40 Questions

Accounting test 5

Questions and Answers

- 1.A formal written statement of management's plans for the future, expressed in financial terms, is a:
- A.
Performance report

- B.
Budget

- C.
Gross profit report

- 2.A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:
- A.
Continuous budgeting

- B.
Zero-based budgeting

- C.
Master budgeting

- 3.For Jan, sales revenue is $600,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of Jan are:
- A.
183,750

- B.
182,100

- C.
223,100

- 4.For Feb, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of Feb are:
- A.
230,600

- B.
196,100

- C.
189,500

- 5.If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 200 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is:
- A.
7,000

- B.
6,900

- C.
7,200

- 6.Production estimates for August are as follows:The total direct materials purchases of materials A and B required for August production is:
- A.
1,080,000 for A; 648,000 for B

- B.
1,125,000 for A; 675,000 for B

- C.
1,170,000 for A; 702,000 for B

- 7.Which of the following budgets provides the starting point for the preparation of the direct labor cost budget?
- A.
Cash budget

- B.
Sales budget

- C.
Production budget

- 8.If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 400 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is:
- A.
7,100

- B.
7,200

- C.
6,900

- 9.Finneaty Co.- The number of units expected to be manufactured in March is:
- A.
23,800

- B.
20,200

- C.
1,800

- 10.Finneaty Co.- The number of units expected to be sold in March is:
- A.
1,800

- B.
23,800

- C.
22,000

- 11.Production and sales estimates for June are as follows:The budget total sales for June is:
- A.
270,000

- B.
250,000

- C.
230,000

- 12.Budgeting supports the planning process by encouraging all of the following activities except
- A.
Improving overall decision making by considering all viewpoints, options, and cost reduction possibilities

- B.
Directing and coordinating operations during the period

- C.
Requiring all organizational units to establish their goals for the upcoming period

- 13.A disadvantage of static budgets is that they
- A.
Start with a clean slate

- B.
Cannot be used by service companies

- C.
Do not show possible changes in underlying activity levels

- 14.A series of budgets for varying rates of activity is termed a(n)
- A.
Variable budget

- B.
Flexible budget

- C.
Activity budget

- 15.The number of pounds of materials A and B required for July production is
- A.
234,000 lbs of A; 39,000 lbs of B

- B.
225,000 lbs of A; 37,500 lbs of B

- C.
216,000 lbs of A; 36,000 lbs of B

- 16.The total direct materials purchases of materials A and B required for July production is:
- A.
1,080,000 for A; 648,000 for B

- B.
1,170,000 for A; 702,000 for B

- C.
1,125,000 for A; 675,000 for B

- 17.Wright Corporation began its operations on September 1 of the current year
- A.
240,000

- B.
192,000

- C.
134,400

- 18.Wright Corporation began is operations on September 1 of the current year
- A.
294,000

- B.
336,000

- C.
304,800

- 19.Kidder Company began its operations on March 31 of the current year
- A.
183,200

- B.
188,800

- C.
14,600

- 20.Planning for capital expenditures is necessary for all of the following reasons except
- A.
Machinery and other fixed assets wear out

- B.
Expansion may be necessary to meet increased demand

- C.
Amounts spent for office equipment may be immaterial

- 21.Which of the following is a present value method of analyzing capital investment proposals
- A.
Cash payback method

- B.
Average rate of return

- C.
Net present value

- 22.By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money
- A.
Has time value

- B.
Is the language of business

- C.
Has an international rate of exchange

- 23.Which of the following are methods of analyzing capital investment proposals that ignore present value
- A.
Internal rate of return and average rate of return

- B.
Average rate of return and cash payback method

- C.
Net present value and average rate of return

- 24.THe method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is
- A.
Cash payback method

- B.
Internal rate of return method

- C.
Average rate of return method

- 25.The primary advantages of the average rate of return method are its ease of computation and the fact that
- A.
It emphasizes the amount of income earned over the life of the proposal

- B.
It is especially useful to managers whose primary concern is liquidity

- C.
Rankings of proposals are necesssary

- 26.The expected average rate or return for a proposed investment of 600,000 in a fixed asset, giving effect to depreciation, with a useful life of four years, no residual value, and an expected total income yield of 216,000 is
- A.
9%

- B.
18%

- C.
15%

- 27.The amount for the average investment for a proposed investment of 60,000 in a fixed asset, giving affect to depreciation (straight-line method), with a useful life of 4 years,no residual value, and an expected total income yield of 21,600 is:
- A.
10,800

- B.
5,400

- C.
21,600

- 28.An anticipated purchase of equipment of 400,000, with a useful life of 8 years and nor residual value, is expected to yield the following annual net incomes and net cash flows: what is the payback period
- A.
5 years

- B.
3 years

- C.
4 years

- 29.Which method of evaluating capital investment proposals uses the concept of present value to compute a rare rate of return
- A.
Average rate of return

- B.
Internal rate of return

- C.
Accounting rate of return

- 30.Which of hte following is a method of analyzing capital investment proposal that ignores present value
- A.
Internal rate of return

- B.
Net present value

- C.
Average rate of return

- 31.The methods of evaluating capital investment proposals can be separated into two general groups - present value methods and
- A.
Past value methods

- B.
Straight-line methods

- C.
Methods that ignore present value

- 32.Using the following partial table of present value of $1 at compound interest, determine the present value of $20,000 to be received four years hence, with earnings at the rate of 10% a year
- A.
13,660

- B.
12,720

- C.
10,400

- 33.The expected average rate or return for proposed investment of 4,800,000 in a fixed asset, giving effect to depreciation, with a usefel life of 20 years , no residual value, and an expected total income of 12,000,000 is
- A.
12.5%

- B.
40%

- C.
25%

- 34.The management of Douglass Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:The net present value for this investment is:
- A.
Positive, $19,875

- B.
Negative, $19,875

- C.
Positive, $118,145

- 35.The management of Douglass Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:The Present Value index for this investment is:
- A.
1.25

- B.
1.05

- C.
.95

- 36.Gossman Corporation is analyzing a capital expenditure that will involve a cash outlay of $104,904. Estimated cash flows are expected to be $36,000 annual for four years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.8555, respectively. The internal rate of return for this investment is:
- A.
2.4%

- B.
2%

- C.
14%

- 37.All of the following qualitative considerations may impact upon capital investments analysis except:
- A.
Manufacturing sunk cost

- B.
Manufacturing flexibility

- C.
Manufacturing control

- 38.All of the following are factors that may complicate capital investment analysis except:
- A.
Changes in price levels

- B.
The leasing alternative

- C.
Sunk cost

- 39.Which of the following provisions if the internal revenue code can be used to reduce the amount of the income tax arising from capital investment projects?
- A.
Depreciation deduction

- B.
Minimum tax provision

- C.
Interest deduction

- 40.Assume in analyzing alternative proposals that proposal F has a useful life of 6 years and proposal J has a useful life of 9 years. What is one widely used method that makes the proposals comparable?
- A.
Ignore the useful lives of six and nine years and find an average (7 1/2 years)

- B.
Adjust the life of proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year 6

- C.
Ignore the useful lives of six and nine years and compute the average rate of return