ACC 4310 Exam 2

Which of the following is true of detective controls that can be put into place at an organization to help uncover fraud and unethical activity related to cash, cash controls, and cash management?

Detective controls include instituting a review process on bank reconciliations, and cross‐referencing deposits versus cash receipts, and can be implemented across industry lines.

What is the relationship between costs and profit in the target costing approach?

In the target costing approach, a company begins with the price and then uses desired profit to find the maximum costs they can incur.

Perfectly elastic

The demand curve is horizontal, meaning consumers have an instantaneous and infinite response to a change in price. - Price takers - Oil

By analyzing the entries from the prior month's close, a management accountant notices several large manual entries made right before the close of the month. Which best identifies why this might not be a cause for concern?

The firm has just implemented a new enterprise resource planning and general ledger system and is still working out some of the mapping and coding issues.

Elastic

There is a substantial change in quantity demanded when price changes. Will be less likely to buy if price or income changes.

What will decreasing the price of a product with unit demand elasticity do?

Will not change revenue.

What will increasing the price of a product with unit demand elasticity do?

Will not change total revenue.

Which of the following most accurately describes (1) economy pricing and (2) premium pricing tactics?

(1) Economy pricing follows behind the price leader with a slightly lower price in order to capture customers before they leave the market. (2) Premium pricing is focused on high profit margins with low sales volumes and signals to the customer the unique or premium qualities of the product.

Which of the following most accurately describes (1) price skimming tactics and (2) penetration pricing tactics?

(1) Price skimming sets a high price to primarily target high‐end and less price‐sensitive customers while maximizing short‐term profits. (2) Penetration pricing accepts a lower price and profit margin to generate higher sales and quickly capture a larger market share.

Viewed within the framework of internal control and internal audit, what is the most comprehensive definition of a critically important employee?

- An individual who can exercise influence over the preparation and review of the financial statements for external users. - A person or small group of individuals who have the primary and sole role for preparation of audited financial statements within an organization. - A person tasked with the primary responsibility for information technology functions, upgrades, and data security, including data feeds into the financial statement preparation system.

Examples of elastic goods

- Luxury items - Airline tickets - Soda - Coffee

Where is the short-run equilibrium price in a pure competition environment?

- The short‐run equilibrium price equals marginal revenue. - The short‐run equilibrium price equals marginal cost. - The short‐run equilibrium price equals average revenue.

Which of the following costs is an example of a value‐adding cost?

- Training costs - Production costs

Which of the following costs is an example of a non‐value‐adding cost?

- Unscheduled maintenance costs - Rework costs - Rush delivery costs - Inventory write-off costs

Examples of inelastic goods

- Utilities - Prescription drugs - Gas - Textbooks

Which of the following best describes cost plus target rate of return pricing?

Set prices in such a way as to earn a target rate of return on the investment made in a product.

Perfectly inelastic

The demand curve is a vertical line, changes have 0 effect on demand. - Life saving drug/vaccine

When setting a product price based on costs, the use of breakeven analysis considers:

expected sales volume and costs.

Demand for a product tends to be price inelastic if:

few good substitutes are available for the product.

A pricing objective would not include:

finding a way to lower manufacturing costs.

Price demand becomes more price elastic based on the:

greater the number of substitute products available.

Which one of the following situations best lends itself to a cost‐based pricing approach?

A computer component manufacturer debating pricing with a new customer for a made‐to‐order, state‐of‐the‐art application

Which of the following statements concerning moral decisions and virtuous decisions is correct?

A moral decision is not always a virtuous decision but a virtuous decision is always a moral decision.

Which of the following companies would likely use a cost‐based approach to setting prices?

A pharmaceutical company selling a patented drug because differentiated.

When developing new products, Acer Corp. begins by determining the desired profit and its ability to offer a product at a certain price. Caprice Corp. begins by adding a markup to a cost base to determine the price. How do the two compare?

Acer Corp uses the target costing approach, while Caprice Corp uses the cost‐plus pricing approach.

What is one tool or tactic that management professionals can use to help offset the rationalization aspect of the fraud triangle that is used by some to explain away unethical behavior?

Actions that could reduce the risk of employees rationalizing behavior include establishing a code of ethics, requiring new employees to agree to abide by this code, and having executives lead ethics training sessions.

All of the following are important aspects of due diligence except:

Adhering to the opinion and desires of your supervisor

Agra Supply sells traditional soybean seeds to farmers, as do all of its major competitors. Nu Agra sells soybean seeds that are genetically engineered for drought and pest resistance, and it is the only company that carries these seeds. From a price‐setting standpoint, how do these two companies differ?

Agra Supply is a price taker, while Nu Agra is price setter.

What statement below most accurately summarizes the overarching ethical principle of honesty as it is embedded in the IMA Statement of Ethical Professional Practice?

All decisions, accounting information, and the conversations that take place between accountants should be forthright, open, transparent, and disclose all applicable information between involved stakeholders.

What kind of function is value engineering?

An accounting function.

Which of the following statements is/are correct concerning the relationship of the quantity demanded with price, and the quantity supplied with price? I. The quantity supplied varies inversely with price. II. The quantity demanded varies directly with price.

Both are incorrect.

All of the following are characteristics of a fiduciary responsibility except:

Both parties in the relationship have similar expertise concerning the subject matter

Which of the following is a correct statement concerning business ethics?

Business ethics addresses individual behavior and organizational behavior.

Pazer Inc. produces portable televisions. Pazer's product manager proposes to increase the cost structure by adding voice‐activated volume/channel controls to the televisions and also adding three additional repair personnel to deal with products returned due to defects. Are these costs value‐added or nonvalue‐added?

Cost of voice‐activated controls: value‐added; cost of additional repair personnel: nonvalue‐added

Which statement best explains the comparison between the cost‐plus pricing and target costing approaches?

Cost‐plus pricing starts with the cost and adds a markup, while target costing starts with desired profit to determine its ability to offer the product at a certain price.

R. B. Dillman Company manufactures a high‐tech component used in Bluetooth speakers that passes through two production processing departments, Molding and Assembly. To encourage efficiency, department managers are partially compensated on the basis of units of products completed and transferred out relative to units of product put into production. During the month of June, the Molding Department had three new employees who were not yet technically skilled. As a result, many of the units produced in June had minor molding defects. In a department management meeting, the production supervisor and quality control reported that they had decided to pass through inspection and on to the Assembly Department all units that had defects nondetectable to the human eye. "Company and industry tolerances on this product are too high anyway," said the supervisor. "Less than 2% of the units we produce are subjected in the market to the stress tolerance we've designed into them. The odds of those 2% being any of this month's units are even less. Anyway, we're saving the company money." As the department cost accountant in the meeting, you're uncomfortable with this description of last month's operations, and are concerned that this issue is not being reported to Dillman's top management team. According to the IMA Statement of Ethical Professional Practice, which of the following steps would be appropriate as a means to resolve this ethical situation?

Discuss your concerns with the production supervisor.

In implementing target costing, a company has determined current costs and target costs. Further steps aimed at realizing the target cost would most likely include all of the following except:

Establishment of a target price.

All of the following are correct concerning how a fiduciary relationship impacts decision‐making except:

Fiduciaries can benefit from their decisions as long as their client also benefits from their decisions, even if the client could have made more money from a different decision.

What piece of the IMA's Statement of Ethical Professional Practice might be violated in the following situation? In order to meet short‐term financial pressures, some of the accounting team collaborates to artificially inflate the results of the business.

In this situation, the standard of integrity is violated due to the actions taken by the accounting professionals to overstate the performance of the firm.

What will increasing the price of a product with an inelastic demand do?

Increase total revenue.

Which of the following statements about market comparable pricing is correct?

It involves setting prices based on the price of a similar product.

All of the following are considered a limitation of cost‐plus pricing except:

It is difficult to compute.

What category of the fraud triangle is offset by instituting a job rotation program at an organization?

Job rotation and cross‐training programs have been demonstrated to reduce the opportunity risk for fraud occurring, since different employees from different areas may be asked to complete and review similar work papers.

Sarah's would like to determine the target cost per scarf. Which two pieces of information are needed to make this determination and how should they be used?

Market price - desired profit

To resolve potential ethical issues within an organization, management has recently instituted an ethics hotline. As part of submitting complaints, all employees must list their department, their name, and their complaint. Is this in compliance with the IMA Statement of Ethical Professional Practice?

No, although an ethics hotline is a proven tool to help offset ethical issues, any submissions to the hotline should be anonymous in nature.

To improve the data security and information technology status of the organization, management has held several training sessions with external experts. Facilitated by senior level members of the in‐house technology team, employees have been introduced to topics such as blockchain and dual‐layer authentication. Is this sufficient to address possible technology weaknesses?

No. Holding training programs, involving senior management, and bringing in external consultants are excellent steps, but to drive change in the organization, actual implementation is also required.

What industries do cartels occur in?

Oligopolistic industries

Which of the following is one of the three characteristics related to Competence in the standards of conduct as outlined in the IMA Statement of Ethical Professional Practice?

Perform professional duties in accordance with relevant laws, regulations, and technical standards.

In terms of pricing factors, how do pricing objectives and cost considerations differ?

Pricing objectives look at what can be earned by a product, while cost considerations look at what must be spent for a product.

All of the following are methods that a firm can use to establish prices except:

Pure competition pricing.

Opportunity, a component of the fraud triangle, represents how employees within the firm might partake in unethical behavior. What is one tactic to offset this aspect of the triangle?

Putting into place a job rotational and cross‐training program within an organization will help create opportunities for review and cross checks, and will cut down on opportunities for employee malfeasance.

Which of the following below is the most appropriate way that an organization could have offset the component of the fraud triangle known as rationalization?

Putting into place a training program, led by senior executives and consistently implemented throughout different areas, will help improve the tone at the top at the firm.

Based off the IMA's Statement of Ethical Professional Practice, what is a method by which organizations can resolve ethical issues if they lack formal ethics policies?

Putting into place an ethics hotline, which should be anonymous in nature, can act as method by which employees can discuss ethical issues.

Relatively elastic

Slope is greater than 1. The change in demand is greater than the change in price. - Designer brands

Relatively inelastic

Slope is less than 1. The change in demand is less than change in price. - Prescription drugs

Which of the following pricing methods involve setting prices based on customer perceptions of value?

Target pricing

The more luxurious a product is...

The more elastic it is

The greater the necessity of a product...

The more inelastic it is

The senior management team at an organization, responding to changes in the competitive landscape, has chosen to completely revamp the internal processes and controls of an organization. This includes reorganizing the procurement and accounts payable processes at the organization to improve efficiency. What is one aspect of the fraud triangle that might cause unethical behavior in this situation?

The most clear‐cut connection between these changes and the fraud triangle relates to the pressure aspect since employees might feel undue pressure to emphasize the positive results of these projects at the expenses of objectivity.

How does the target costing approach compare to other pricing models?

The price customers are willing to pay determines if the company should offer the product or service.

Which of the following is not a characteristic of value engineering?

The price set by the organization will typically result in a price lower than the competition.

Which of the following statements concerning the short‐run equilibrium price for a firm operating in a monopoly environment is correct?

The short‐run equilibrium price is determined by the point where marginal revenue equals marginal cost.

Which of the following statements concerning the short‐run equilibrium price for a firm operating in an oligopolistic environment is correct?

The short‐run equilibrium price of an individual firm is dependent on prices charged by its competitors.

What characteristics differentiate traditional pricing approaches from target costing?

Traditional pricing is based on the premise that price equals cost plus profit margin; target costing implies that cost equals competitive price minus profit margin.

T or F: A firm can eliminate a value‐added cost without damaging a customer's perception about the product.

True

What category of ethical theory focuses on helping people develop into honorable, moral people?

Virtue ethics

Which of the following is a correct statement concerning moral principles and virtue?

Virtues are habits that are developed intentionally through practice.

Which of the following is a correct statement concerning morality and virtue?

Virtues are habits that are developed intentionally through practice.

When is a cost-based approach to pricing appropriate?

When a company sells a differentiated product.

When is a market-based approach to pricing appropriate?

When a company sells an undifferentiated product.

Inelastic

When buyer is INsensitive to change. There is only a slight change in quantity demanded when price changes. Will buy even if price or income changes.

Where is the short run equilibrium price set by firms operating in a monopolistic competition environment?

Where marginal revenue equals marginal cost.

Monopolistic competition is characterized by:

a relatively large number of sellers who work to produce and sell differentiated products.

Price tends to fall in competitive markets when there is a(n):

decrease in quantity demanded of the product.

Elastic demand means that the percent change in quantity demanded is...

larger than the percent change in price.

You are the product manager of a firm wishing to introduce a new product. You can convincingly argue that penetration pricing seems ideal because

the high volume associated with low introductory prices for the product will create enough revenue so a profit can be made during the product life cycle.

A pricing objective would include:

trying to increase the market share.