Question 1

Let AP = actual price of raw materials, SP = the standard price, AQ = the actual quantity of materials used, and SQ = the standard quantity of materials for a given level of production. The raw materials usage variance equals

Accepted Answer

A)  AP × (AQ - SQ) 
B)  AQ × (AP - SP) 
C)  SP × (AQ - SQ) 
D)  SQ × (AP - SP)

Question 2

The IMA's term for the correlation between a particular managerial objective's output quantity and the input quantities required to produce that output is

Accepted Answer

A)  Divisibility 
B)  Traceability 
C)  Homogeneity 
D)  Responsiveness

Question 3

Assume that the standard cost to make one finished unit includes two hours of direct labor at $9 per hour. During May, 25,000 direct labor hours were worked, 12,000 units of product were manufactured, and total direct labor cost was $219,000. What is the (approximate) labor efficiency variance for May?

Accepted Answer

A)  $9,000 unfavorable 
B)  $8,760 unfavorable 
C)  $8,760 favorable 
D)  $9,000 favorable

Question 4

The method of evaluating long-term capital investments that finds the number of years it will take before the cash inflows from a project equal the amount of the original investment is the

Accepted Answer

A)  Payback method 
B)  Net present value method 
C)  Internal rate of return method 
D)  Accounting rate of return method

Question 5

The fixed overhead spending variance = actual fixed overhead - budgeted fixed overhead.

Accepted Answer

A) True 
 B)False

Question 6

One implication of cost-volume-profit analysis is that companies with lower fixed costs have lower break-even points.

Accepted Answer

A) True 
 B)False

Question 7

One implication of cost-volume-profit analysis is that companies with higher per-unit contribution margins will have higher break-even points.

Accepted Answer

A) True 
 B)False

Question 8

One advantage of the "top-down" method of budgeting is that lower-level managers feel more empowered.

Accepted Answer

A) True 
 B)False

Question 9

When a company is considering discontinuing production of a product, the original amount paid for the production machinery would usually be relevant to the decision.

Accepted Answer

A) True 
 B)False

Question 10

The Hughes Corp. plans to sell its products for $200 each. Its variable cost per unit = $195, and its fixed costs for the year = $100,000. What level of sales will Han need to make a profit of $250,000?

Accepted Answer

A)  5,000 units 
B)  20,000 units 
C)  50,0000 units 
D)  70,000 units

Question 11

The Gideon Corp. is considering closing all of its Pennsylvania stores. Financial factors that are relevant to this decision would include

Accepted Answer

A)  Lost sales from the closed stores 
B)  Incremental costs involved in closing the stores 
C)  Avoidable occupancy costs related to these stores 
D)  All of the above

Question 12

According to the IMA, the term used to describe a characteristic of an input that allows for the input (and its costs) to be eliminated as a result of a decision is "responsiveness."

Accepted Answer

A) True 
 B)False

Question 13

Lower-level managers are more likely to be able to build "budgetary slack" into budgets when the budgeting process is participatory than when it is top-down.

Accepted Answer

A) True 
 B)False

Question 14

If the Henry Corp. produced 4,000,000 units this year, at a variable cost of $4 per unit and with fixed costs of $1,000,000, and sold all 4,000,000 items at $5 each, its total contribution margin for the year would equal $3,000,000.

Accepted Answer

A) True 
 B)False

Question 15

The David Corp. makes and sells 50,000 suitcases each year. The total fixed costs are $1,000,000. It has variable labor costs of $25 per unit; direct materials costs of $40 per unit; and variable overhead costs of $15 per unit. Its normal selling price is $120 per item. Assuming it does not have a capacity problem, what would be the effect on profits of accepting a special order of 10,000 suitcases, at a price of $90 per suitcase?

Accepted Answer

A)  Profits would decrease by $100,000 
B)  Profits would increase by $100,000 
C)  Profits would increase by $250,000 
D)  Profits would decrease by $250,000

Question 16

Tony Corp. plans to invest $1 million in a project. It expects to sell the project at the end of three years, for proceeds equal to approximately $1,158,000. Which of the following is closest to the internal rate of return?

Accepted Answer

A)  0.01 
B)  0.05 
C)  0.1 
D)  0.116

Question 17

The method of evaluating long-term capital investments that finds the discount rate that makes the net present value of the future inflows from a project exactly equal to the amount invested is the

Accepted Answer

A)  Payback method 
B)  Net present value method 
C)  Internal rate of return method 
D)  Accounting rate of return method

Question 18

Chen Corp. uses the high-low method to estimate how its costs vary with levels of production. For the year, its high production was 50,000 units in a day, at a cost of $900,000, and its low production was 30,000 units, at a cost of $600,000. Its variable cost per unit is

Accepted Answer

A)  Zero 
B)  10 
C)  15 
D)  20

Question 19

In general, a manager using the internal rate of return method to decide between two projects would pick the project with the smaller internal rate of return.

Accepted Answer

A) True 
 B)False

Question 20

According to the IMA, "variability" includes both straight-line and more complicated mathematical relations of volumes produced and total costs.

Accepted Answer

A) True 
 B)False

Exam 5: Accounting for Inventory

Let AP = actual price of raw materials, SP = the standard price, AQ = the actual quantity of materials used, and SQ = the standard quantity of materials for a given level of production. The raw materials usage variance equals

The IMA's term for the correlation between a particular managerial objective's output quantity and the input quantities required to produce that output is

The method of evaluating long-term capital investments that finds the number of years it will take before the cash inflows from a project equal the amount of the original investment is the

The fixed overhead spending variance = actual fixed overhead - budgeted fixed overhead.

One implication of cost-volume-profit analysis is that companies with lower fixed costs have lower break-even points.

One implication of cost-volume-profit analysis is that companies with higher per-unit contribution margins will have higher break-even points.

One advantage of the "top-down" method of budgeting is that lower-level managers feel more empowered.

When a company is considering discontinuing production of a product, the original amount paid for the production machinery would usually be relevant to the decision.

The Hughes Corp. plans to sell its products for $200 each. Its variable cost per unit = $195, and its fixed costs for the year = $100,000. What level of sales will Han need to make a profit of $250,000?

The Gideon Corp. is considering closing all of its Pennsylvania stores. Financial factors that are relevant to this decision would include

According to the IMA, the term used to describe a characteristic of an input that allows for the input (and its costs) to be eliminated as a result of a decision is "responsiveness."

Lower-level managers are more likely to be able to build "budgetary slack" into budgets when the budgeting process is participatory than when it is top-down.

If the Henry Corp. produced 4,000,000 units this year, at a variable cost of $4 per unit and with fixed costs of $1,000,000, and sold all 4,000,000 items at $5 each, its total contribution margin for the year would equal $3,000,000.

Tony Corp. plans to invest $1 million in a project. It expects to sell the project at the end of three years, for proceeds equal to approximately $1,158,000. Which of the following is closest to the internal rate of return?

The method of evaluating long-term capital investments that finds the discount rate that makes the net present value of the future inflows from a project exactly equal to the amount invested is the

Chen Corp. uses the high-low method to estimate how its costs vary with levels of production. For the year, its high production was 50,000 units in a day, at a cost of $900,000, and its low production was 30,000 units, at a cost of $600,000. Its variable cost per unit is

In general, a manager using the internal rate of return method to decide between two projects would pick the project with the smaller internal rate of return.

According to the IMA, "variability" includes both straight-line and more complicated mathematical relations of volumes produced and total costs.