BEC Practice Exam #1
American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. Reese Zipper Company has quoted a price of $.60 per zipper. American would prefer to purchase 5,000 units per month, but Reese is unable to guarantee this delivery schedule. In order to ensure availability of these zippers, American is considering the purchase of all 60,000 units at the beginning of the year. Assuming American can invest cash at eight percent, the company's opportunity cost of purchasing the 60,000 units at the beginning of the year is: A. $1,320. B. $1,440. C. $1,500. D. $2,640.
A. $1,320 60,000 x .60 = 36,000 36,000 - 3,000 = 33,000 33,000/2 * .8 * 12/2 = 1,320
McLean Inc. is considering the purchase of a new machine that will cost $150,000. The machine has an estimated useful life of three years. Assume for simplicity that the equipment will be fully depreciated 30, 40, and 30 percent in each of the three years, respectively. The new machine is expected to save the company $85,000 per year in operating expenses. McLean uses a 40 percent estimated income tax rate and a 16 percent hurdle rate to evaluate capital projects. Discount rates for a 16 percent rate are as follows: PV of $1 PV of Ann. of $1 Year 1 .862 .862 Year 2 .743 1.605 Year 3 .641 2.246 What is the net present value of this project? A. $13,278 B. $9,432 C. $15,842 D. $(35,454)
A. $13,278 look at explanation from exam
The Sarbanes-Oxley Act of 2002 provides that the accounting firm of an issuer reports directly to: A. Audit committee. B. Shareholders. C. Chief Financial Officer. D. Board of directors.
A. Audit committee.
During a post implementation review of an accounting information system (AIS), a CPA learned that an AIS with few customized features had been budgeted and scheduled to be installed over nine months for $3 million (including hardware, software, and consulting fees). An in-house programmer was assigned as the project manager and had difficulty keeping the project on schedule. The implementation took 18 months, and actual costs were 30% over budget. Many features were added to the system on an ad-hoc basis, with the project manager's authorization. The end-users are very satisfied with the new system. The steering committee, however, is dissatisfied about the scope creep and would like a recommendation to consider before approving initiation of another large project. Based on those findings, the CPA should recommend implementing a: A. Change control system. B. Contract management system. C. Budgeting system. D. Project timekeeping system.
A. Change control system. A change control system is put in place for the purpose of authorizing and monitoring changes related to information technology, including software implementation, development, application programs, database administration, etc. Although system implementations often take longer and cost more than originally budgeted, these issues can be minimized with better oversight through an established change control system.
Which of the following demonstrates substitution effect as it relates to the fundamental Law of Demand? A. Consumers tend to purchase more of a good when its price falls in relation to the price of other similar goods. B. People whose wealth increases may increase their demand for luxury goods. C. As prices are lowered with income remaining constant, consumers will purchase more of all of the lower priced products. D. If consumers anticipate that there will be a future price increase, immediate demand will increase for that product at the current lower price.
A. Consumers tend to purchase more of a good when its price falls in relation to the price of other similar goods.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of the internal control integrated framework addresses an entity's financial reporting competencies? A. Control Environment. B. Information and communication. C. Control Activities. D. Risk Assessment.
A. Control Environment. The control environment component of the internal control integrated framework includes such principles as financial reporting competencies, human resources, organizational structure, etc.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's human resource standards? A. Governance and culture. B. Performance. C. Review and revision. D. Information, communication, and reporting.
A. Governance and culture.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of the internal control integrated framework addresses the dissemination of an entity's financial reporting information? A. Information and communication. B. Control activities. C. Risk assessment. D. Control environment.
A. Information and communication.
Hi Tech Corporation is a California based company that has contracted with a separate company in India to handle its customer service call center. Hi Tech Corporation's practice is most accurately described using the term: A. Offshore operations. B. Shared services. C. Outsourcing. D. Globalization.
A. Offshore operations. Offshore operations are the outsourcing of services or business functions to an external party in a different country. Hi Tech's decision to operate its call center out of India is an example of offshore operations.
The imputed interest rate used in the residual income approach to performance evaluation can best be described as the: A. Target return on investment set by the company's management. B. Marginal after-tax cost of capital on new equity capital. C. Average return on investments for the company over the last several years. D. Historical weighted average cost of capital for the company.
A. Target return on investment set by the company's management. The imputed interest rate in the residual income approach can best be described as the target return on investment set by the company's management.
Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the event of a 3% variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the inherent risk of changes in foreign currency exchange on achieving company's business objective is: A. $14 million. B. $10 million. C. $6 million D. $4 million
B. $10 million Inherent risk is the risk to an entity in the absence of any actions management might take to alter either the risk's likelihood or impact. The $10 million exposure identified in the problem is the risk exposure without management's intervention.
ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was $60,000, and there was an unfavorable quantity variance of $2,500. The materials price variance for the units used in November was: A. $2,500 favorable. B. $12,500 unfavorable. C. $2,500 unfavorable. D. $11,000 unfavorable.
B. $12,500 unfavorable.
A preferred stock is sold for $101 per share, has a face value of $100 per share, underwriting fees of $5 per share, and annual dividends of $10 per share. If the tax rate is 40 percent, the cost of funds (capital) for the preferred stock is: A. 10.0% B. 10.4% C. 6.2% D. 4.2%
B. 10.4% $10/(101-5) = 10.4%
McLean Inc. is considering the purchase of a new machine that will cost $150,000. The machine has an estimated useful life of three years. Assume for simplicity that the equipment will be fully depreciated 30, 40, and 30 percent in each of the three years, respectively. The new machine will have a $10,000 resale value at the end of its estimated useful life. The machine is expected to save the company $85,000 per year in operating expenses. McLean uses a 40 percent estimated income tax rate and a 16 percent hurdle rate to evaluate capital projects. Discount rates for a 16 percent rate are as follows: PV$1 PVOA$1 Year 1 .862 .862 Year 2 .743 1.605 Year 3 .641 2.246 The payback period for this investment would be: A. 2.95 years. B. 2.09 years. C. 1.76 years. D. 2.94 years.
B. 2.09 years. see Exam solution for explanation
Wyley, Inc. purchases an item on credit with terms of 3/10, net 45. Based on a 360-day year, Wyley's annual interest cost of forgoing the cash discount and making payment on the last day of the credit period is: A. 37.11% B. 31.81% C. 30.86% D. 24.00%
B. 31.81% (360/(45-10)) * (3%/(100%-3%)) = 10.28 * .0309 = 31.8%
A company obtained a short-term bank loan of $500,000 at an annual interest rate of eight percent. As a condition of the loan, the company is required to maintain a compensating balance of $100,000 in its checking account. The checking account earns interest at an annual rate of three percent. Ordinarily, the company maintains a balance of $50,000 in its account for transaction purposes. What is the effective interest rate of the loan? A. 9.44% B. 8.56% C. 8.50% D. 7.77%
B. 8.56% 500,000 x 8% x 1 = 40,000 50,000 x .03 = 1,500 40,000 - 1,500 = 38,500 38,500/(500,000-50,000) = 8.56%
Which of the following individuals would be considered independent and eligible to serve on an issuer's audit committee under the provisions of the Sarbanes-Oxley Act of 2002? A. The issuer's investment counselor (compensated by fee, not commission). B. A member of the issuer's Board of Directors. C. The independent auditor engaged to audit the issuer's financial statements. D. The Chief Financial Officer.
B. A member of the issuer's Board of Directors.
Due to a recession, the federal government wishes to stimulate the economy. Which of the following actions would be most appropriate in this situation? A. Decrease both the discount rate and required reserve ratio. B. Decrease consumer taxes and increase government spending. C. Increase government spending and decrease the discount rate. D. Decrease government spending and increase consumer taxes.
B. Decrease consumer taxes and increase government spending.
A perfectly inelastic supply curve in a competitive market: A. Says the market supply curve is horizontal. B. Exists when firms cannot vary input usage. C. Implies a vertical demand curve. D. Means the equilibrium price must be zero.
B. Exists when firms cannot vary input usage.
The Sarbanes-Oxley Act of 2002 requires that audit committees establish a complaint procedure. The procedure should embrace all of the following concepts, except: A. Treatment/resolution policies for complaints that surface regarding questionable auditing practices. B. Full disclosure of employee name and position for all reported complaints. C. Receipting or other cataloguing procedures for complaints that surface regarding internal controls. D. Retention policies for complaints that surface regarding questionable accounting practices.
B. Full disclosure of employee name and position for all reported complaints.
Teagarten Corporation has just uncovered a major defalcation perpetrated by one of its long-term employees in its data processing department. That employee, Sarah Ponzi, who was an application programmer, had substituted for computer operators on the graveyard shift while the operators were on vacation. Ponzi had used operator access to the source code libraries to make unauthorized changes to the accounts payable system. She had made changes to the system to establish dummy vendors and then to submit and pay invoices from those vendors. Which of the following weaknesses in Teagarten's internal control may have contributed to this defalcation? I. Teagarten had the same person performing the duties of application programmer and computer operator. II. Teagarten had provided computer operators with high-level access to the source code libraries. III. Teagarten had provided programmers with standard access to the source code libraries. A. I, II, and III are all weaknesses that may have contributed. B. I and II only are weaknesses that may have contributed. C. III only is a weakness that may have contributed. D. II only is a weakness that may have contributed.
B. I and II only are weaknesses that may have contributed.
Which of the following is (are) correct with respect to e-commerce? I. E-commerce involves the electronic consummation of exchange transactions. II. E-commerce generally implies the use of private networks rather than the Internet. III. E-commerce is restricted to entities that have an established business relationship. A. I, II, and III are correct. B. I only is correct. C. II only is correct. D. III only is correct.
B. I only is correct.
Simms Corporation utilizes a disaster recovery provider in Mahwah, New Jersey. At that facility, it has contracted for a cold site. It is considering upgrading to a hot site contract. Which of the following actions must Simms take if it decides to upgrade its disaster recovery contract in this manner? I. Simms must merely inform its disaster recovery provider. The disaster recovery provider will be more than happy to turn up the thermostat for a minimal fee. II. Simms must contract its hardware vendors and arrange for equipment to be delivered to the facility when a disaster occurs. III. Simms must contact its disaster recovery provider and arrange for hardware to be available in case a disaster occurs. Depending on what Simms requires, the disaster recovery provider may provide specialized equipment or may provide Simms with access to standardized equipment already in its inventory. A. I and II only are correct. B. III only is correct. C. I and III only are correct. D. I only is correct.
B. III only is correct.
Stratford Corporation uses a general ledger system that was developed internally more than 10 years ago. Which of the following statements is correct for Stratford to consider in determining whether/how to replace this system? A. If Stratford designs and writes a new general ledger system instead of purchasing a new system from an outside vendor, it should purchase life insurance for the major system developers so that it will be protected from future heart attacks. B. If Stratford designs and writes a new general ledger system instead of purchasing a new system from an outside vendor, Stratford will be able to design the system to meet its own specific general ledger requirements. C. If Stratford purchases a new general ledger system from an outside vendor, Stratford must rely on the vendor to maintain and support that system. D. If Stratford purchases a new general ledger system from an outside vendor, Stratford must customize that system to meet its own specific general ledger requirements.
B. If Stratford designs and writes a new general ledger system instead of purchasing a new system from an outside vendor, Stratford will be able to design the system to meet its own specific general ledger requirements.
The first step in the evaluation of transaction exposure is the computation of: A. Determination of currency volatility. B. Net currency inflows or outflows. C. Currency outflows. D. Currency inflows.
B. Net currency inflows or outflows.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's process for establishing the likelihood and impact of events? A. Governance and culture. B. Performance. C. Strategy and objective-setting. D. Review and revision.
B. Performance.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's consideration of inherent and residual risk? A. Strategy and objective-setting. B. Performance. C. Review and revision. D. Governance and culture.
B. Performance. The performance component of the enterprise risk management framework includes elements that relate to risk analysis including inherent and residual risk.
The relevance of a particular cost to a decision is determined by: A. Number of decision variables. B. Potential effect on the decision. C. Accuracy of the cost. D. Riskiness of the decision.
B. Potential effect on the decision. The relevance of a particular cost to a decision is determined by the potential effect on the decision. Relevant costs are expected future costs that vary with the action taken. All other costs are assumed to be constant and thus have no effect on the decision.
Delphi Company has developed a new product that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at $36 per unit, Delphi's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed-costs associated with the new product are budgeted at $450,000 for the year, which includes $60,000 for depreciation on new manufacturing equipment. Data associated with each unit of product are presented below. Delphi is subject to a 40 percent income tax rate. VC Direct material $7 Direct labor $3.50 Manufacturing OH $4 Total Var. Mfg. Cost 14.50 Selling expense 1.50 Total VC $16.00 Delphi Company's management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least $75,000 the first year. The unit selling price to achieve this target profit must be at least: A. $36.60 B. $34.60 C. $39.00 D. $41.40
C. $39.00 After-tax profit: $75,000 Reciprocal of tax rate: /60% Pre-tax profit: 125,000 Fixed cost: 450,000 Total = 575,000 Divided by max. vol.: 25,000 Required contribution margin per unit: 23 VC per unit: 16 Required selling price: 39
Harbor Seal, Inc. manufactures marine navigation systems. Harbor's budget calls for the following pro-forma revenues, expenses, and operating profits based on sales of 250 units per quarter: Sales: $218,750 COG Direct Materials: (49,000) Direct Labor: (54,500) Variable Overhead: (15,500) Mfg. Contribution Margin: 99,750 Variable Selling Expenses: (3,500) Contribution Margin: 96,250 Fixed Overhead: (19,000) Fixed SGA: (23,000) Operating Income: 54,250 During the quarter just ended, Harbor actually sold 220 units. Using a flexible budget, what would Harbor's pro forma operating income be for the quarter? A. $61,950 B. $47,740 C. $42,700 D. $39,875
C. $42,700 96,250(220/250) - (19,000 + 23,000) = 42,700
Alex Company had the following inventories at the beginning and end of the month of January. Jan. 1 Jan. 31 FG $125k $117k WIP $235k $251k DM $134k $124k The following additional manufacturing data was available for the month of January. Direct materials purchased - $189,000 Purchase returns and allowances - 1,000 Transportation in - 3,000 Direct labor - 300,000 Actual factory overhead - 175,000 Alex Company applies factory overhead at a rate of 60 percent of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's total manufacturing cost for January was: A. $679,000 B. $669,000 C. $681,000 D. $671,000
C. $681,000 Direct Material (Beg): 134,000 Add: Purchases: 189,000 Less: Returns: (1,000) Add: Transportation in: 3,000 Less: Ending inventory: (124,000) Direct materials used = 201,000 Direct materials used: 201,000 Direct labor: 300,000 Overhead (300,000 x .6): 180,000 Total manufacturing cost: 681,000
For the month of December, Crystal Clear Bottling expects to sell 12,500 cases of Cranberry Sparkling Water at $24.80 per case and 33,100 cases of Lemon Dream Cola at $32.00 per case. Sales personnel receive 6 percent commission on each case of Cranberry Sparkling Water and 8 percent commission on each case of Lemon Dream Cola. In order to receive a commission on a product, the sales personnel team must meet the individual product revenue quota. The sales quota for Cranberry Sparkling Water is $500,000, and the sales quota for Lemon Dream Cola is $1,000,000. The sales commission that should be budgeted for December is: A. $82,152. B. $4,736. C. $84,736. D. $103,336.
C. $84,736 24.80 x 12,500 = $310,000 < 500,000 33,100 x 32.00 = 1,059,200 > 1,000,000 8% x 1,059,200 = 84,736
Which of the following is incorrect with regard to government intervention in market operations? A. Rationing limits the availability of certain goods to a specified level, which lowers demand and prices for a given supply. B. Price floors are minimum prices established by law, such as minimum wages and agricultural price supports. C. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop. D. Government intervention may create a price different from the market price, thus causing either a surplus or a shortage.
C. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop. This is an incorrect statement and is therefore the correct choice. A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop.
Due to the extremely high costs of insurance premiums for hurricane coverage, a South Florida company chooses to "self-insure." This is an example of risk: A. Sharing. B. Negligence. C. Acceptance. D. Reduction.
C. Acceptance. This situation represents "risk acceptance," as self-insuring implies that the company will take no action, and if a hurricane causes damage to the company, it will cover the costs out of pocket rather than pay for insurance to share the risk.
The internal rate of return for a project can be determined: A. By subtracting the firm's cost of capital from the project's profitability index. B. Only if the project's profitability index is greater than one. C. By finding the discount rate that yields a net present value of zero for the project. D. Only if the project cash flows are constant.
C. By finding the discount rate that yields a net present value of zero for the project.
Dollar Bus Company has set an objective to fully comply with published bus schedules to ensure consistent on-time service. The company knows that shorter routes per bus minimize delays caused by unforeseen issues. Shorter routes require a greater investment in the fleet. The company currently achieves an 83% compliance rate with the schedule and does not expect a significant increase or decrease in ridership or revenue as compliance improves to 100% but does see revenues fall off significantly when buses are late more that 20% of time. The company's objective setting would logically develop as follows: A. Tolerable levels of variation from compliance with stated bus schedules are established as a means of establishing realistic compliance objectives. B. Compliance rates of 80% would become the objective and additional investments in buses would be required to reduce risk. C. Compliance with the bus schedule would be reviewed in relation to the risk of lost ridership within tolerable compliance percentages above 80%. D. Additional busses would be acquired to achieve the objective and incentives would be provided to drivers who consistently meet requirements.
C. Compliance with the bus schedule would be reviewed in relation to the risk of lost ridership within tolerable compliance percentages above 80%.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of the internal control integrated framework addresses an entity's policies and procedures? A. Risk assessment. B. Control environment. C. Control activities. D. Information and communication.
C. Control activities. The control activities component of the internal control integrated framework includes principles such as policies and procedures and information technology.
The Sarbanes-Oxley Act of 2002 defines the responsibilities of the audit committee as including all of the following, except: A. Resolving disagreements between management and the auditor. B. Compensation of the auditor. C. Directing the auditor's application of audit principles. D. Appointment of the auditor.
C. Directing the auditor's application of audit principles.
When the federal government imposes health and safety regulations on certain products, one of the most likely results is: A. Greater consumption of the product. B. Increased supply of the product. C. Higher prices for the product. D. Lower prices for the product.
C. Higher prices for the product. One of the consequences of greater government regulation of certain products is the resulting higher cost to the consumer when the government imposes health and safety regulations on certain products it is likely that expense will increase and that the added costs will be passed on to consumers in terms of higher prices. The total output for the product may decrease.
Which of the following is (are) the best definition(s) of a firewall? I. A firewall is a system of user identification and authentication that prevents unauthorized users from gaining access to network resources. II. A firewall is a network node used to improve network traffic and to set up a boundary that prevents traffic from one network segment from crossing over to another. III. A firewall is the fireproof physical wall that separates one part of a large computer center from another. A. II and III only are correct. B. I, II, and III are correct. C. I and II only are correct. D. III only is correct.
C. I and II only are correct.
Multinational corporations are subject to various risks as a result of dealing in foreign currencies. The potential of exchange rate fluctuations exposes these companies to all of the following risk, except: A. Transaction risk. B. Economic risk. C. Interest rate risk. D. Translation risk.
C. Interest rate risk.
Nadaf Exports trades exclusively in luxury Persian rugs that are shipped from the Middle East and sold throughout Europe and North America. The company is trying to mitigate the transaction risks associated with settling transactions in United States dollars, Canadian dollars, and euros. Nadaf Exports would likely use any of the following transaction risk mitigation techniques except: A. Entering into currency option hedge contracts. B. Entering into futures hedge contracts. C. Strategically adjusting the sales mix between North America and Europe based upon the exchange rate. D. Entering into forward hedge contracts.
C. Strategically adjusting the sales mix between North America and Europe based upon the exchange rate.
The difference between the sales price and variable cost per unit is: A. Gross operating profit. B. Cost-volume-profit analysis. C. The contribution margin. D. The breakeven point.
C. The contribution margin.
Suppose a wine producer is considering raising the price of its wine. If the price elasticity of demand for wine is 2.5, we would expect: A. The price increase to lead to an increase in the firm's total revenue. B. The effect of the price increase is ambiguous. C. The price increase to lead to a decrease in the firm's total revenue. D. The price increase to have no effect on the firm's total revenue.
C. The price increase to lead to a decrease in the firm's total revenue.
Siaggas Corporation, a Greek shipping company, will need to purchase $1,000,000 in United States dollars with euros in six months. The risk exposure faced by the company that the value of the euro will fall in relation to the United States dollar is most precisely referred to as: A. Economic exposure. B. Translation exposure. C. Transaction exposure. D. Purchasing power risk.
C. Transaction exposure. The risk exposure faced by an entity that encounters the possibility that the currency in which a transaction is denominated will be adversely affected by the currency in which the transaction is settled is referred to as transaction exposure risk.
A senior executive of an international organization who wishes to demonstrate the importance of the security of company information to all team members should: A. Review and accept the information security risk assessments in a staff meeting. B. Allocate additional budget resources for external audit services. C. Visibly participate in a global information security campaign. D. Refer to the organization's U.S. human resources policies on privacy in a company newsletter.
C. Visibly participate in a global information security campaign. A senior executive of an international organization who wishes to demonstrate the importance of the security of company information to all team members should visibly participate in a global information security campaign. It is the role of project sponsors at the executive level of management to participate in high-level planning and leading the development of projects, such as information security.
Whatney Co. is considering the acquisition of a new, more efficient press. The cost of the press is $360,000, and the press has an estimated six-year life with zero salvage value. Whatney uses straight-line depreciation for both financial reporting and income tax reporting purposes and has a 40 percent corporate income tax rate. In evaluating equipment acquisitions of this type, Whatney uses a goal of a four-year payback period. To meet Whatley's desired payback period, the press must produce a minimum annual before-tax, operating cash savings of: A. $150,000 B. $114,000 C. $90,000 D. $110,000
D. $110,000 360,000/4 = 90,000 360,000/6 = 60,000 90,000 + (x - 60,000)(.4) = x 90,000 +.4x - 24,000 = x 90,000 - 24,000 = .6x 66,000 = .6x x = 110,000
In order to increase production capacity, Gunning Industries is considering replacing an existing production machine with a new technologically improved machine effective January 1, 20X4. The following information is being considered by Gunning Industries. The new machine would be purchased for $160,000 in cash. Shipping, installation, and testing would cost an additional $30,000. The new machine is expected to increase annual sales by 20,000 units at a sales price of $40 per unit. Incremental operating costs are comprised of $30 per unit in variable costs and total fixed costs of $40,000 per year. The investment in the new machine will require an immediate increase in working capital of $35,000. Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. The new machine has an estimated useful life of five years and zero salvage value. Gunning is subject to a 40 percent corporate income tax rate. Gunning uses the net present value method to analyze investments and will employ the following factors and rates. Per. PV$1@10% PVOA$1@10% 1 .909 .909 2 .826 1.736 3 .751 2.487 4 .683 3.170 5 .621 3.791 Gunning Industries' net cash outflow in a capital budgeting decision would be: A. $204,525. B. $195,000. C. $190,000 D. $225,000
D. $225,000 Purchase price of new machine: 160,000 + Shipping, installation and testing cost: 30,000 + Required increase in working capital: 35,000 Total = 225,000
Water Control, Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per water pump are based on direct labor hours and are shown below. Variable overhead (4 hours at $8/hour): $32 Fixed overhead (4 hours at $5*/hour): 20 Total overhead cost per unit: $52 *Based on a capacity of 100,000 direct labor hours per month. The following additional information is available for the month of November. 22,000 pumps were produced although 25,000 had been scheduled for production. 94,000 direct labor hours were worked at a total cost of $940,000. The standard direct labor rate is $9 per hour. The standard direct labor time per unit is four hours. Variable overhead costs were $740,000. Fixed overhead costs were $540,000. The variable overhead efficiency variance for November was: A. $96,000 favorable. B. $32,000 favorable. C. $60,000 favorable. D. $48,000 unfavorable.
D. $48,000 unfavorable. 94,000 x $8 = 752,000 22,000 x 4 x 8 = 704,000 752,000 - 704,000 = 48,000
Almo Company developed its business plan based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy were projected at $200, and the annual fixed-costs were budgeted at $100,000. Alamo's after-tax profit objective was $240,000; the company's effective tax rate is 40 percent. If no changes are made to the selling price or cost structure, determine the number of units that Almo Company must sell to achieve its after-tax profit objective. A. 1,700 units. B. 3,500 units. C. 4,500 units. D. 2,500 units.
D. 2,500 units. 240,000/.6 = 400,000 100,000 + 400,000/200 = 2,500 units
A period during which real GDP is falling for at least two consecutive quarters is called: A. A recovery. B. A trough. C. An expansion. D. A recession.
D. A recession. A recession is defined as a period during which real GDP is falling for at least two consecutive quarters.
Hardwood Manufacturing has outgrown its current facility and must relocate to an expanded plant. Hardwood's management is evaluating whether to lease or buy the facility to which they will move. All of the following costs are relevant to this decision, except: A. Annual rental expense associated with the new facility in the event a lease option is selected. B. Anticipated disposal value of the new facility in the event a purchase option is selected. C. Common area maintenance charges applicable to the leased facility. D. Anticipated proceeds from the sale of current facilities to be used as a down payment for the purchase of a new plant in the event a purchase option is selected.
D. Anticipated proceeds from the sale of current facilities to be used as a down payment for the purchase of a new plant in the event a purchase option is selected. Disposal proceeds associated with the old facility are not relevant to the decision to lease or buy. The current facility has been outgrown. Hardwood will not use the facility and, any proceeds or costs associated with keeping or disposing of the old facility will occur regardless of the decision to lease or buy and are, therefore, not relevant.
Which one of the following is an example of just-in-time being used for competitive advantage? A. Acme Company tells its maintenance department to intervene only if a machine breaks down. B. Big Deal Car Manufacturer increases the number of its suppliers to be less dependent on just a few. C. AJAX Cement Company has built a new, huge warehouse to store inventory. D. BAC Company has decreased the number of job classifications to just a few.
D. BAC Company has decreased the number of job classifications to just a few. A benefit of just-in-time is a more efficient use of employees with multiple skills.
The steps that a company, using a traditional cost system, would take to implement activity-based costing include: I. Evaluation of the existing system to assess how well the system supports the objective of an activity-based cost system. II. Identification of the activities for which cost information is needed with differentiation between value adding and non-value adding activities. A. Only II. B. Neither I nor II. C. Only I. D. Both I and II.
D. Both I and II.
In the long run, firms in a monopolistically competitive market: A. Produce where price is less than average total cost. B. Produce where price is greater than average total cost. C. Earn positive economic profit. D. Earn zero economic profit.
D. Earn zero economic profit. Monopolistic competition is characterized by a market in which many firms sell differentiated products. In the short-run, product differentiation allows firms to earn positive economic profits. However, because there are few barriers to entry, in the long-run, economic profits are zero.
Howell Company is based in Southern California. It manufactures snow skis, ski equipment, and surfboards. It has contracted with a major consulting firm to review the controls over its information technology area. Which of the following controls might Howell have reasonably implemented? I. Input controls that require that certain key data be validated. II. Input and processing controls that require that batch totals be maintained and verified for all transactions that are processed in batches. III. Output controls that require that all reports be printed and distributed to remote end users by UPS or FedEx delivery. A. III only is correct. B. I, II, and III are correct. C. II only is correct. D. I and II only are correct.
D. I and II only are correct.
Which of the following Federal Reserve policies would increase money supply? A. Change the multiplier effect. B. Increase reserve requirements. C. Sell more U.S. Treasury bonds. D. Reduce the discount rate.
D. Reduce the discount rate. If the Federal Reserve wanted to increase the money supply, it would reduce the discount rate. A lower discount rate would reduce short-term interest rates, which would encourage more borrowing at the lower interest rate. More borrowing means more lending and more money in the economy.
Corbin Corporation is evaluating the sample sizes associated with periodic tests of the existence of a fleet of taxis. Cash receipts associated with fares deposited daily are periodically reconciled to both the fares charged and the taxi's odometer readings. With respect to monitoring controls over cash vs. vehicles, Corbin will likely: A. Review cash and fixed assets on a periodic basis, not on a daily basis. B. Review cash and fixed assets on an ongoing basis. C. Review fixed assets on an ongoing basis and cash on a less frequent periodic basis. D. Review cash on an ongoing basis and fixed assets on a less frequent periodic basis.
D. Review cash on an ongoing basis and fixed assets on a less frequent periodic basis. The monitoring of internal control effectiveness is performed based on the significance of the risk being controlled. Cash has more risk than vehicles and thus needs to be monitored more frequently.
Duffy Corporation routinely allows any payables that do not offer a discount to age to 30 days. Duffy's commercial suppliers have accepted this practice and Duffy has not experienced any adverse credit rating. Duffy is effectively using the liquid asset management technique known as: A. Commercial paper. B. Trade acceptance. C. Compensating balance. D. Trade credit.
D. Trade credit. Deferral of payments to creditors is called trade credit and is a spontaneous form of working capital financing.
An accounts payable clerk is accused of making unauthorized changes to previous payments to a vendor. Proof could be uncovered in which of the following places? A. Validated data file. B. Error files. C. Error reports. D. Transaction logs.
D. Transaction logs.
Which of the following terms best describes a payroll system? A. Enterprise resource planning (ERP) system. B. Decision support system (DSS). C. Database management system (DBMS). D. Transaction processing system (TPS).
D. Transaction processing system (TPS).
When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying: A. Return maximization. B. Operating leverage. C. Financial leverage. D. Working capital management.
D. Working capital management. Appropriate working capital management matches the maturity life of each asset with the length of the financial instrument used to finance that asset.
