GB519: Measurement and Decision Making quiz 4

Question
1.To make a decision whether to accept or reject a special sales order, managers need critical information about all the following except: (Points : 2)

.gif”> Relevant costs.
.gif”> Prior period operating costs.
.gif”> Any opportunity costs.
.gif”> The strategic, competitive environment of the firm.

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2.Which of the following statements regarding “opportunity costs” is TRUE? (Points : 2)

.gif”> These costs are recorded routinely by cost accounting systems.
.gif”> These costs relate to the benefit lost or foregone when a chosen option (course of action) precludes the benefits from an alternative option.
.gif”> These costs are generally deductible for federal income tax purposes.
.gif”> In terms of most short-run decisions, they are irrelevant.

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3.In deciding between alternative choices for a given situation, managers usually employ a five-step process. Which of the following is not a step in the decision-making process? (Points : 2)

.gif”> Evaluate performance.
.gif”> Specify the criteria and identify the alternative actions.
.gif”> Select and implement the best course of action.
.gif”> Perform relevant and strategic cost analysis.
.gif”> Review the audit report.

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4.A useful device for solving production problems involving multiple products and limited resources is: (Points : 2)

.gif”> Gross profit per unit of product.
.gif”> Contribution per unit of scarce resource.
.gif”> Value-stream costing.
.gif”> Relevant cost pricing.
.gif”> The contribution income statement.

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5.In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to this short-run decision is: (Points : 2)

.gif”> Direct labor.
.gif”> Variable overhead.
.gif”> Fixed overhead that will be avoided if the part is bought from an outside vendor.
.gif”> Fixed overhead that will continue even if the part is bought from an outside vendor.

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6.A company’s approach to a make-or-buy decision: (Points : 2)

.gif”> Depends on whether the company is operating at or below the breakeven point.
.gif”> Depends on whether the company is operating at or below normal volume.
.gif”> Involves an analysis of avoidable costs.
.gif”> Should utilize absorption (i.e., full) costing.
.gif”> Should consider an allocation of corporate headquarter expenses to the unit in question.

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7.Which one of the following is true for the internal rate of return (IRR) method? (Points : 2)

.gif”> It assumes cash proceeds during the life of a project can be reinvested to earn the same rate of return as the weighted-average cost of capital.
.gif”> Unlike the NPV method, it assumes only a single discount rate.
.gif”> IRRs of multiple projects are additive (that is, can be added together).
.gif”> It can be used to make optimal decisions regarding mutually exclusive investment projects.
.gif”> It makes it easy to incorporate multiple costs of capital.

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

.gif”> A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return.
.gif”> Capital budgeting is the process of identifying, evaluating, selecting, and controlling long-term investment projects.
.gif”> Capital budgeting is based on precise estimates of future events.
.gif”> Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.

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9.The tax impact of a capital investment project (such as the replacement of a major piece of machinery) is present during: (Points : 2)

.gif”> The project initiation stage and final disposal stage only.
.gif”> All stages: initiation, operation, and final disposal of the project.
.gif”> Only the project initiation stage and the operation stage.
.gif”> The project operation stage only.
.gif”> The project disposal stage only.

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10.If an existing asset is sold at a gain, and the gain is taxable, then the after-tax proceeds from this transaction would be equal to: (Points : 2)

.gif”> Net proceeds from the sale plus the after-tax gain on the sale.
.gif”> Net proceeds from the sale less the after-tax gain on the sale.
.gif”> Net proceeds from the sale plus the taxes paid on the gain.
.gif”> Net proceeds from the sale less the taxes paid on the gain.

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11.Which of the following is not a characteristic of capital budgeting post-audits? (Points : 2)

.gif”> They provide feedback to managers regarding the soundness of their decision-making.
.gif”> They encourage managers to build slack into capital investment proposals.
.gif”> They are sometimes difficult to implement in practice.
.gif”> They may be cost-prohibitive to accomplish.
.gif”> They help keep actual projects on target (e.g., by limiting project managers from diverting project funds, without authorization, to other uses).

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12.Which of the following is not an important advantage of the net present value (NPV) method over the internal rate of return (IRR) method in evaluating capital investment proposals? (Points : 2)

.gif”> NPV facilitates comparisons of mutually exclusive projects requiring different amounts of initial investments.
.gif”> NPV facilitates comparisons among mutually exclusive projects that have the same useful life but different initial outlays.
.gif”> NPV can be used to determine an optimum capital budget under conditions of capital rationing, while IRR cannot.
.gif”> NPV is relatively intuitive.
.gif”> IRR relies on discounted cash-flow analysis, while NPV does not.

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13.Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique’s combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.

What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year). (Points : 2)

.gif”> 2.5 years.
.gif”> 2.7 years.
.gif”> 3.1 years.
.gif”> 3.6 years.

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14.Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique’s combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.

What is the net present value (NPV) of the investment? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end. (Points : 2)

.gif”> ($270,480).
.gif”> $63,936.
.gif”> $109,428.
.gif”> $154,920.

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15.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 net relevant cost of the replacing option is: (Points : 2)

.gif”> $5,000.
.gif”> $20,000.
.gif”> $22,000.
.gif”> $25,000.

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