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Question 1. 1. (TCO 1) Which one of the following is not a benefit of budgeting? (Points : 5) It facilitates the coordination of activities. It provides definite objectives for evaluating performance. It provides assurance that the company will achieve its objectives. It provides early warning signs of potential threats. Question 2. 2. (TCO 2) Which of the following is not a qualitative forecasting method? (Points : 5) Executive opinions Sales force polling Delphi method Classical decomposition Question 3. 3. (TCO 3) Which of the following is not used to evaluate the accuracy of regression results? (Points : 5) Mean absolute deviation Coefficient of determination Prediction confidence interval T-statistic Question 4. 4. (TCO 4) Which of the following statements regarding the risk associated with R & D activities is incorrect? (Points : 5) The amount of time between the R & D activity and the cash flows from the project does not affect risk. Greater risk is associated with creating new products than with improving existing products. Risk increases as the time between the R & D activity and the cash flows from the project increases. Assessing risk is a vital part of research and development. Question 5. 5. (TCO 5) Which of the following is true when ranking proposals using zero-base budgeting? (Points : 5) Nonfunded packages should not be ranked. Adjustments are not allowed once the ranking is complete. Due to changing circumstances, a low-priority item may later become a high-priority item. Decision packages are ranked in order of increasing benefit. Question 6. 6. (TCO 6) When using the payback period technique, the payback period is expressed in terms of _____. (Points : 5) a percentage dollars years months Question 7. 7. (TCO 6) The accounting rate of return method is based on _____. (Points : 5) income data the time value of money data market values cash flow data Question 8. 8. (TCO 6) A company projects annual cash inflows of $85,000 each year for the next 5 years if it invests $300,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $75,000. What is the accounting rate of return on this investment? (Points : 5) 28.3% 13.3% 15% 43.3% Question 9. 9. (TCO 6) Bradshaw Inc. is contemplating a capital investment of $85,000. The cash inflows over the project’s 4 years are as follows. Year Expected Cash Inflow 1 $18,000 2 $25,000 3 $35,000 4 $20,000 The payback period is _____. (Points : 5) 2.17 years 3.35 years 2.30 years 3.47 years Question 10. 10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as shown below. Projects A B C Initial Investment $40,000 $60,000 $80,000 Present value of cash inflows $60,000 $55,000 $100,000 Using the profitability index, rank the projects, starting with the most attractive. (Points : 5) A, C, B A, B, C C, A, B C, B, A Question 11. 11. (TCO 6) A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $210,000 and is expected to generate cash inflows of $85,000 at the end of each year for 4 years. The approximate net present value of this project is _____. (Points : 5) $59,442 $1,387 $65,375 $5,161 Question 12. 12. (TCO 7) Which of the following would not appear as a fixed expense on a selling and administrative expense budget? (Points : 5) Freight-out Office salaries Property taxes Depreciation Question 13. 13. (TCO 7) Sargent.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000 during July. The company keeps 15% of the next month’s sales as ending inventory. How many units should Sargent.Com produce during June? (Points : 5) 1,915 2,200 1,885 Not enough information to determine Question 14. 14. (TCO 8) Which of the following is not a cause of profit variance? (Points : 5) Changes in sales price Changes in sales mix Changes in sales volume All of the above are causes of profit variance. Question 15. 15. (TCO 9) A static budget _____. (Points : 5) should not be prepared in a company is useful in evaluating a manager’s performance by comparing actual variable costs and planned variable costs shows planned results at the original budgeted activity level is changed only if the actual level of activity is different from what is originally budgeted Question 16. 16. (TCO 9) If costs are not responsive to changes in activity level, how are they best described? (Points : 5) Mixed Flexible Variable Fixed Question 17. 17. (TCO 9) At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, what is the estimated fixed cost element of power costs? (Points : 5) $12,000 $6,000 $3,600 $8,400

Question 1. 1. (TCO 1) Which one of the following is not a benefit of budgeting? (Points : 5)
It facilitates the coordination of activities.
It provides definite objectives for evaluating performance.
It provides assurance that the company will achieve its objectives.
It provides early warning signs of potential threats.
Question 2. 2. (TCO 2) Which of the following is not a qualitative forecasting method? (Points : 5)
Executive opinions
Sales force polling
Delphi method
Classical decomposition
Question 3. 3. (TCO 3) Which of the following is not used to evaluate the accuracy of regression results? (Points : 5)
Mean absolute deviation
Coefficient of determination
Prediction confidence interval
T-statistic
Question 4. 4. (TCO 4) Which of the following statements regarding the risk associated with R & D activities is incorrect? (Points : 5)
The amount of time between the R & D activity and the cash flows from the project does not affect risk.
Greater risk is associated with creating new products than with improving existing products.
Risk increases as the time between the R & D activity and the cash flows from the project increases.
Assessing risk is a vital part of research and development.
Question 5. 5. (TCO 5) Which of the following is true when ranking proposals using zero-base budgeting? (Points : 5)
Nonfunded packages should not be ranked.
Adjustments are not allowed once the ranking is complete.
Due to changing circumstances, a low-priority item may later become a high-priority item.
Decision packages are ranked in order of increasing benefit.
Question 6. 6. (TCO 6) When using the payback period technique, the payback period is expressed in terms of _____.
(Points : 5)
a percentage
dollars
years
months
Question 7. 7. (TCO 6) The accounting rate of return method is based on _____.
(Points : 5)
income data
the time value of money data
market values
cash flow data
Question 8. 8. (TCO 6) A company projects annual cash inflows of $85,000 each year for the next 5 years if it invests $300,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $75,000. What is the accounting rate of return on this investment? (Points : 5)
28.3%
13.3%
15%
43.3%
Question 9. 9. (TCO 6) Bradshaw Inc. is contemplating a capital investment of $85,000. The cash inflows over the project’s 4 years are as follows.
Year Expected Cash Inflow
1 $18,000
2 $25,000
3 $35,000
4 $20,000
The payback period is _____.
(Points : 5)
2.17 years
3.35 years
2.30 years
3.47 years
Question 10. 10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as shown below.
Projects A B C
Initial Investment $40,000 $60,000 $80,000
Present value of cash inflows $60,000 $55,000 $100,000
Using the profitability index, rank the projects, starting with the most attractive. (Points : 5)
A, C, B
A, B, C
C, A, B
C, B, A
Question 11. 11. (TCO 6) A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $210,000 and is expected to generate cash inflows of $85,000 at the end of each year for 4 years. The approximate net present value of this project is _____.
(Points : 5)
$59,442
$1,387
$65,375
$5,161
Question 12. 12. (TCO 7) Which of the following would not appear as a fixed expense on a selling and administrative expense budget? (Points : 5)
Freight-out
Office salaries
Property taxes
Depreciation
Question 13. 13. (TCO 7) Sargent.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000 during July. The company keeps 15% of the next month’s sales as ending inventory. How many units should Sargent.Com produce during June? (Points : 5)
1,915
2,200
1,885
Not enough information to determine
Question 14. 14. (TCO 8) Which of the following is not a cause of profit variance? (Points : 5)
Changes in sales price
Changes in sales mix
Changes in sales volume
All of the above are causes of profit variance.
Question 15. 15. (TCO 9) A static budget _____.
(Points : 5)
should not be prepared in a company
is useful in evaluating a manager’s performance by comparing actual variable costs and planned variable costs
shows planned results at the original budgeted activity level
is changed only if the actual level of activity is different from what is originally budgeted
Question 16. 16. (TCO 9) If costs are not responsive to changes in activity level, how are they best described? (Points : 5)
Mixed
Flexible
Variable
Fixed
Question 17. 17. (TCO 9) At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, what is the estimated fixed cost element of power costs? (Points : 5)
$12,000
$6,000
$3,600
$8,400

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