ACC564 HW #3 Student Name:Nikunj Jariwala Select ONE best answer for each of the following questions: 1.

As the level of activity increases, how will a mixed cost in total and per unit behave? A) B) C) D) E) 2. In Total Increase Increase Increase Decrease Decrease Per Unit Decrease Increase No effect Increase No effect due 04/18/11 midnight

When the activity level is expected to decline within the relevant range, what effects would be anticipated with respect to each of the following? Fixed costs per unit Increase Increase No change No change Variable costs per unit Increase No change No change Increase

A) B) C) D) 3.

The high-low method is used with which of the following types of costs? A) Variable. B) Mixed. C) Fixed. D) Step-variable. Shipping costs at Columbia Mining Company are a mixture of variable and fixed components The company shipped 8,000 tons of coal for $400,000 in shipping costs in February and 10,000 tons for $499,000 in March Assuming that this activity is within the relevant range, expected shipping costs for 11,000 tons would be: A) $544,500 B) $548,500 C) $422,222 D) $554,000 The break-even point occurs on the CVP graph where: A) total profit equals total expenses. B) total profit equals total fixed expenses. C) total contribution margin equals total fixed expenses. D) total variable expenses equal total contribution margin. Mossfeet Shoe Company is a single product firm. Mossfeet is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? Contribution Break1

4.

5.

6.

even A) B) C) D) 7. Margin Ratio Increase Decrease Increase Decrease Point Decrease Decrease No effect No effect

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will: A) decrease the degree of operating leverage. B) decrease the contribution margin. C) have no effect on the break-even volume. D) have no effect on the contribution margin ratio. Which of the following would not affect the break-even point? A) number of units sold B) variable expense per unit C) total fixed expenses D) selling price per unit Which of the following represents the normal sequence in which the below budgets are prepared? A) Sales, Balance Sheet, Income Statement B) Balance Sheet, Sales, Income Statement C) Sales, Income Statement, Balance Sheet D) Income Statement, Sales, Balance Sheet All the following are considered to be benefits of participative budgeting, except for: A) Individuals at all organizational levels are recognized as being part of a team; this results in greater support for the organization. B) The budget estimates are prepared by those in directly involved in activities. C) When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations. D) Managers are held responsible for reaching their goals and cannot easily shift responsibility by blaming unrealistic goals set by others. When preparing a production budget, the required production equals: A) budgeted sales + beginning inventory + desired ending inventory. B) budgeted sales - beginning inventory + desired ending inventory. C) budgeted sales - beginning inventory - desired ending inventory. D) budgeted sales + beginning inventory - desired ending inventory. Hal Etoesus currently works as the fry guy at Burger Breath Drive Thru but is thinking of quitting his job to attend college full time next semester. Which of the following would be considered an opportunity cost in this decision? A) the cost of the textbooks B) the cost of the cola that Hal will consume during class C) Hal's lost wages at Burger Breath D) both A and B above Buff Corp. is considering replacing an old machine with a new machine. Which of the following items is 2

8.

9.

10.

11.

12.

13.

relevant to Buff's decision? (Ignore income tax considerations.) Book value of old machine Yes No No Yes Disposal value of new machine No Yes No Yes

A) B) C) D) 14.

When a multi-product factory operates at full capacity, decisions must be made about what products to emphasize. In making such decisions, products should be ranked based on: A) selling price per unit B) contribution margin per unit C) contribution margin per unit of the constraining resource D) unit sales volume Which of the following can be an opportunity cost? A) Interest on cost of inventory B) Cost of idle capacity C) Cost of underutilized labor D) The decline in an asset's value E) All of the above To align the interests of managers and owners, the author argues that: A) managers naturally seek to maximize shareholders' wealth B) managers act in their own interests C) no employee incentives are needed in non-profit firms D) owners must design systems to monitor and reward management behavior that increases the firm's profits Performance measures: A) are critical in designing a reward system B) are unimportant in designing a reward system C) always influence people to achieve them D) are always worded vaguely Neu Company is considering the purchase of an investment that has a positive net present value based on a discount rate of 12%. The internal rate of return would be: A) zero. B) 12%. C) greater than 12%. D) less than 12%. The net present value of a proposed investment is negative. Therefore, the discount rate used must be: A) greater than the project's internal rate of return. B) less than the project's internal rate of return. C) greater than the minimum required rate of return. D) less than the minimum required rate of return. The internal rate of return for a project can be determined: 3

15.

16.

17.

18.

19.

20.

A) B) C) D)

only if the project's cash flows are constant. by finding the discount rate that yields a zero net present value for the project. by subtracting the company's cost of capital from the project's profitability index. only if the project profitability index is greater than zero.

21. A lump sum of $5,000 is invested at 10% per year for 5 years. The company's cost of capital is 8%. Which is true? A) The investment has a future value of $7,347 B) The investment has a future value of $8,053 C) The investment has a present value of $5,000 D) The investment has a net present value of $5,000 22. Which of the following is true? A) People in firms have equal knowledge B) Employee empowerment increases when firms centralize key functions C) Decision rights and knowledge must be separated to minimize agency costs D) Theft by employees is an example of an agency cost Which of the following is true? A) Successful firms have lower transaction costs than markets do B) A legal system that protects ownership rights is critical to the efficient functioning of firms and markets C) Markets measure and reward performance D) Markets allocate resources to their highest value use E) All of the above A sound allocation system should: A) be cheap and easy to administer B) provide incentives for cost control C) charge in proportion to amount used or benefit received D) be perceived as equitable by those who are charged be E) all of the above 2-B 3-B 4-B 5-C 6-A 21-C 7-C 8-A 9-C 24-E 10-C 11-B 12-C 13-B 14-C 15-E

23.

24.

1-A

16-D 17-A 18-C

19-A 20-B

22-D 23-E