Question 1

The payback period equals the cost of the capital investment divided by net income.

Accepted Answer

A) True 
 B)False

Question 2

If the incremental revenues are greater than the incremental costs,the product should be processed further.

Accepted Answer

A) True 
 B)False

Question 3

Contribution margin per unit of constrained resources is calculated by dividing contribution margin per unit by quantity of the constrained resources required per unit.

Accepted Answer

A) True 
 B)False

Question 4

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

Accepted Answer

A) True 
 B)False

Question 5

In segment profitability analysis,avoidable costs are costs that

Accepted Answer

A) are traceable to a specific segment of business. 
B) cannot be eliminated if a segment is dropped. 
C) are common to all the segments of a business. 
D) have not been incurred and hence are irrelevant. 
A) are traceable to a specific segment of business. 
B) cannot be eliminated if a segment is dropped. 
C) are common to all the segments of a business. 
D) have not been incurred and hence are irrelevant.

Question 6

The net present value method and other methods of capital investment analysis should only be used for taking short-term decisions.

Accepted Answer

A) True 
 B)False

Question 7

If the incremental costs of processing further are greater than the incremental revenue,the decision of selling the product at the split-off point is justified.

Accepted Answer

A) True 
 B)False

Question 8

Why is the book value of equipment irrelevant when considering the replacement of equipment?

Accepted Answer

Book value of the equipment is

Question 9

Capital investment analysis is beneficial only for large corporations.

Accepted Answer

A) True 
 B)False

Question 10

Omaha Inc.is expected to have the following cash revenues and expenses (other than depreciation)in 2014:   Omaha's estimated 2014 net cash flows are

Accepted Answer

A) $31,000. 
B) $29,000. 
C) $34,000. 
D) $24,000. 
A) $31,000. 
B) $29,000. 
C) $34,000. 
D) $24,000.

Question 11

The objective of segment profitability decisions is to identify the segments that have a negative segment margin so that managers can drop them or take corrective actions.

Accepted Answer

A) True 
 B)False

Question 12

The minimum rate of return or a minimum cash flow payback period are two standards established in capital investment analysis.

Accepted Answer

A) True 
 B)False

Question 13

When using the accounting rate-of-return method,the net income has to be averaged over the life of the investment.

Accepted Answer

A) True 
 B)False

Question 14

The carrying value of the old asset in a machine replacement decision is relevant.

Accepted Answer

A) True 
 B)False

Question 15

The discount rate used in net present value calculations is the company's minimum rate of return.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true of the net present value method?

Accepted Answer

A) It measures a project's time-adjusted rate of return. 
B) It discounts cash flows at the minimum desired rate of return. 
C) It ignores cash flows beyond the payback period. 
D) It applies only to mutually exclusive investment proposals. 
A) It measures a project's time-adjusted rate of return. 
B) It discounts cash flows at the minimum desired rate of return. 
C) It ignores cash flows beyond the payback period. 
D) It applies only to mutually exclusive investment proposals.

Question 17

The key steps followed by the managers in capital investment analysis include all of the following except

Accepted Answer

A) identification of capital investment needs. 
B) preliminary screening. 
C) formal requests for capital investments. 
D) analyzing sunk costs. 
A) identification of capital investment needs. 
B) preliminary screening. 
C) formal requests for capital investments. 
D) analyzing sunk costs.

Question 18

In a company,there is no limit on the availability of resources such as machine time,labor hours.

Accepted Answer

A) True 
 B)False

Question 19

Alex International needs 20,000 units of a certain part to use in its production cycle.If Alex buys the part from Nicole Company instead of making it,Alex could not use the released facilities in another activity;thus,all of the fixed overhead applied will continue regardless of what decision is made.Accounting records provide the following data: Cost to Alex to make the part:
  What should Alex's decision be,and what is the total cost savings that would result?

Accepted Answer

A) Buy,$180,000 
B) Buy,$20,000 
C) Make,$180,000 
D) Make,$20,000 
A) Buy,$180,000 
B) Buy,$20,000 
C) Make,$180,000 
D) Make,$20,000

Question 20

All of the following are relevant in a sell or process-further decision except

Accepted Answer

A) sales value at the split-off point. 
B) sales value after further processing. 
C) additional processing costs. 
D) joint costs. 
A) sales value at the split-off point. 
B) sales value after further processing. 
C) additional processing costs. 
D) joint costs.

Exam 25: Short-Run Decision Analysis and Capital Budgeting

The payback period equals the cost of the capital investment divided by net income.

If the incremental revenues are greater than the incremental costs,the product should be processed further.

Contribution margin per unit of constrained resources is calculated by dividing contribution margin per unit by quantity of the constrained resources required per unit.

The objective of a sales mix decision is to select the alternative that maximizes the contribution margin per constrained resource.

In segment profitability analysis,avoidable costs are costs that

The net present value method and other methods of capital investment analysis should only be used for taking short-term decisions.

If the incremental costs of processing further are greater than the incremental revenue,the decision of selling the product at the split-off point is justified.

Why is the book value of equipment irrelevant when considering the replacement of equipment?

Capital investment analysis is beneficial only for large corporations.

Omaha Inc.is expected to have the following cash revenues and expenses (other than depreciation)in 2014: Omaha's estimated 2014 net cash flows are

The objective of segment profitability decisions is to identify the segments that have a negative segment margin so that managers can drop them or take corrective actions.

The minimum rate of return or a minimum cash flow payback period are two standards established in capital investment analysis.

When using the accounting rate-of-return method,the net income has to be averaged over the life of the investment.

The carrying value of the old asset in a machine replacement decision is relevant.

The discount rate used in net present value calculations is the company's minimum rate of return.

Which of the following is true of the net present value method?

The key steps followed by the managers in capital investment analysis include all of the following except

In a company,there is no limit on the availability of resources such as machine time,labor hours.

All of the following are relevant in a sell or process-further decision except

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long -Term Assets

Current Liabilities and Fair Value Accounting

Accounting for Partnerships

Accounting for Corporations

Long Term Liabilities

The Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

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