1) The internal rate-of-return (IRR) method calculates ________.
A) the discount rate at which an investment’s present value of the total of all expected
cash inflows equals the present value of its expected cash outflows.
B) the discount rate at which an investment’s future value of all expected cash inflows
equals the present value of its expected cash outflows.
C) the discount rate at which an investment’s total of all expected cash inflows equals
the present value of its expected cash outflows.
D) the discount rate at which sum of an investment’s present value of all expected cash
inflows equals the present value of its expected cash outflows.
2) ________ is the level of capacity utilization that managers expect for the current
budget period, which is typically one year.
A) Practical capacity
B) Master-budget capacity utilization
C) Theoretical capacity
D) Normal capacity utilization
3) The total of the product costs listed above for December is:
A) $340,000
B) $82,000
C) $647,000
D) $307,000
4) Winnz sells 8,000 units resulting in $100,000 of sales revenue, $35,000 of variable
costs, and $45,000 of fixed costs. To achieve $150,000 in operating income, sales must
total ________.
A) $440,000
B) $160,000
C) $130,000
D) $300,000
5) Henry Inc., a manufacturing firm, is able to produce 1,000 pairs of sneakers per hour,
at maximum efficiency. There are three eight-hour shifts each day. Due to unavoidable
operating interruptions, production averages 800 units per hour. The plant actually
operates only 27 days per month. Based on the current budget, Henry estimates that it
will be able to sell only 500,000 units due to the entry of a competitor with aggressive
marketing capabilities. But the demand is unlikely to be affected in future and will be
around 515,000. Assume the month has 30 days.
What is the master-budget capacity utilization level for this budget period?
A) 500,000 units
B) 515,000 units
C) 518,400 units
D) 720,000 units
6) Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells
blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD;
DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart
does not inspect the DVDs due to Globe’s reputation for high quality. Annual demand is
312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash
investments. The purchase-order lead time is one week. The following cost data are
available:
Relevant ordering costs per purchase order$114.50
Carrying costs per package per year:
Relevant insurance, materials handling,
breakage, etc., per year$ 4.50
What are the annual relevant carrying costs?
A) $7,122
B) $8,265
C) $9,057
D) $7,157
7) ________ measures the relationship between actual inputs used and actual outputs
achieved.
A) Strategy map
B) Planning variance
C) Productivity
D) Discretionary costs
8) An example of a discretionary fixed cost would be:
A) taxes on the factory.
B) depreciation on manufacturing equipment.
C) insurance.
D) research and development.
9) Which of the following is true if the constant in the cost function is low compared to
the last year?
A) total variable costs have decreased
B) production has increased
C) the sales commission percentage has decreased
D) total fixed cost have decreased
10) Which of the following statements is true of activity-based costing?
A) In activity-based costing, direct labor-hours is always the best allocation base to
allocate all non-manufacturing indirect costs.
B) Activity based costing is more suited to companies with high product diversity than
companies with single product line.
C) Activity based costing broadly averages or spreads the cost of resources uniformly to
cost objects such as products or services.
D) The main advantage of activity-based costing over peanut-butter costing is the
accurate distribution of all direct costs to the products.
11) Problems with costing occur when ________.
A) incorrect job numbers are recorded on source documents
B) bar coding is used to record materials used on the job
C) a computer screen requests an employee number before that employee is able to
work on information related to a specific job
D) incorrect product delivery forms are entered into the system
12) Emrald Corp currently uses a manufacturing facility costing $500,000 per year;
90% of the facility’s capacity is currently being used. A start-up business has proposed a
plan that would utilize the other 10% of the facility and increase the overall costs of
maintaining the space by 5%.
If the incremental method were used, what amount of cost would be allocated to the
start-up business?
A) $40,000
B) $50,000
C) $46,000
D) $42,000
13) Cost allocation is ________.
A) the process of tracking both direct and indirect costs associated with a cost object
B) the process of determining the opportunity cost of a cost object chosen
C) the assignment of indirect costs to the chosen cost object
D) made based on material acquisition document
14) The AARR method is similar to the IRR method as ________.
A) both calculate the return using after-tax cash flows
B) both calculate the return using operating-income numbers after considering accruals
and taxes
C) both calculate the result in terms of percentage
D) both consider the time value of money