CPA BEC Review 1
A This answer is correct. The annual cost of carrying inventory is the average inventory level times the cost per unit of inventory times the cost of capital. It is calculated as follows: Average inventory level × Unit cost × Cost of capital = (order size / 2) × $5 × 0.12 = (500 / 2) × $5 × 0.12 = $150.
A company sells 1,500 units of a particular item each year and orders the items in equal quantities of 500 units at a price of $5 per unit. No safety stocks are held. If the company has a cost of capital of 12%, its annual cost of carrying inventory is A. $150 B. $180 C. $300 D. $900
B You Answered Correctly! This answer is correct. If the lost units have minimal value and can be sold as is without any rework, then they are classified as scrap. Scrap can be sold, disposed of, or reused.
A company employs a process costing system for its two-department manufacturing operation using the first-in-first-out (FIFO) inventory method. When units are completed in department 1, they are transferred to department 2 for completion. Inspection takes place in department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units. Generally the number of defective units (that is, those failing inspection) is below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for department 2, in units for the current month, is presented below. ------------------------------------- Physical flow -------------------------------------(output units) Beginning inventory (60% complete with respect to conversion) ------------------------------------------------------20,000 Units transferred in from department 1--- 180,000 Total units to account for -----------------200,000 Units completed in department 2 during the month -----------------------------------------------170,000 Units found to be defective at inspection------------------------------------------------------------5,000 Ending inventory (80% complete with respect to conversion) -------------------------------------------------------25,000 Total units accounted for------------------ 200,000 The units that failed inspection during the current month would be classified as A. Abnormal spoilage. B. Normal scrap. C. Normal reworked units. D. Abnormal waste.
D If you picked C, it is incorrect. The correct percentage cost of the arrangement is determined as the net cost of the factoring divided by the net amount received (essentially, an effective interest calculation). The total amount paid to the factor would be the annual rate applied to the amount received or ($100,000 × 80%) × 10% = $8,000, plus the annual fee or ($100,000 × 12) × 2% = $24,000, for a total payment of $32,000. That would be offset by the cost savings of $18,000, so the net cost is $14,000 ($32,000 − $18,000). The net amount received (proceeds) is $80,000 ($100,000 × .80). Therefore, the annual interest cost is equal to $14,000/$80,000 = 17.5%, the correct answer.
A company enters into an agreement with a firm who will factor the company's accounts receivable. The factor agrees to buy the company's receivables, which average $100,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at an annual rate of 10% and charge a fee of 2% on all receivables purchased. The controller of the company estimates that the company would save $18,000 in collection expenses over the year. Fees and interest are not deducted in advance. Assuming a 360-day year, what is the cost of engaging in this arrangement? (This question is CMA adapted) A. 11.0% B. 14.0% C. 16.0% D. 17.5%
D This answer is incorrect. This is not the most effective method.
A company has a significant e-commerce presence and self-hosts its website. To assure continuity in the event of a natural disaster, the firm should adopt which of the following strategies? A. Back up the server database daily. B. Store records off-site. C. Purchase and implement RAID technology. D. Establish off-site mirrored Web server.
C You Answered Correctly! This answer is correct. When a company is considering exchanging an old asset for a new asset, the only factors that are economically relevant to the decision are those that differ between the two alternatives. When income tax considerations are ignored, the original cost of the old asset is irrelevant because the amount is unavoidable. It is a sunk cost. Sunk costs are irrelevant because they are the result of the past decision and, thus, will not affect the decision at hand. Fair market value of the old asset is relevant because, if the company decides to exchange the old asset, its fair market value could represent a reduction of the investment or cash outlay to acquire the new asset.
A company is considering exchanging an old asset for a new asset. Ignoring income tax considerations, which of the following is economically relevant to the decision? Original cost of old asset----------------------------------------------------Fair market value of old asset A. Yes------------------------------------Yes B. Yes------------------------------------No C. No------------------------------------Yes D. No------------------------------------No
D This answer is correct. The classification of the costs is appropriate in this alternative. The advertising is the same for three of the four months and would be considered a fixed cost in terms of dollar sales. (The April amount of $200,000 would be considered a discretionary increase.) Sales salaries appear to vary by $1,000 per salesperson, but in terms of dollar sales, this would be considered a fixed cost.
A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for four months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May. Activity measures March-- April-- May-- June Sales orders ------2,000-- 1,800 ---2,400-- 2,300 Units sold ---55,000 ----60,000--- 70,000--- 65,000 Dollar sales--$1,150,00--$1,200,000--$1,330,000 ----------------------------------------------$1,275,000 Marketing costs Advertising-$190,000-$200,000-$190,000-$190,000 Sales salaries 20,000-- 20,000-- 21,000-- 21,000 Commissions 23,000-- 24,000-- 26,600-- 25,500 Shipping costs 93,000-- 100,000-- 114,000--107,000 Total costs $326,000-$344,000-$351,600-$343,500 In relation to the dollar amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs? Advertising------------Sales salaries A. Mixed cost--------------Fixed cost B. Fixed cost--------------Variable cost C. Mixed cost---------------Mixed cost D. Fixed cost----------------Fixed cost
D You Answered Correctly! This answer is correct. The classification of the costs is appropriate in this alternative. The advertising is the same for three of the four months and would be considered a fixed cost in terms of dollar sales. (The April amount of $200,000 would be considered a discretionary increase.) Sales salaries appear to vary by $1,000 per salesperson, but in terms of dollar sales, this would be considered a fixed cost.
A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for four months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May. Activity measures-- March--April---May--June Sales orders-------2,000----1,800---2,400----2,300 Units sold--------55,000--60,000--70,000--65,000 Dollar sales--$1,150,000--$1,200,000--$1,330,000------------------------------------------------$1,275,000 Marketing costs Advertising----$ 190,000--$ 200,000--$ 190,000--------------------------------------------------$ 190,000 Sales salaries----20,000----20,000---21,000--21,000 Commissions----23,000----24,000--26,600--25,500 Shipping costs--93,000--100,000--114,000--107,000 Total costs----$ 326,000--$ 344,000--$ 351,600-------------------------------------------------$ 343,500 In relation to the dollar amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs? Advertising-------------------Sales salaries A. Mixed cost---------------------Fixed cost B. Fixed cost---------------------Variable cost C. Mixed cost---------------------Mixed cost D. Fixed cost----------------------Fixed cost
C This answer is correct because a validity check is a check of an entered number to see if it is in valid form or a valid account number.
A customer's order was never filled because an order entry clerk transposed the customer identification number while entering the sales transaction into the system. Which of the following controls would most likely have detected the transposition? A. Sequence test. B. Completeness test. C. Validity check. D. Limit test.
A If you answered D, it is incorrect because distributive processing is not as beneficial when data is generated centrally.
A distributed processing environment would be most beneficial in which of the following situations? A. Large volumes of data are generated at many locations and fast access is required. B. Large volumes of data are generated centrally and fast access is not required. C. Small volumes of data are generated at many locations, fast access is required, and summaries of the data are needed promptly at a central site. D. Small volumes of data are generated centrally, fast access is required, and summaries are needed monthly at many locations.
A If you picked B, it is incorrect. A low transfer price results in higher total taxes paid. The country where the producer is located has the lower tax rate, so the overall tax burden is higher when the minimum transfer price is used. With a lower transfer price, reported taxable income will be lower in the lower tax country and reported taxable income will be maximized in the higher tax country, since expenses there will be minimized.
A multinational company operates a production facility in country A and a distribution outlet in country B. The tax rates are 40% in country A and 50% in country B. The production facility sells the goods to the distribution outlet, both of which are wholly owned by the multinational company. The internal sale of goods occurs at a "transfer" price set by the multinational company. Assuming no nontax considerations and no interference from the tax authorities of the two countries, the company should A. Maximize the transfer price. B. Minimize the transfer price. C. Establish a transfer price that results in the same profit margin for both operations. D. Use a transfer price based on the market price for the product that other producers charge.
A Correct! Zombie or botnet computers are often used perpetrate denial of service (DoS) attacks.
A zombie computer is used most frequently to perpetrate a _________ attack: A. DoS B. Man-in-the-middle C. Phishing D. Session
B You Answered Correctly! This answer is correct. Factory overhead is averaged over production in both job-order costing and process costing. Because the actual costs associated with factory overhead are generally not known until after the accounting period, a predetermined overhead rate is calculated based on an estimate of overhead cost. This rate is then used to apply overhead to production for both job-order costing and process costing. The difference between the two methods is that job-order costing allocates the applied overhead to the number of units in each job (generally a small number of units) while process costing allocates overhead to the number units in each processing center (generally a much larger number of units).
Accounting for factory overhead costs involves averaging in Job-order costing---------------Process costing A. Yes------------------------------------No B. Yes------------------------------------Yes C. No-------------------------------------Yes D. No-------------------------------------No
B This answer is correct. Factory overhead is averaged over production in both job-order costing and process costing. Because the actual costs associated with factory overhead are generally not known until after the accounting period, a predetermined overhead rate is calculated based on an estimate of overhead cost. This rate is then used to apply overhead to production for both job-order costing and process costing. The difference between the two methods is that job-order costing allocates the applied overhead to the number of units in each job (generally a small number of units) while process costing allocates overhead to the number units in each processing center (generally a much larger number of units).
Accounting for factory overhead costs involves averaging in Job-order costing---------Process costing A. Yes------------------------------No B. Yes-------------------------------Yes C. No--------------------------------Yes D. No--------------------------------No
C Absolute advantage is the ability to produce a product for less than other nations. Comparative advantage is the ability of one nation to produce at a relatively lower opportunity cost than another nation.
All of the following are true about international trade except that (This question is CMA adapted) A. The gains from international trade depend on specialization with comparative advantage. B. Absolute advantage without comparative advantage does not result in gains from international trade. C. Absolute advantage is defined as the ability of one nation to produce a product at a relatively lower opportunity cost than another nation. D. Where there is reciprocal absolute advantage between two countries, specialization will make it possible to produce more of each product.
A If you answered D, it is incorrect. Create current profile comes before create target profile.
Although only selected activities in the plan are stated below, which of the following states the correct order of activities for establishing a cybersecurity program? A. Identify and prioritize risks, create current profile, conduct risk assessment. B. Identify and prioritize risks, determine gaps, create target profile. C. Conduct detailed risk assessment, prioritize risks, determine gaps. D. Create target profile, create current profile, determine gaps.
C Correct! The preparation of a simple payroll report is an application of an online transaction processing (OLTP) system.
An accountant at Hubert Humbert Fashion Designers is using a component of its organization-wide ERP system to prepare a payroll tax return. The accountant is most likely using the _________ component of the system. A. CRM B. OLAP C. OLTP D. Supply chain management
A This answer is correct. An increase in governmental spending causes an increase in domestic interest rates and international capital inflows. These capital inflows cause the domestic currency to appreciate, which has a negative effect on net exports.
An expansionary [List A] policy will have [List B] effect on net exports. List A------------------List B A. Fiscal---------------A negative B. Fiscal-------------------no C. Monetary------------A negative D. Monetary--------------No
B This answer is correct. This information would be useful in reconstructing a database in the event of a disaster.
An information technology director collected the names and locations of key vendors, current hardware configuration, names of team members, and an alternative processing location. What is the director most likely preparing? A. Data restoration plan. B. Disaster recovery plan. C. System security policy. D. System hardware policy.
A You Answered Correctly! An oligopolist faces a kinked demand curve because competitors will often match price decreases but are hesitant to match price increases.
An oligopolist faces a "kinked" demand curve. This terminology indicates that (This question is CMA adapted) A. When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change. B. An oligopolist faces a nonlinear demand for its product, and price changes will have little effect on demand for that product. C. An oligopolist can sell its product at any price, but after the "saturation point" another oligopolist will lower its price and, therefore, shift the demand curve to the left. D. Consumers have no effect on the demand curve, and an oligopolist can shape the curve to optimize its own efficiency.
C This answer is correct. Help desks are usually a responsibility of computer operations because of the operational nature of their functions (for example, assisting users with systems problems involving prioritization and obtaining technical support/vendor assistance).
An organization's computer help desk function is usually a responsibility of the A. Applications development unit. B. Systems programming unit. C. Computer operations unit. D. User departments.
A If you answered B, it is wrong. The level of fixed financing charges does not affect operating earnings variability. Operating income is computed before interest expense.
Assume that Company A and Company B are alike in all respects except that Company A utilizes more debt financing and less equity financing than does Company B. Which of the following statements is most likely to be true? A. Company A has more net earnings variability than Company B. B. Company A has more operating earnings variability than Company B. C. Company A has less operating earnings variability than Company B. D. Company A has less financial leverage than Company B.
B Correct! The case evidences a risk-informed implementation tier, since the organization has some level of cybersecurity risk and has assessed roles and risks, but without sharing this information with relevant stakeholders.
At Multimedia Associates, there is some awareness of cybersecurity risks but not an organization-wide approach to managing these risks. In addition, the chief risk officer has assessed cybersecurity roles and risks but has not formalized these findings or shared them with critical stakeholders. Multimedia Associates evidences a ____________ implementation tier. A. Partial B. Risk-informed C. Repeatable D. Adaptable
A Correct. Granting credit means that Banner will be paid back with currency that has less value.
Banner Electronics has subsidiaries in several international locations and is concerned about its exposure to foreign exchange risk. In countries where currency values are likely to fall, Banner should encourage all of the following except (This question is CMA adapted) A. Granting trade credit wherever possible. B. Investing excess cash in inventory or other real assets. C. Purchasing materials and supplies on a trade credit basis. D. Borrowing local currency funds if an appropriate interest rate can be obtained.
C Wrong if you selected D. This incorrect answer confuses Goods Available for Sale with Gross Profit. The correct calculation uses the Cost of Goods Manufactured and the Cost of Goods Sold (CGS) statement format to produce CGS of $400,000. Then, subtracting CGS from Sales of $1,000,000 provides Gross Profit of $600,000.
Based on the following data, what is the gross profit for the company? Sales ------------------------------$1,000,000 Net purchases of raw materials---- 600,000 Cost of goods manufactured -----------800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs -----------500,000 ----------------Beginning inventory----Ending ------------------------------------------------inventory Work in process $500,000-------- $400,000 Finished goods 100,000--------- 500,000 A. $200,000 B. $400,000 C. $600,000 D. $900,000
B If you answered B, it is incorrect. This is a batch approach to backup whereas the described system is online and real time.
Catalonian Olive Oil Products runs an ERP system and conducts backup procedures that are _______, ______, and _______. A. Grandfather, father, and son B. Full, incremental, and differential C. Bin, volume, and name D. Checkpoint, recovery, restart
A This answer is correct. To protect their investment, local capital would be preferred. The parent company could then default on the local creditors in the event that the subsidiary is expropriated from them. The creditors' claims would have to be satisfied by the expropriating host government.
Companies can reduce the potential loss from host-government expropriation of their foreign subsidiaries by A. Financing the subsidiary with local-country capital. B. Structuring operations so that the subsidiary has value as a stand-alone company. C. Reducing the cost of capital to reflect political risk when assessing foreign investment opportunities. D. Selling products in the local country.
D You Answered Correctly! This answer is correct. A flexible budget is one that is adjusted to the actual level of activity.
Comparing actual results with a budget based on achieved volume is possible with the use of a A. Monthly budget. B. Master budget. C. Rolling budget. D. Flexible budget.
D Correct! Statement 1 is related to processes and controls (which help an entity create and maintain reliable data). Statement 2 is related to data management architecture, which refers to the fundamental design of the technology and related data.
Consider the following two descriptions: 1. They help an entity create and maintain reliable data. 2. They include models, policies, rules, or standards that determine which data is collected and how it is stored, arranged, integrated, and used in systems and in the organization. In relation to COSO's ERM framework related to leveraging information systems, statement 1 relates to ______________ while statement 2 relates to ____________________. A. data and information governance; processes and controls B. data and information governance; data management architecture C. processes and controls; data and information governance D. processes and controls; data management architecture
A On-line analytical processing systems (OLAPs) are an increasingly important multidimensional analytical tool. An OLAP is a modification and expansion of an on-line transaction processing system to provide the capabilities and functionalities identified in this question.
Credit Card International developed a management reporting software package that enables members interactively to query a data warehouse and drill down into transaction and trend information via various network set-ups. What type of management reporting system has Credit Card International developed? A. On-line analytical processing system. B. On-line transaction-processing system. C. On-line executive information system. D. On-line information storage system.
A You Answered Correctly! This answer is correct because joint products that are not salable at the split-off point require additional processing to make them marketable. To allocate joint costs to this type of product, a hypothetical sales value, representing the relative sales value at split-off, is calculated. This is done by subtracting the after-split-off processing costs from the price at point of sale.
For purposes of allocating joint costs to joint products, the sales price at point of sale reduced by cost to complete after split-off is assumed to be equal to the A. Relative sales value at split-off. B. Sales price less a normal profit margin at point of sale. C. Joint costs. D. Total costs.
A This answer is correct. Freely fluctuating exchange rates automatically correct a lack of equilibrium in the balance of payments by revaluing currencies.
Freely fluctuating exchange rates perform which of the following functions? A. They automatically correct a lack of equilibrium in the balance of payments. B. They make imports cheaper and exports more expensive. C. They impose constraints on the domestic economy. D. They eliminate the need for foreign currency hedging.
A You Answered Correctly! This answer is correct. Freely fluctuating exchange rates automatically correct a lack of equilibrium in the balance of payments by revaluing currencies.
Freely fluctuating exchange rates perform which of the following functions? A. They automatically correct a lack of equilibrium in the balance of payments. B. They make imports cheaper and exports more expensive. C. They impose constraints on the domestic economy. D. They eliminate the need for foreign currency hedging.
D Correct! These are 10 principles that govern the controls over privacy in an organization.
GAPP stands for A. Governmentally accepted payment processes. B. Generally accepted accounting principles. C. General Administration of Press and Publication D. Generally accepted privacy principles
C You Answered Correctly! This answer is correct. In a recession, firms in the industry have lower sales volume, higher average costs per unit, and excess capacity. The resulting profit squeeze makes price cutting more of a temptation, in the hope of gaining sales at the expense of rivals.
Greater barriers to collusion exist for oligopolistic firms when A. The firms' costs are more similar. B. There are fewer firms in the industry. C. General economic conditions are recessionary. D. The firms' products are standardized.
D This answer is correct. A hash total is a meaningless sum which normally has no use other than to prove the completeness with which a batch has been processed. The summation of department numbers has no apparent use other than to help determine that an entire batch has been processed.
If a control total were to be computed on each of the following data items, which would best be identified as a hash total for a payroll application? A. Hours worked. B. Total debits and total credits. C. Net pay. D. Department numbers.
A You Answered Correctly! The multiplier refers to the fact that an increase in spending has a multiplied effect on GDP. The effect of the multiplier can be estimated using the following formula: $ Multiplier Effect = $ Initial Change in Spending × [1/(1− MPC)]. Substituting values gives: $80B = $20B × [1/(1− MPC)], therefore: [1/(1− MPC)] = 4. [Proof: $80B = $20B × 4]. If [1/(1 − MPC)] = 4, and (1 − MPC) = MPS, then (1/MPS) = 4, or MPS = 1/4 = .25, and MPC = (1.00 − .25) = MPC = .75.
If an increase in government purchases of goods and services of $20 billion causes equilibrium GDP to rise by $80 billion, and if total taxes and investment are constant, the marginal propensity to consume out of disposable income is (This question is CMA adapted) A. 0.75 B. 0.25 C. 1.25 D. 4.00
C The geometric average depicts the compound annual return earned by the investor. This method is preferred for evaluating long-term investments.
If an investment is expected to be held for a long period of time the preferred method of calculating the expected return is A. Arithmetic average. B. Median. C. Geometric average. D. Subjective estimate.
D If you answered A, it is incorrect because use of a test-data approach involves the development of a set of dummy transactions, which are processed by the client's computer programs. Thus, the auditor would detect the fraud only if the test data overdrew the programmer's account.
In a daily computer run to update checking account balances and print out basic details on any customer's account that was overdrawn, the overdrawn account of the computer programmer was never printed. Which of the following control procedures would have been most effective in detecting this fraud? A. Use of the test-data approach by the author in testing the client's program and verification of the subsidiary file. B. Use of a running control total for the master file of checking account balances and comparison with the printout. C. A program check for valid customer code. D. Periodic recompiling of programs from documented source files, and comparison with programs currently in use.
C You Answered Correctly! Activity-based costing (ABC) involves the allocation of overhead costs to products based on the cost driver that actually caused those costs to be incurred. In contrast to traditional costing methods which accumulate costs by department or function, ABC accumulates costs by the specific activity being performed. For example, costs related to the purchase of materials may be allocated according to the number of purchase transactions which occurred. Therefore, cost drivers comprise a necessary part of any ABC system. On the other hand, non-value-added activities represent expenditures for which no value is added to the product. Hence, costs can be reduced by eliminating non-value-added activities without affecting the salability of the product.
In an activity-based costing system, cost reduction is accomplished by identifying and eliminating All cost drivers ------------------------------------Non-value-adding -------------------------------------activities A. No--------------------------------------No B. Yes-------------------------------------Yes C. No--------------------------------------Yes D. Yes-------------------------------------No
C You Answered Correctly! This answer is correct. When computing equivalent units of production under the weighted-average method, the work done last period on beginning work in process (BWIP) is considered. Therefore, when computing cost per equivalent unit, the cost associated with BWIP must be added to the current costs.
In the computation of manufacturing cost per equivalent unit, the weighted-average method of process costing considers A. Current costs only. B. Current costs plus cost of ending work in process inventory. C. Current costs plus cost of beginning work in process inventory. D. Current costs less cost of beginning work in process inventory.
B This answer is correct. Appraisal costs are costs associated with quality control and include testing and inspection.
In the cost of quality, costs incurred in detecting individual units of product that do not conform to specifications are A. Prevention costs. B. Appraisal costs. C. Internal failure costs. D. External failure costs.
C If you answered B, it is incorrect. The task of reviewing outsourcing contracts is not part of assessing how to acquire, implement, or develop IT solutions that address business objectives and integrate with critical business process.
Internal auditors at Henry Flower's Flower shop are undertaking a comprehensive review of outsourcing contracts and policies as part of improving service quality. In the COBIT model, this is best classified as an example of A. Planning and Organization. B. Acquisition and Implementation. C. Delivery and Support. D. Monitoring
D This answer is correct. The standard account will cost $10 per month plus $8 in check charges (80 × $0.10) = $18, or $216 per year. The premium account will have no fee but will require an additional $2,000 ($2,500 - 500) of funds on deposit. The interest cost on $2,000 for the year is $200 ($2,000 × 10%). Therefore, the cost of the premium checking is less by $16.
Kemple is a newly established janitorial firm, and the owner is deciding what type of checking account to open. Kemple is planning to keep a $500 minimum balance in the account for emergencies and plans to write roughly 80 checks per month. The bank charges $10 per month plus a $0.10 per check charge for a standard business checking account with no minimum balance. Kemple also has the option of a premium business checking account that requires a $2,500 minimum balance but has no monthly fees or per check charges. If Kemple's cost of funds is 10%, which account should Kemple choose? A. Standard account, because the savings is $34 per year. B. Premium account, because the savings is $34 per year. C. Standard account, because the savings is $16 per year. D. Premium account, because the savings is $16 per year.
D This answer is correct. The cost of the $0.50 fee per check is $126,000 (700 × 360 × $0.50). The cost of the flat fee is $125,000. The cost of the fee of 0.03% of the amount collected is $136,080 (0.03% × 700 × $1,800 × 360). The cost of the compensating balance is $122,500 (7% × $1,750,000). Therefore, maintaining the compensating balance is the least expensive alternative.
Newman Products has received proposals from several banks to establish a lockbox system to speed up receipts. Newman receives an average of 700 checks per day averaging $1,800 each, and its cost of short-term funds is 7% per year. Assuming that all proposals will produce equivalent processing results and using a 360-day year, which one of the following proposals is optimal for Newman? A. A $0.50 fee per check. B. A flat fee of $125,000 per year. C. A fee of 0.03% of the amount collected. D. A compensating balance of $1,750,000.
D Correct! This is the most secure access means of the available choices.
Roger buys seashells from Sally's SeaShore Sales. A more secure way for Roger to access Sally's website is by A. XBRL. B. An intranet. C. The Internet. D. An extranet.
C If you selected B, it is wrong. Investment II has a higher measure of relative risk.
Russell Inc. is evaluating four independent investment proposals. The expected returns and standard deviations for each of these proposals are presented below. Investment proposal ---------------Expected --------------------------returns -------Standard ------------------------------------------deviation I. ------------------------16%------------- 10% II.------------------------ 14%------------- 10% III. -----------------------20%------------- 11% IV. -----------------------22% -------------15% Which one of the investment proposals has the least relative level of risk? A. Investment I. B. Investment II. C. Investment III. D. Investment IV.
C Relative risk is measured as the ratio of the standard deviation of the return to the expected return. This investment's relative risk is .550 (11%/20%).
Russell Inc. is evaluating four independent investment proposals. The expected returns and standard deviations for each of these proposals are presented below. Investment proposal-------- Expected ----------------------returns------------- Standard --------------------------------------------deviation I. ------------------16%------------- 10% II. ------------------14%------------ 10% III. -----------------20%------------- 11% IV. -----------------22%------------- 15% Which one of the investment proposals has the least relative level of risk? A. Investment I. B. Investment II. C. Investment III. D. Investment IV.
A Lagging indicators include (1) average duration of unemployment in weeks, (2) the change in the index of labor cost per unit of output, (3) the average prime rate charged by banks, (4) the ratio of manufacturing and trade inventories to sales, (5) commercial and industrial loans outstanding, (6) the ratio of consumer installment credit outstanding to personal income, and (7) the change in the CPI for services. Chronic unemployment is a lagging indicator.
Some economic indicators lead the economy into a recovery or recession, and some lag it. An example of a lagging indicator is (This question is CIA adapted) A. Chronic unemployment. B. Orders for consumer and producer goods. C. Housing starts. D. Consumer expectations.
A If you answered B, it is incorrect. Routers determine the best path for data.
The Internet is made up of a series of networks which include A. Gateways to allow mainframe computers to connect to personal computers. B. Bridges to direct messages through the optimum data path. C. Repeaters to physically connect separate local area networks (LANs). D. Routers to strengthen data signals between distant computers.
A This answer is correct. Cycle time would be an important measure for the business processes perspective. It measures the time it takes to produce a product.
The balanced scorecard generally uses performance measures with four different perspectives. Which of the following performance measures would be part of those used for the internal business processes perspective? A. Cycle time. B. Employee satisfaction. C. Hours of training per employee. D. Customer retention.
C You Answered Correctly! A flexible budget is simply a static budget adjusted for various possible volume levels within the relevant range. A master budget or a flexible budget may be used during both the planning phase, when the budget is prepared, and the controlling phase, when actual results are compared to the budget. A flexible budget may be prepared for any unit for which costs vary with changes in activity level. Flexible budgets provide as much cost control as do master budgets because they are based on costs allowable at different activity levels. In fact, flexible budgets may offer an even greater degree of control because valid guidelines are available to managers even if output deviates from expectations, whereas static budgets supply information regarding only the planned volume.
The basic difference between a master budget and a flexible budget is that a master budget is A. Only used before and during the budget period and a flexible budget is only used after the budget period. B. For an entire production facility and a flexible budget is applicable to single departments only. C. Based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range. D. Based on a fixed standard and a flexible budget allows management latitude in meeting goals.
B You Answered Correctly! Eurobonds are not subject to extensive regulation like U.S. issued domestic bonds; therefore, they are less expensive to issue.
The best reason corporations issue Eurobonds rather than domestic bonds is that (This question is CMA adapted) A. These bonds are denominated in the currency of the country in which they are issued. B. These bonds are normally a less expensive form of financing because of the absence of government regulation. C. Foreign buyers more readily accept the issues of both large and small U.S. corporations than do domestic investors. D. Eurobonds carry no foreign exchange risk.
B This answer is correct. Eurobonds are subject to less stringent registration requirements making them less costly to issue.
The best reason corporations issue Eurobonds rather than domestic bonds is that A. These bonds are denominated in the currency of the country in which they are issued. B. These bonds are normally a less expensive form of financing because of the absence of government regulation. C. Foreign buyers more readily accept the issues of both large and small US corporations than do domestic investors. D. Eurobonds carry no foreign exchange risk.
C If you answered B,it is incorrect. This is not a specific goal of control activities.
The component of COSO's framework for internal control that includes the goal of proper measurement of transactions is A. The control environment. B. Control activities. C. Information and communication. D. Monitoring.
B This answer is correct because the translation of a symbolic-language program (readable by humans) results in an object program which is machine-readable.
The machine-language program that results when a symbolic-language program is translated is called a(n) A. Processor program. B. Object program. C. Source program. D. Wired program.
D Outstanding stocks of publicly owned companies are traded among investors in the secondary market. The original issuer receives no additional capital as a result of such trades.
The market for outstanding, listed common stock is called the A. Primary market. B. New issue market. C. Over-the-counter market. D. Secondary market.
A Correct! This is a true statement. Internal and external auditors are part of the target audience for both statements. However, COBIT is primarily focused on internal organizational IT processes, and therefore includes internal auditors as a primary focus. In contrast, COSO is primarily focus on external processes, and therefore includes a primary focus on external auditors.
The primary target audience of COBIT includes ___________ while the primary target audience of COSO includes __________________. A. Internal auditors; external auditors B. Board of directors; management C. Board of directors; external auditors D. Management; internal auditors
A You Answered Correctly! The price index measures the combined price of a selected group of goods and services for a specified period in comparison with the combined price of the same or similar goods for a base period. The U.S. government's producer price index (PPI) is an example. It measures the price of a basket of 3,200 commodities at the point of their first sale by producers.
The producer price index measures A. The price of a basket of commodities at the point of the first commercial sale. B. Price changes for all products sold by domestic producers to foreigners. C. Price changes of goods purchased from other countries. D. The price of a fixed market basket of goods and services purchased by a typical urban consumer.
A If you answered C, it is incorrect. This is not an important control function of a voucher system.
The use of a voucher systems helps control A. Unauthorized payment of invoices. B. Unauthorized orders of goods C. The use of unauthorized vendors D. Underpayments to supplier
D Wrong if you picked C. This answer is incorrect because overall costs decreased, creating success.
To evaluate its performance, the Blankie Co. is comparing its costs of quality from one year to the next. The relevant costs are as follows: -------------------First Year--------- Second Year Prevention ----$45,000--------- 60,000 Appraisal -----------25,000---------35,000 Internal failure -----80,000-------- 50,000 External failure 75,000-------- 65,000 Which of the following conclusions can Blankie draw about its quality program? A. It has been a failure, because conformance costs decreased by $40,000 while nonconformance costs increased by $25,000. B. It has been a success, because conformance costs decreased by $40,000 and nonconformance costs increased by $25,000. C. It has been a failure, because conformance costs increased by $25,000 while nonconformance costs decreased by $40,000. D. It has been a success, because conformance costs increased by $25,000 while nonconformance costs decreased by $40,000.
A You Answered Correctly! This answer is correct because the definition presented is that of backflush costing.
Typical product-costing systems synchronize the recording of accounting-system entries with the physical sequence of purchases and production. The alternative (which is normally used in high-speed automated environments) of delaying journal entries until after the physical sequences have occurred is referred to as A. Backflush costing. B. Direct costing. C. Operation costing. D. Process costing.
A You Answered Correctly! This answer is correct. The production and industrial engineering departments have control over the usage of materials.
Under a standard cost system, the material efficiency variances are the responsibility of A. Production and industrial engineering. B. Purchasing and industrial engineering. C. Purchasing and sales. D. Sales and industrial engineering.
A IaaS is the use of the cloud to access virtual hardware.
What is an example of the use of the cloud to access hardware? A. IaaS B. PaaS C. SAP D. ERP
C If you selected D, the answer is incorrect. This technique does not affect the float on cash receipts.
What is the major advantage of a zero-balance account system? A. It helps insure that cash is available for contingencies. B. It maximizes the amount of interest earned on demand deposits. C. It maximizes the float involved in cash disbursements. D. It maximizes the float involved in cash receipts.
C This answer is correct. By using regional banks and not transferring funds until the checks are presented, the float on disbursements is maximized.
What is the major advantage of a zero-balance account system? A. It helps insure that cash is available for contingencies. B. It maximizes the amount of interest earned on demand deposits. C. It maximizes the float involved in cash disbursements. D. It maximizes the float involved in cash receipts.
B If you answered C, it is incorrect. Floatation costs must be considered.
When calculating the cost of capital, the cost assigned to retained earnings should be A. Zero. B. Lower than the cost of external common equity. C. Equal to the cost of external common equity. D. Higher than the cost of external common equity.
B This answer is correct. New common equity has floatation costs that increase its cost above retained earnings.
When calculating the cost of capital, the cost assigned to retained earnings should be A. Zero. B. Lower than the cost of external common equity. C. Equal to the cost of external common equity. D. Higher than the cost of external common equity.
C If you answered A, it is incorrect because the supervisor of computer operations has responsibility for the overall operation of the information systems department and should not provide an internal audit function.
When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an error report. The error report should most probably be reviewed and followed up by the A. Supervisor of computer operations. B. Systems analyst. C. Control group. D. Computer programmer.
A If you picked B, the answer does not identify the effect of negative net export.
When net exports are negative, there is a net flow of (This question is CMA adapted) A. Goods from firms in foreign countries to the domestic country. B. Money from foreign countries to the firms of the domestic country. C. Goods from the firms of the domestic country to foreign countries. D. Goods and services which result in a trade surplus.
C If you answered D, it is incorrect. This control will not help prevent kickbacks. Requiring authorization to receive goods from vendors is a useful control on the timing of the delivery of goods but would not help in preventing kickbacks to vendors. Requiring authorization to receive goods from vendors will not be relevant to disclosing the relationship between vendors and purchasing agents.
Which of the following controls is mostly likely to prevent a kickback to a purchasing agent? A. Prenumbering of purchase order B. Matching packing lists to vendor invoices C. Periodically requiring purchasing agents to disclose their relationships to all vendors D. Requiring authorization to receive goods from vendors
A If you picked C, the answer is incorrect because a lockbox does not affect disbursement float.
Which of the following effects would a lockbox most likely provide for receivables management? A. Minimized collection float. B. Maximized collection float. C. Minimized disbursement float. D. Maximized disbursement float.
B You Answered Correctly! This answer is correct. Open market operations through bond sales and purchases are flexible (government securities can be purchased or sold in large or small amounts), cause prompt changes in bank reserves, and are more subtle than reserve ratio changes.
Which of the following instruments of monetary policy is the most important means by which the money supply is controlled? A. Changing the reserve ratio. B. Open market operations. C. of government spending. D. Changing the discount rate.
A This answer is correct. The economic order quantity model minimizes the sum of ordering and carrying costs.
Which of the following inventory management approaches orders at the point where carrying costs equate nearest to restocking costs in order to minimize total inventory cost? A. Economic order quantity. B. Just-in-time. C. Materials requirements planning. D. Activity-based costing (ABC).
A Technology development policies and procedures are part of the general controls.
Which of the following is a general control rather than a transaction control activity? A. Technology development policies and procedures. B. Reconciliations. C. Physical controls over assets. D. Controls over standing data.
B Accounting return is often used as a performance evaluation measure. Therefore, if it is also used as an evaluation technique, the consistency may lead to better decisions.
Which of the following is an advantage of the accounting rate of return method of evaluating investment returns? A. The technique considers depreciation. B. The technique corresponds to the measure that is often used to evaluate performance. C. The technique considers the time value of money. D. The technique considers the risk of the investment.
A If you answered B, it is incorrect because a value-added network is likely to increase the cost of EDI, not decrease it.
Which of the following is an advantage of using a value-added network for EDI transactions? A. Ability to deal with differing data protocols. B. Decrease in cost of EDI. C. Increase in data redundancy. D. Direct communication between trading partners.
D Wrong if you picked B. Period costs, such as administrative expenses and selling costs, are not allocated to products.
Which of the following is assigned to goods that were either purchased or manufactured for resale? A. Relevant cost. B. Period cost. C. Opportunity cost. D. Product cost.
B Segregation of duties is an aspect of control activities, which is the component.
Which of the following is not a component in the COSO framework for internal control? A. Control environment. B. Segregation of duties. C. Risk assessment. D. Monitoring.
B Wrong if you answered D. This statement represents limitations of internal control.
Which of the following is not a limitation of internal control? A. Human judgment in decision-making may be faulty. B. External forces may attack the system. C. Management may override internal control. D. Controls may be circumvented by collusion.
D If you answered B, it is incorrect. Preferred stock is not as expensive as common stock.
Which of the following is the most expensive form of additional capital? A. New debt. B. New preferred stock. C. Retained earnings. D. New common stock.
B This answer is correct. A systems specification document should include a description of the data elements needed.
Which of the following items would be most critical to include in a systems specification document for a financial report? A. Cost-benefit analysis B. Data elements needed C. Training requirements D. Communication of change management considerations
C wrong if you answered B. All projects economically acceptable under the payback period approach will not be acceptable under the discounted payback period approach (Statement II). The discounted payback period approach takes the time value of money into account by discounting future cash flows. That discounting results in lower current values than the undiscounted cash flows. Thus, some project that would be acceptable under the undiscounted payback period approach would not be acceptable under the discounted payback period approach. The correct answer is Statement III only.
Which of the following statements concerning the discounted payback period approach to project evaluation is/are correct? I. It takes into account cash flows received over the entire life of the project. II. Any project economically acceptable under the payback period approach will be acceptable under the discounted payback period approach. III. Any project economically acceptable under the discounted payback period approach will be acceptable under the payback period approach. A. I only. B. II only. C. III only. D. I and III only.
D Some transfers may not be profitable to a particular division, but would effect a cost savings to the company by avoiding costs of purchasing externally. For example, when a division is already operating at full capacity and uses variable cost transfer prices, additional production for internal transfer would result in a loss for the transferring division because no contribution margin is earned to cover the differential fixed costs incurred. Conversely, internal production may be cheaper to the corporate entity than purchasing the product, in which case the division should accept the order. However, the division manager is likely to engage in suboptimization by rejecting the order to enhance the division's performance, while adversely affecting overall company performance.
Which of the following statements regarding transfer pricing is false? A. When idle capacity exists, there is no opportunity cost to producing intermediate products for another division. B. Market-based transfer prices should be reduced by any costs avoided by selling internally rather than externally. C. No contribution margin is generated by the transferring division when variable cost-based transfer prices are used. D. The goal of transfer pricing is to provide segment managers with incentive to maximize the profits of their divisions.
C This answer is correct because application controls apply to a particular application or process.
Which of the following types of control plans is particular to a specific process or subsystem, rather than related to the timing of its occurrence? A. Preventive. B. Corrective. C. Application. D. Detective.
A You Answered Correctly! This answer is correct. An oligopoly is formed by the combination of firms in the same line of business, as in a horizontal merger. An oligopoly is a market for a good or service that is dominated by a small number of firms.
Which of the following types of merger is most likely to contribute to the formation of an oligopoly? A. Horizontal. B. Conglomerate. C. Divestiture. D. Vertical.
C This answer is correct. Only very creditworthy firms can issue commercial paper.
Which one of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing? A. This market provides more funds at lower rates than other methods provide. B. The borrower avoids the expense of maintaining a compensating balance with a commercial bank. C. There are no restrictions as to the type of corporation that can enter into this market. D. This market provides a broad distribution for borrowing.
A This answer is correct. Auditing standards include objectives to provide reasonable assurance regarding the achievement of objectives in three categories: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with applicable laws and regulations.
Which statement is not one of the objectives of internal control as included in the definition of internal control developed by the Committee of Sponsoring Organizations (COSO)? A. Asset safeguarding. B. Compliance. C. Financial reporting. D. Operations.
B Commercial paper is normally issued with a short maturity period, usually 2 to 9 months.
With respect to the use of commercial paper by an industrial firm, which one of the following statements is most likely to be true? (This question is CMA adapted) A. The commercial paper is issued through a bank. B. The commercial paper has a maturity of 60-270 days. C. The commercial paper is secured by the issuer's assets. D. The commercial paper issuer is a small company.
B Correct. Commercial paper is normally issued with a short maturity period, usually 2 to 9 months.
With respect to the use of commercial paper by an industrial firm, which one of the following statements is most likely to be true? (This question is CMA adapted) A. The commercial paper is issued through a bank. B. The commercial paper has a maturity of 60-270 days. C. The commercial paper is secured by the issuer's assets. D. The commercial paper issuer is a small company.
A Correct! XBRL (i.e., eXtensible business reporting language) is for tagging financial information. It is derived from XML (i.e., eXtensible markup language).
XBRL is a ____________ that is derived from ________. A. Financial tagging language; XML B. Protocol; STMP C. Company; a stock offering D. Financial tagging language; STMP
