GB519 Management Level Control – Unit 6 Final Exam

1.Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value.
What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2)

4 years.

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5 years.

6 years.

10 years.

15 years.

2.In making capital budgeting decisions, the principal focus is on: (Points : 2)

Cash flows only.

Timing of the cash flows only.

Cash flows and the timing of the cash flows.

Accounting-based measures of revenues and expenses.

Nonfinancial performance indicators.

3.The excess of the present value of future cash flows over the initial investment outlay for a project is the: (Points : 2)

Internal rate of return (IRR) of the project.

Modified internal rate of return (MIRR) on the project.

Book (accounting) rate of return for the project.

Net present value (NPV) of the project.

Modified internal rate of return (MIRR) of the project.

4.Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2)

Overconfidence in decision-making.

A loss in the firm’s profitability.

Conflicting goals between management and sales personnel.

A cost leadership strategy.

Maximization of resources.

5.Which one of the following is most descriptive of strategic analysis? (Points : 2)


Customer focus.

Short-term focus.

Individual product focus.

Not linked to the firm’s strategy.

6.Which one of the following statements concerning capital budgeting is not true? (Points : 2)

A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return.

Capital budgeting is the process of planning asset investments.

Capital budgeting is based on precise estimates of future events.

Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.

Capital budgeting uses after-tax cash flows in the analysis of proposed investments.

7.The decision technique that measures the estimated performance of a capital investment by dividing the project’s annual after-tax income by the average investment cost is called the: (Points : 2)

Break-even point for the project.

Internal rate of return on the proposed investment.

Accounting (book) rate of return on the investment.

Capital asset pricing model.

Profitability index (PI) for the investment.

8.To make a special order decision, managers need critical information about all the following except: (Points : 2)

Relevant costs.

Prior period operating costs.

Any opportunity costs.

The strategic, competitive environment of the firm.

9.A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net savings of: (Points : 2)





10.Which one of the following methods assumes that all interim cash inflows generated by an investment earn a return equal to the internal rate of return (IRR) of the investment? (Points : 2)

Modified internal rate of return (MIRR).


Net present value (NPV).

Present value index (PI).

Internal rate of return method (IRR).

11.The opportunity cost of making a component part in a factory with no excess capacity is the: (Points : 2)

Variable manufacturing cost of the component.

Fixed manufacturing cost of the component.

Total manufacturing cost of the component.

Cost of the production given up in order to manufacture the component.

Net benefit foregone from the best alternative use of the capacity required.

12.Generally speaking, when ranking two mutually exclusive investments with different initial amounts, management should give first priority to the project: (Points : 2)

That generates cash flows for the longer period of time.

Whose net after-tax cash flows equal the initial investment outlay.

That has the greater accounting rate of return (ARR).

Whose cash flows vary the least.

That has the greater profitability index (PI).

13.Which one of the following is correct for determining relevant costs? (Points : 2)



Long-term focus.



14.The term “breakeven after-tax cash flow” represents: (Points : 2)

A pessimistic estimate in a typical scenario analysis.

An optimistic estimate in a typical scenario analysis.

The amount of after-tax cash flow needed to generate a return equal to a project’s IRR.

The cash flow needed to generate an IRR of zero.

An estimate that can be arrived at using Goal Seek in Excel.

15.The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2)

Activity-based costing.

Cost-volume profit analysis.

Outsourcing activities.

Relevant cost-based pricing.

16.During the sales life cycle, which is an example of what happens during the maturity phase? (Points : 2)

Sales and price decline, as do the number of competitors.

Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.

Sales increase rapidly along with an increase in product variety.

Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

17.Which of the following is not a cost system proposed as an extension to ABC systems, with the overall goal of more accurately allocating manufacturing overhead costs to outputs? (Points : 2)

Resource consumption accounting (RCA).

Flexible standard costing.

GPK (Grenzplankostenregnung).

Variable costing.

18._________________________ is an important first step in value engineering because it identifies critical consumer preferences that will define the product’s desired functionality. (Points : 2)

Consumer analysis

Sales force analysis

Design analysis

R&D analysis

Market place analysis

19.The difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost for the period is the: (Points : 2)

Fixed overhead efficiency variance.

Fixed overhead production-volume variance.

Fixed overhead spending variance.

Fixed overhead rate variance.

Fixed overhead sales-volume variance.

20.Xero Company’s standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. Under a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead spending variance for December? (Points : 2)

$50 favorable.

$225 favorable.

$425 unfavorable.

$610 unfavorable.

$650 unfavorable.

21.Target cost can be defined as: (Points : 2)

Manufacturing cost – sales price.

Competitive price – desired profit.

Desired profit – market price.

Target price – manufacturing cost.

22.A deviation from standard that occurs during operations as a result of operator errors is an example of a(n): (Points : 2)

Random error.

Prediction error.

Implementation error.

Modeling error.

Accounting error.

23.If there is a 90 percent chance that an observed variance is random, the cost of conducting an investigation is $1,000, the cost to correct a variance if the investigation reveals a nonrandom cause, and the amount of loss a company expects to incur if it does not investigate a variance that had a nonrandom cause is $30,000, what is the expected cost of not investigating the variance? (Points : 2)






24.Henry Ford was an early pioneer in the use of: (Points : 2)

the theory of constraints.

target costing.

life cycle costing.

just-in-time manufacturing.

25.In a standard cost system, an unfavorable production-volume variance would result if: (Points : 2)

There is an unfavorable labor efficiency variance.

There is an unfavorable labor rate variance.

Actual production is less than the “denominator volume.”

There is an unfavorable manufacturing overhead spending variance.

Actual fixed overhead costs are greater than budgeted fixed overhead costs.

26.During the sales life cycle, which is an example of what happens during the introduction phase? (Points : 2)

Sales and price decline, as do the number of competitors.

Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.

Sales increase rapidly along with an increase in product variety.

Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

27.An organization subject to intense competitive pressures would most likely use: (Points : 2)

Ideal standards for its operations.

Real standards for its operations.

Caution in even using standards.

A mix of types of standards.

28.Which of the following is a theory of constraints (TOC) measure of product profitability that equals price less materials cost, including all purchased components and materials handling costs? (Points : 2)

Takt time.

Throughput margin.

Profitability margin.

Price analysis.

29.Using an activity-based costing system (ABC) enables a firm to calculate overhead variances for: (Points : 2)

Sales volume and production volume.

Spending and selling price.

Each activity-based cost driver.

Semi-variable overhead costs.

Federal income tax purposes.

30.By convention, short-term financial control is accomplished by all the following except: (Points : 2)

Comparing actual to budgeted financial results.

Calculating a series of cost and revenue variances at the end of the period.

The use of flexible budgets and standard costs.

Explaining the total operating-income variance for a given period.

The use of productivity analysis.

31.The balanced scorecard measures the SBU’s performance in all of the following areas except: (Points : 2)

Learning and growth.

Managerial performance.

Customer satisfaction.

Internal business processes.

Accounting and tax compliance.

32.Which one of the following develops the value of the firm as the discounted present value of the firm’s net free cash flows? (Points : 2)

Discounted cash flow method.

Liquidity method.

Multiples-based method.

Profitability method.

33.Performance evaluation in most firms is applied at: (Points : 2)

Many different levels from top management down to individual production and sales employees.

All levels of production, but only top levels of sales.

Top and mid-management levels only.

Lower and mid-management levels only.

The mid-management level only.

34.An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act: (Points : 2)

Independently to achieve top management’s objectives.

Consistently with that of other managers.

Independently to achieve the manager’s objectives.

Independently to achieve the customer’s objectives.

35.Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if: (Points : 2)

Units produced exceed units sold.

Units sold exceed units produced.

Fixed manufacturing costs increase.

Variable manufacturing costs increase.

36.Due in part to the failure of many banks in 2008, executive compensation is getting increased oversight by: (Points : 2)

Audit committees of corporate boards

Top management

Compensation committees of corporate boards

Banking regulators and corporate compensation committees

Banking regulators such as the SEC

37.Which one of the following items is not a measure of a company’s liquidity? (Points : 2)

Accounts receivable turnover.

Return on equity.

Quick ratio.

Cash flow ratio.

Day’s sales in inventory.

38.The value stream income statement can be compared to: (Points : 2)

Value chain analysis.

The contribution income statement.

A streamlined production process.

A streamlined accounting system.

39.Of most relevance in deciding how or which costs should be assigned to an SBU is the degree of: (Points : 2)





40.Risk aversion is by: (Points : 2)

Lack of a strategic emphasis in decision making.

Use of non-strategic performance measurement systems.

Presence of uncertainty in a manager’s environment.

A manager’s inability to deal with stress.

41.A strategic business unit (SBU) consists of a well-defined set of controllable operating activities
over/about which the SBU manager is: (Points : 2)


Responsible for strategy.

Responsible for strategy and execution.

Responsible for strategy, execution, and performance.

42.Managers who are risk prone: (Points : 2)

Seek risky projects that promise some chance of a low benefit.

Seek risky projects that promise some chance of a high benefit, although the projects may have a risk of low benefit.

Seek risky projects.

Seek high risk projects that promise some chance of a high benefit, although the projects may have a very significant risk of no benefit.

43.Which one of the following computes value based on annual earnings? (Points : 2)

Discounted cash flow method.

Liquidity method.

Multiples-based method.

Profitability method.

44.There is a current tax for the manager when which of the following types of compensation is received? (Points : 2)

Qualified stock options

Nonqualified stock options

Deferred bonus

Current bonus

45.There is a common concern today that executive compensation in the U. S. is: (Points : 2)

Not adequately linked to strategic performance measures

Ineffective as a performance incentive

Not properly disclosed to the IRS

Varies too greatly from industry to industry

46.If fairness only is considered, unit managers prefer: (Points : 2)

Not to be evaluated.

A subjective measure.

A single, objective measure.

A firm-wide pool over a unit-based pool.

A unit-based pool over a firm-wide pool.

47.Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments: (Points : 2)


More complex.

Forthright and fair.

Less efficient.

48.Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Variable costing operating income for 2010 is calculated to be: (Points : 2)





49.Compensation plans for high-level managers and executives are usually explained in the firm’s: (Points : 2)

Management Discussion and Analysis (MD&A).

Income Statement.

Notes to the Financial Statements.

Proxy Statement.

50.There is a current tax deduction for the firm for which of the following types of compensation? (Points : 2)

Qualified stock options.

Nonqualified stock options.

Deferred bonus.

Current bonus.

Performance shares

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