Financial & Managerial Accting MBA-560
Module 7 – Test 7: M/C
1.Select the correct statement regarding relevant costs and revenues. (Points : 2)
To be relevant, a cost or revenue must be future-oriented and must differ between the alternatives.
Sunk costs are relevant for decision-making purposes.
Differential revenues are expected future revenues that do not vary between the alternatives under consideration.
Avoidable costs are also known as sunk costs.
2.All of the following statements describe qualities of the relevance of information except: (Points : 2)
relevant information is future oriented.
relevant information differs between the alternatives.
relevance of information requires a high degree of precision.
relevant information includes qualitative as well as quantitative data.
3.All of the following are factors that could be considered in a decision to outsource a component that is currently being produced in house. Which of the following is not likely to be relevant? (Points : 2)
The book value of equipment used in making the component
The impact on employee morale
The importance of vertical integration to the company
The reliability of the supplier
4.Dwight Corporation provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results:
Service A Service B
Service revenue $80,000 $20,000
Unit-level costs ($50,000) ($ 15,000)
Product-level costs ($10,000) ($ 2,000)
Company-wide (facility-level) costs ($ 5,000) ($ 5,000)
Net income (loss) $15,000 ($ 2,000)
If the company stops providing Service B, the company’s income will: (Points : 2)
increase by $2,000 per year.
decrease by $2,000 per year.
increase by $3,000 per year.
decrease by $3,000 per year.
5.Andy is trying to decide which one of two job offers he will accept. Several items are presented below:
Job Criterion Job Offer A Job Offer B
(1) Base salary $50,000 $50,000
(2) Overtime compensation Comp. time Hourly rate
(3) Moving allowance $ 3,000 $ 3,000
(4) Signing bonus $ 2,000 $ 0
(5) Job search costs already incurred $ 300 $ 500
Select the job criterion that are relevant to Andy’s decision. (Points : 2)
(1), (2), (3), (4), (5)
(2), (3), (4)
(1), (3), (5)
6.Alicia brought her lunch today but now a coworker has asked her to go to the deli across the street. Select the correct statement from the following. (Points : 2)
The cost of the lunch Alicia already has is relevant to Alicia’s decision to have lunch with her friend.
The cost of the lunch Alicia already has represents the opportunity cost of dining with her friend.
The cost to buy lunch at the deli is not relevant because it has not yet been incurred.
The cost of the lunch that Alicia brought has nothing to do with her current decision because it is a sunk cost.
7.Dalton Company is trying to decide between the following two alternatives:
Alternative A Alternative B
Projected revenue $50,000 $60,000
Direct material 6,000 12,000
Assembly labor 9,000 9,000
Production supervisor’s salary 10,000 10,000
Facility-related costs 10,000 15,000
Profit $15,000 $14,000
Which of the following conclusions can be drawn from this example? (Points : 2)
Variable costs are always relevant for decision making.
Fixed costs are sunk and thus are never relevant for decision making.
Relevant costs may include variable costs and fixed costs.
The amount of revenue is not relevant to this decision.
8.Colson-Howard Company operates a store in downtown Savannah that has five departments including a sporting goods department. If the sporting goods department is closed, the store manager will not be affected, but if the entire store is closed, the manager will be terminated. Which of the following lessons should be learned from this example? (Points : 2)
The relevance of costs is context sensitive.
Sunk costs cannot be avoided.
Opportunity costs are always present.
Information does not have to be precisely accurate in order to be relevant.
9.Which of the following costs generally is an example of a batch-level cost? (Points : 2)
Assembly setup costs
Materials handling costs
Shipping and handling costs to ship an order to a customer
All of the above
10.Brandon Company plans to add a new item to its product line. Two possible products are under consideration. Each unit of Product A costs $12 to produce and sells for $20, while each unit of Product B costs $18 and sells for $28. What is the differential revenue for this decision? (Points : 2)
$2 per unit sold
$8 per unit sold
$14 per unit sold
$18 per unit sold
11.Planning concerned with long-range decisions such as defining the scope of the business is referred to as: (Points : 2)
12.Expressing plans for a business in financial terms is commonly called: (Points : 2)
13.A company’s numerous specific budgets (sales and inventory purchases, for example) together are referred to as the: (Points : 2)
14.With regards to financial statements, “pro forma” means: (Points : 2)
prepared in advance.
financial condition or position that can be expected if planning assumptions prove correct.
all of the above.
15.Select the correct statement regarding the selling and administrative (S&A) expense budget. (Points : 2)
The S&A budget is prepared before the sales budget.
The S&A budget is prepared after the cash budget.
The S&A budget is prepared before the pro forma income statement.
All of the above are correct.
16.The master budget normally covers: (Points : 2)
one to three years.
three to five years.
17.Select the incorrect statement about budget committees. (Points : 2)
Budgeting committees usually have responsibility for the coordination of budgeting activities.
Membership on the budgeting committee is restricted most often to accountants because the budget involves numbers.
The budgeting committee is responsible for settling disputes between various departments over budget matters.
One of the responsibilities of the budget committee is to monitor the organization’s progress toward achieving its budget standards.
18.Select the incorrectstatement regarding the human factor in the budgeting process. (Points : 2)
There is a tendency for people to be uncomfortable with budgets.
The evaluation feature of budget systems is frightening for many people.
Budgets force employees to follow the organization’s plan.
Proper handling of human relations is essential to the establishment of an effective budget system.
19.Wakefield Company wants an ending inventory each month equal to 30% of that month’s cost of goods sold. Cost of goods sold for February is projected at $90,000. Ending inventory at the end of January was $24,000. Based on this information, purchases for February will be: (Points : 2)
20.Select the incorrectstatement about the planning process. (Points : 2)
The longer the time period, the less specific the plans.
Planning decisions can often be sub-divided into three distinct planning phases, short-term, intermediate-term, and long-term.
The nature of planning changes with the length of the time period being considered.
The shorter the time period, the more general the plans.
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