1. (TCO 9) Which one of the following stages of the management decision-making process is properly sequenced? (Points : 4)
Evaluate possible courses of action, make decision
Review the actual impact of the decision, determine possible courses of action
Assign responsibility for the decision, identify the problem
Make a decision, assign responsibility
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) Which of the following will never be a relevant cost? (Points : 4)
Opportunity cost
Sunk cost
Variable cost
Fixed cost
4. (TCO 9) A company is considering replacing old equipment with new equipment. Which of the following is a relevant cost for incremental analysis? (Points : 4)
Total accumulated depreciation of the old equipment
Cost of the old equipment
Annual operating cost of the new equipment
Book value of the old equipment
5. (TCO 9) Seville Company manufactures a product with a unit variable cost of $42 and a unit sales price of $75. Fixed manufacturing costs were $80,000 when 10,000 units were produced and sold, equating to $8 per unit. The company has a one-time opportunity to sell an additional 1,000 units at $55 each in an international market, which would not affect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order? (Points : 4)
$42,000
$13,000
$5,000
$50,000
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) Whisker Clean Company spent $8,000 to produce product 89, which can be sold as is for $10,000 or processed further, incurring additional costs of $3,000, and then sold for $14,000. Which amounts are relevant to the decision about product 89? (Points : 4)
$8,000, $10,000, and $14,000
$8,000, $3,000, and $14,000
$10,000, $3,000, and $14,000
$8,000, $10,000, $3,000, and $14,000
8. (TCO 8) The capital budget for the year is approved by a company’s __________ (Points : 4)
board of directors.
capital budgeting committee.
officers.
stockholders.
9. (TCO 8) The first step in the capital budgeting evaluation process is to __________ (Points : 4)
request proposals for projects.
screen proposals by a capital budgeting committee.
determine which projects are worthy of funding.
approve the capital budget.
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) All of the following statements about intangible benefits in capital budgeting are correct, except that they __________ (Points : 4)
include increased quality and employee loyalty.
are difficult to quantify.
are often ignored in capital-budgeting decisions.
cannot be incorporated into the NPV calculation.
12. (TCO 8) The capital-budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the __________ (Points : 4)
cash-payback method.
internal rate of return method.
net present value method.
profitability index.
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 $140,000 and is expected to generate cash inflows of $56,000 at the end of each year for 3 years. The net present value of this project is __________ (Points : 4)
$141,736.
$28,000.
$14,174.
$1,752.
15. (TCO 8) The annual rate of return method is based on __________ (Points : 4)
accounting data.
the time value of money data.
market values.
cash flow data.
