1. The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2) Activity-based costing.
Cost-volume profit analysis.
Outsourcing activities.
Relevant cost-based pricing.

2. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: (Points : 2)

The variable manufacturing cost of the component.
The total manufacturing cost of the component.
The total variable cost of the component.
The fixed manufacturing cost of the component.

3. The term “breakeven after-tax cash flow” represents: (Points : 2)

A pessimistic estimate in a typical scenario analysis.
An optimistic estimate in a typical scenario analysis.
The amount of after-tax cash flow needed to generate a return equal to a project’s IRR.
The cash flow needed to generate an IRR of zero.
An estimate that can be arrived at using Goal Seek in Excel.

4. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value.
What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2)

4 years.
5 years.
6 years.
10 years.
15 years.

5. A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net savings of: (Points : 2)


6. Special orders: (Points : 2)

Are frequent.
Are infrequent.
Commonly represent a large part of a firm’s overall business.
Can never be profitable to a firm.

7. You just bought a new car for $125,000. Before you had time to get insurance, the car was wrecked. Weird Wally offers to take it off your hands for $10,000. You can then purchase a similar model for $128,000. A body-shop with an excellent reputation offers to rebuild it for $90,000 and loan you a similar model while the vehicle is being rebuilt. Once rebuilt, the body-shop claims, it will run like a new car and nobody will be able to tell the difference. What would you do from a financial point of view? (Points : 2)

Rebuild to save $13,000.
Rebuild to save $28,000.
Rebuild to save $38,000.
Sell to Weird Wally and save $7,000.

8. Operating at or near full capacity will require a firm considering a special order to recognize potentially the: (Points : 2)

Opportunity cost from lost sales.
Value of full employment.
Time value of money.
Need for good management.
Value of capacity resource management.

9. Which one of the following capital budgeting decision models consists of dividing the total initial investment outlay by annual after-tax cash inflows (when such inflows are assumed equal over time)? (Points : 2)

Profitability index.
Payback period.
Book (accounting) rate of return.
Internal rate of return.
Adjusted payback period.

10. Which of the following is not a characteristic of the payback method for making capital budgeting decisions? (Points : 2)

It is easy to calculate and comprehend.
It focuses primarily on liquidity, rather than profitability of an investment project.
It can be considered a rough measure of risk.
It considers returns over the entire life of the project.
It requires estimates of after-tax cash inflows and after-tax cash outflows.

11. Which one of the following is correct for determining relevant costs? (Points : 2)

Long-term focus.

12. Which one of the following is most descriptive of strategic analysis? (Points : 2)

Customer focus.
Short-term focus.
Individual product focus.
Not linked to the firm’s strategy.

13. Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2)

Overconfidence in decision-making.
A loss in the firm’s profitability.
Conflicting goals between management and sales personnel.
A cost leadership strategy.
Maximization of resources.

14. Which of the following is not one of the four general classes of real options? (Points : 2)

Expansion option.
Exercise option.
Abandonment option.
Investment-timing option (e.g., delay)

15. An effective analysis of sales mix needs to include an analysis of: (Points : 2)

Value chain analysis.
Production constraints.
Sales mix costing.
Revenue forecasting.

16. Which of the following statements about the standard variable factory overhead application rate is true? (Points : 2)

The rate is a function of the denominator volume chosen.
The rate is used for cost-control, but not product-costing purposes.
The rate is used for product-costing, but not cost-control purposes.
The same rate is used for both product-costing and cost-control purposes.
Generally speaking, the rate will be independent of the allocation base chosen to apply overhead.

17. The sequence of phases in the product or service’s life in the market – from the introduction of the product or service to the growth in sales and finally maturity, decline, and withdrawal from the market is the: (Points : 2)

Sales life cycle.
Target life cycle.
Market life cycle.
Critical life cycle.
Cost life cycle.

18. _________________________ is an important first step in value engineering because it identifies critical consumer preferences that will define the product’s desired functionality. (Points : 2)

Consumer analysis
Sales force analysis
Design analysis
R&D analysis
Market place analysis

19. During the sales life cycle, which is an example of what happens during the maturity phase? (Points : 2)

Sales and price decline, as do the number of competitors.
Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
Sales increase rapidly along with an increase in product variety.
Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

20. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line “ECC” DVD player for a price of $250. It costs ECC $210 to make the player. ECC’s main competitor is coming to market with a new DVD player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
Irrespective of the competitor’s price, what is EEC’s required selling price if the target profit is 25% of sales and current costs cannot be reduced? (Points : 2)


21. Using an activity-based costing system (ABC) enables a firm to calculate overhead variances for: (Points : 2)

Sales volume and production volume.
Spending and selling price.
Each activity-based cost driver.
Semi-variable overhead costs.
Federal income tax purposes.

22. In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U. The total number of budgeted units reflected in the master budget for September was: (Points : 2)

36,000 units.
40,000 units.
45,000 units.
48,000 units.
50,000 units.

23. Activity-based costing (ABC) and the theory of constraints (TOC) are viewed as methods that are: (Points : 2)

Substitutions for one another.

24. During the sales life cycle, which is an example of what happens during the introduction phase? (Points : 2)

Sales and price decline, as do the number of competitors.
Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
Sales increase rapidly along with an increase in product variety.
Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

25. Concurrent engineering relies on an integrated approach, in which the engineering/design process takes place throughout the cost life cycle using cross-functional teams. Strategically, this concurrent approach should give a firm all of the following except: (Points : 2)

Flexibility in refining its design.
Ability to quickly incorporate customer suggestions.
Cost savings because of time saved.
More detailed analysis of product functionality.

26. The difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost for the period is the: (Points : 2)

Fixed overhead efficiency variance.
Fixed overhead production-volume variance.
Fixed overhead spending variance.
Fixed overhead rate variance.
Fixed overhead sales-volume variance.

27. An organization planned to use $82 of material per unit of output, but it actually used $80 per unit. During this period, the company planned to make 1,200 units, but actually produced only 1,000 units. The flexible budget amount for materials is: (Points : 2)


28. If inventories in a business using a standard cost system are insignificant, the firm would be justified (in a practical sense) by disposing of variances each year: (Points : 2)

As an adjustment to the finished goods inventory only.
As an adjustment to cost of goods sold only.
As adjustments to both inventory accounts and the cost of goods sold for the period.
As a special item (gain or loss) on the income statement for the period.
As an adjustment to the work-in-process (WIP) inventory only.

29. One important short-term goal for a company is to earn the projected operating income for the period. Attainment of this goal is measured by comparing the actual operating income to the: (Points : 2)

Flexible-budget operating income.
Prior period’s operating income.
The income reflected in the company’s balanced scorecard.
Master budget operating income.
Industry average operating income.

30. Xero Company’s standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead. What was the fixed factory overhead spending variance for December? (Points : 2)

$50 favorable.
$225 favorable.
$425 unfavorable.
$560 unfavorable.
$610 unfavorable.

31. The stock option form of bonus payments to managers usually: (Points : 2)

Motivates well even in extended market downturns.
Can lose some motivation because of the delay in reward.
Focuses on the short-term.
Is not consistent with shareholder interests.

32. The value stream income statement can be compared to: (Points : 2)

Value chain analysis.
The contribution income statement.
A streamlined production process.
A streamlined accounting system.

33. An employment contract is an agreement between the manager and top management designed to provide incentives for the manager to act: (Points : 2)

Independently to achieve top management’s objectives.
Consistently with that of other managers.
Independently to achieve the manager’s objectives.
Independently to achieve the customer’s objectives.

34. Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if: (Points : 2)

Units produced exceed units sold.
Units sold exceed units produced.
Fixed manufacturing costs increase.
Variable manufacturing costs increase.

35. Managers who are risk prone: (Points : 2)

Seek risky projects that promise some chance of a low benefit.
Seek risky projects that promise some chance of a high benefit, although the projects may have a risk of low benefit.
Seek risky projects.
Seek high risk projects that promise some chance of a high benefit, although the projects may have a very significant risk of no benefit.

36. Risk aversion is by: (Points : 2)

Lack of a strategic emphasis in decision making.
Use of non-strategic performance measurement systems.
Presence of uncertainty in a manager’s environment.
A manager’s inability to deal with stress.

37. The balanced scorecard measures the SBU’s performance in all of the following areas except: (Points : 2)

Learning and growth.
Managerial performance.
Customer satisfaction.
Internal business processes.
Accounting and tax compliance.

38. In management compensation, the use of the balanced scorecard achieves: (Points : 2)

Alignment of manager’s incentives and the organization’s strategy.
The desired ethical environment.
Revenue generation and cost control.
A specific non-financial measurement.

39. The balanced scorecard critical success factors (CSFs) provide strong motivation in bonus compensation plans if the non-controllable factors are: (Points : 2)


40. Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments: (Points : 2)

More complex.
Forthright and fair.
Less efficient.

41. SBUs that generate revenues and incur the major portion of the cost for producing those revenues are: (Points : 2)

Revenue centers.
Contribution centers.
Profit centers.
Cost centers.

42. If fairness only is considered, unit managers prefer: (Points : 2)

Not to be evaluated.
A subjective measure.
A single, objective measure.
A firm-wide pool over a unit-based pool.
A unit-based pool over a firm-wide pool.

43. A strategic business unit (SBU) consists of a well-defined set of controllable operating activities
over/about which the SBU manager is: (Points : 2)

Responsible for strategy.
Responsible for strategy and execution.
Responsible for strategy, execution, and performance.

44. Which one of the following items is not a measure of a company’s liquidity? (Points : 2)

Accounts receivable turnover.
Return on equity.
Quick ratio.
Cash flow ratio.
Day’s sales in inventory.

45. Performance evaluation in most firms is applied at: (Points : 2)

Many different levels from top management down to individual production and sales employees.
All levels of production, but only top levels of sales.
Top and mid-management levels only.
Lower and mid-management levels only.
The mid-management level only.

46. Which one of the following develops the value of the firm as the discounted present value of the firm’s net free cash flows? (Points : 2)

Discounted cash flow method.
Liquidity method.
Multiples-based method.
Profitability method.

47. For production and support departments, a method of implementing cost centers that is output-oriented is the: (Points : 2)

Budget slack method.
Cost shifting approach.
Outsourcing approach.
Discretionary-cost method.
Engineered-cost approach.

48. In a formal management control system, top management sets expectations for desired manager performance. Which of the following is not one of the areas in which a formal individual management control system would be used? (Points : 2)

Hiring practices.
Promotion policies.
Organizational culture.

49. Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $500,000. Marketing and administrative costs (all fixed) were $300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at $50 per unit. Variable costing operating income for 2010 is calculated to be: (Points : 2)


50. Which one of the following computes value based on annual earnings? (Points : 2)

Discounted cash flow method.
Liquidity method.
Multiples-based method.
Profitability method.