1. (TCO 9) Which of the following is a major accounting contribution to the managerial decision-making process in evaluating possible courses of action? (Points : 4)
Determine who is responsible for the decision.
Prepare internal reports that review the actual impact of a decision made.
Calculate how much should be invested for each potential project.
Select possible actions that management should consider.
2. (TCO 9) Which one of the following is a true statement about incremental analysis? (Points : 4)
It is another name for capital budgeting.
It is the same as CVP analysis.
It is used primarily for long-term planning.
It focuses on decisions that involve a choice among alternative courses of action.
3. (TCO 9) What is the nature of an opportunity cost? (Points : 4)
It is always variable.
It is a potential benefit.
It is included as part of cost of goods sold.
It is a sunk cost.
4. (TCO 9) A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis? (Points : 4)
Annual operating cost of the new equipment
Annual operating cost of the old equipment
Net cost of the new equipment
Book value of the old equipment
5. (TCO 9) It costs Lannon Fields $14 of variable costs and $6 of allocated fixed costs to produce an industrial trash can that sells for $30. A buyer in Mexico offers to purchase 2,000 units at $18 each. Lannon has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income? (Points : 4)
decrease $4,000
increase $4,000
increase $36,000
increase $8,000
6. (TCO 9) Hungry Bites produces corn chips. The cost of one batch is below:
Direct Materials $14
Direct Labor 10
Variable Overhead 9
Fixed Overhead 10
An outside supplier has offered to produce the corn chips for $20 per batch. If all fixed costs can be eliminated, how much will Hungry Bites save if it accepts the offer? (Points : 4)
$10 per batch
$13 per batch
$23 per batch
$4 per batch
7. (TCO 9) All of the following are relevant to the sell or process-further decision, except for __________ (Points : 4)
costs incurred beyond the split-off point.
revenues at the split-off point.
costs incurred before the split-off point.
revenues beyond the split-off point.
8. (TCO 8) All of the following are involved in the capital budgeting evaluation process, except for a company’s __________ (Points : 4)
board of directors.
capital budgeting committee.
officers.
stockholders.
9. (TCO 8) Capital budgeting is the process __________ (Points : 4)
used in sell or process-further decisions.
of determining how much capital stock to issue.
of making capital-expenditure decisions.
of eliminating unprofitable product lines.
10. (TCO 8) If a payback period for a project is greater than its expected useful life, the __________ (Points : 4)
project will always be profitable.
entire initial investment will not be recovered.
project would only be acceptable if the company’s cost of capital was low.
project’s return will always exceed the company’s cost of capital.
11. (TCO 8) Intangible benefits in capital budgeting __________ (Points : 4)
should be ignored because they are difficult to determine.
include increased quality or employee loyalty.
are not considered because they are usually not relevant to the decision.
have a rate of return in excess of the company’s cost of capital.
12. (TCO 8) The profitability index __________. (Points : 4)
does not take into account the discounted cash flows.
is calculated by dividing total cash flows by the initial investment.
allows comparison of the relative desirability of projects that require differing initial investments.
will never be greater than 1.
13. (TCO 8) A post audit should be performed using __________ (Points : 4)
a different evaluation technique than that used in making the original decision.
the same evaluation technique used in making the original decision.
estimated amounts instead of actual figures.
an independent CPA.
14. (TCO 8) A company has a minimum required rate of return of 9% and is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $20,000 at the end of each year for 3 years. The profitability index for this project is __________ (Points : 4)
0.99.
1.00.
1.01.
1.20.
15. (TCO 8) The capital-budgeting technique that indicates the profitability of a capital expenditure is the __________ (Points : 4)
profitability index method.
net present value method.
internal rate of return method.
annual rate of return method.
