Accounting Final

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false

land held for possible plant expansion would be included as an operating asset when computing ROI

false

ROI equals margin multiplied by sales

true

a cost that can be avoided by choosing one alternative over another is relevant for decision purposes

true

a shorter payback period does not necessarily mean that one investment is more desirable than another

true

all other things the same, an increase in unit sales will normally result in an increase in the ROI

true

an advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income

false

an unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period

false

consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well

false

fixed costs are sunk costs

false

future costs that do not differ between the alternatives in a decision are avoidable costs

true

in calculating the payback period where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be deducted from the cost of the new equipment

false

in general, the production manager is responsible for the materials price variance

true

in the payback method, depreciation is added back to net operating income when computing the annual net cash flow

true

it may be a good decision to replace an asset before its original cost has been fully recovered through increased revenues or decreased costs

true

material price variances are often isolated at the time materials are purchased, rather than when they are placed into production, to facilitate earlier recognition of variances

true

net operating income is income before interest and taxes

false

sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision

true

sunk costs are never relevant in decision making

false

the cost of capital is the average rate of return that the company earns on its investments

true

the materials price variance is computed based on the amount of materials purchased during the period

true

the payback method is most appropriate for projects whose cash flows do not extend far into the future

false

the required rate of return is the max rate of return that an investment project must yield to be acceptable

true

the standard price per unit for direct materials should reflect the final, delivered cost of materials

true

the use of ROI as a performance measure may lead managers to reject a project that would be favorable for the company as a whole

false

waste on the production line will result in an unfavorable materials price variance

true

when a company is cash poor, a project with a short payback period but a low rate of return may be preferred to a project with a long payback period and high rate of return

true

when the materials price variance is recorded at the time of purchase, raw materials are recorded as inventory at standard cost

true

when used in ROI calculations, turnover equals sales divided by average operating assets


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