BUSN331 Managerial Accounting Ch 10-13
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.
False
In general, the production manager is responsible for the materials price variance.
False
Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).
False
Return on investment (ROI) equals margin multiplied by sales.
False
Sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision.
False
The cost of capital is the average rate of return that the company earns on its investments.
False
The required rate of return is the maximum rate of return that an investment project must yield to the acceptable.
False
Waste on the production line will result in an unfavorable materials price variance.
False
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 return on investment.
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.
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.
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.
True
Sunk costs are never relevant in decision making.
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.
True
The standard price per unit for direct materials should reflect the final, delivered cost of the materials.
True
The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.
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 a 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 return on investment (ROI) calculations, turnover equals sales divided by average operating assets.
True
