hedges is best for the importer to fix the price in dollars?
A. Buying British pound put options.
B. Selling British pound call options.
C. Selling British pound put options.
D. Buying British pound call options.
D. Buying British pound call options.
The importer wants to hedge the risk that the fixed amount of foreign currency it must pay in 3 months will gain purchasing power during that time. Buying a call option gives the importer the right to buy (call for) the foreign currency in 3 months at a fixed price, regardless of exchange rate fluctuations in the meantime.
Call = Buy
Put = Sell
A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows:
What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?
A. $52,000
B. $40,000
C. $16,000
D. $48,000
D. $48,000
The NRV of Ajac is $72,000 ($80,000 – $8,000), and the NRV of Bjac is $18,000 ($40,000 – $22,000). Thus, the joint cost assigned to Ajac if costs are assigned based on relative NRV is $48,000 {$60,000 × [$72,000 ÷ ($72,000 + $18,000)]}.
Or
$80,000 - $8,000 = $72,000
$40,000 - $22,000 = $18,000
$72,000 + $18,000 = $90,000
$72,000/$90,000 = .80 or 80%
$60,000 * .80 = $48,000
Fact Pattern: Tosh Enterprises reported the following account information:
Tosh Enterprises’ amount of working capital is
A. $600,000
B. $1,220,000
C. $1,200,000
D. $1,120,000
C. $1,200,000
Working capital equals current assets minus current liabilities. For Tosh Enterprises, current assets consist of accounts receivable, cash, inventory, and prepaid expenses, a total of $1,480,000 ($400,000 + $200,000 + $800,000 + $80,000). Current liabilities consist of accounts payable and interest payable, a total of $280,000 ($260,000 + $20,000). Accordingly, working capital is $1,200,000 ($1,480,000 – $280,000).
Card Bicycle Co. has prepared production and raw materials budgets for next year. At the end of this year, the finished product inventory is expected to include 2,000 bicycles, and raw material inventory is expected to include 3,000 bicycle tires. Each finished bicycle requires two tires. The marketing department provided the following data from the sales budget for the first quarter:
The company inventory policy is to have finished product inventory equal to 20% of the following month’s sales requirements and to have raw material equal to 10% of the following month’s production requirements. In the January budget for raw materials, how many tires are expected to be purchased?
A. 26,680
B. 26,600
C. 26,120
D. 24,200
A. 26,680
Total quality management (TQM) in a manufacturing environment is best exemplified by
A. Identifying and reworking production defects before sale.
B. Making machine adjustments periodically to reduce defects.
C. Designing the product to minimize defects.
D. Performing inspections to isolate defects as early as possible.
C. Designing the product to minimize defects.
TQM emphasizes quality as a basic organizational function. TQM is the continuous pursuit of quality in every aspect of organizational activities. One of the basic principles of TQM is doing it right the first time. Thus, errors should be caught and corrected at the source, and quality should be built in (designed in) from the start.
Matthews Corp. has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computer system automatically updates all payroll records. Because of this change,
A. The potential for payroll-related fraud is diminished.
B. Transactions must be processed in batches.
C. Part of the audit trail is altered.
D. A generalized computer audit program must be used.
C. Part of the audit trail is altered.
In a manual payroll system, a paper trail of documents is created to provide audit evidence that controls over each step in processing are in place and functioning. One element of a computer system that differentiates it from a manual system is that a transaction trail useful for auditing purposes might exist only for a brief time or only in computer-readable form.
The standard direct materials cost to produce a unit of Lem is 4 meters of materials at $2.50 per meter. During May, 4,200 meters of materials costing $10,080 were purchased and used to produce 1,000 units of Lem. What was the materials price variance for May?
A. $80 unfavorable.
B. $480 unfavorable.
C. $400 favorable.
D. $420 favorable.
D. $420 favorable.
The actual price paid for materials during May ($10,080 actual cost ÷ 4,200 meters used) is $2.40 per meter. The materials price variance equals the actual quantity of materials purchased and used, times the difference between the actual price of materials and the standard price. The materials price variance for the month can be calculated as follows:
A customer notified a company that the customer’s account did not reflect the most recent monthly payment. The company investigated the issue and determined that a clerk had mistakenly applied the customer’s payments to a different customer’s account. Which of the following controls would help to prevent such an error?
A. Closed-loop verification.
B. Field check.
C. Checksum.
D. Completeness test.
A. Closed-loop verification.
Closed-loop verification involves inputs by a user that are transmitted to the computer, processed, and displayed back to the user for verification.
Which one of the following features is least likely to apply to the transaction processing cycle of an accounting information system?
A. Most of the sources of data are an organization’s recurring transactions.
B. Data records are chiefly historical in nature.
C. Data records are the basis of predictive systems.
D. Data are usually financial in nature.
C. Data records are the basis of predictive systems.
An AIS is a subsystem of a management information system that processes financial and transactional data relevant to managerial and financial accounting. The AIS supports operations by collecting and sorting historical data about an organization’s transactions. An AIS is concerned not only with external parties but also with the internal activities needed for management decision making at all levels. An AIS is best suited to solve problems when reporting requirements are well defined. An AIS does not typically use records based on predictive systems, which would be a feature of a decision support system.
Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the organization into responsibility centers. Which one of the following organizational segments is most like an independent business?
A. Cost center.
B. Profit center.
C. Investment center.
D. Revenue center.
C. Investment center.
An investment center is the organizational type most like an independent business because it is responsible for its own revenues, costs incurred, and capital invested. The other types of centers do not incorporate all three elements.
Fact Pattern:
Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing $93,000.
The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a by-product, is sold at the split-off point for $3 per pound.
Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa using the net realizable value method is
A. $30,000
B. $31,000
C. $3,000
D. $60,000
A. $30,000
The NRV at split-off for each of the joint products are as follows:
The 1,000 pounds of Morefeed has a split-off value of $3 per pound, or $3,000. Assuming that Morefeed (a by-product) is inventoried (recognized in the accounts when produced) and treated as a reduction of joint costs, the allocable joint cost is $90,000 ($93,000 – $3,000). (NOTE: Several other methods of accounting for by-products are possible.) The total net realizable value of the main products is $60,000 ($20,000 Alfa + $40,000 Betters). The allocation to Alfa is $30,000 [$90,000 × ($20,000 ÷ $60,000)].
Which of the following is one of the four perspectives of a balanced scorecard?
A. Activity-based costing.
B. Benchmarking.
C. Just in time.
D. Innovation.
D. Innovation.
The balanced scorecard is an accounting report that connects the firm’s critical success factors determined in a strategic analysis with measures of its performance. The critical success factors (and appropriate measures thereof) are assigned to four perspectives on the business: financial, customer, internal business processes, and learning and growth. Innovation is a facet of the learning and growth perspective.
Dan Corporation’s options for acquiring a new machine are a 5-year operating lease or a purchase. The machine will increase unit output for an after-tax incremental profit of $50,000 in Year 1, $70,000 in Year 2, $70,000 in Year 3, $100,000 in Year 4, and $100,000 in Year 5. The lease rent is $90,000 payable on the first day of each year. Dan uses straight-line depreciation, which is acceptable under both financial and tax accounting. The applicable tax rate is 40%, and the weighted average cost of capital is 11%. What is the net present value of leasing the new machine?
A. $120,000
B. $132,091
C. $80,709
D. $42,091
D. $42,091
Fact Pattern: Maloney Company uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year:
Which project(s) should Maloney undertake during the upcoming year if it has only $6,000,000 of funds available?
A. Project 1.
B. Project 2.
C. Projects 1 and 2.
D. Project 3.
A. Project 1.
When available funds are limited, potential projects should be ranked by profitability index. With only $6,000,000 available and each project costing $4,000,000 or more, no more than one project can be undertaken. Accordingly, Maloney should undertake Project 1.
Country A and country B have been trading partners for years. Recently, country B’s currency greatly depreciated against country A’s currency. Which of the following factors that occur in country A’s economy could contribute to currency B’s depreciation?
B. Relative Interest Rate = Increase
Relative Income Level = Decrease
Relative Inflation Rate = Decrease
When the interest rates in country A rise relative to those of country B, the demand for country A’s currency rises. As more investors buy currency A to make investments, currency A appreciates. Thus, currency B has depreciated against currency A. Persons with higher incomes look for new consumption opportunities in other countries, increasing the demand for those currencies. As country A’s income level decreases, the demand for currency B decreases, making currency B depreciate. When the rate of inflation in a given country falls relative to the rates of other countries, the products of that country become relatively inexpensive and the demand for that country’s currency rises. As country A’s relative inflation rate falls compared to country B, currency A becomes relatively inexpensive and its demand rises, making currency A appreciate relative to currency B.
Fact Pattern: The table below concerns the money supply for the economy of the hypothetical country of Petasus.
The size of Petasus’ M2 money supply is
A. $3,910 billion
B. $2,960 billion
C. $2,300 billion
D. $4,760 billion
D. $4,760 billion
M2 includes coins and currency, checking deposits, nonchecking savings, and small (less than $100,000) time deposits. Also included are money market accounts and money market mutual funds. Thus, M2 equals $4,760 billion ($2,400 billion + $500 billion + $60 billion + $950 billion + $300 billion + $550 billion).
