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Johansson Company developed the following static budget at the beginning of the company's

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1. Which of the following is not typically found in a decentralized organization? (Points : 2)

Asset center
Cost center
Investment center
Profit center

2. Johansson Company developed the following static budget at the beginning of the company's accounting period:

Revenue (8,000 units)
Variable costs
Contribution margin
Fixed costs
Net income
$ 8,000
If the actual volume of sales was 8,200 units, the flexible budget would show variable costs of:

$ 4,000
$ 4,100

3. Summer Company's static budget is based on a planned activity level of 25,000 units. Later, the company’s management accountant prepared a budget based on 30,000 units. The company actually produced and sold 29,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets? (Points : 2)

A budget based on 29,000 units.
A budget based on 30,000 units.
A budget based on 25,000 units.
Either A or C.

4. When would a variance be labeled as favorable? (Points : 2)

When standard costs are equal to actual costs
When standard costs are less than actual costs
When expected sales are greater than actual sales
When actual costs are less than standard costs

5. Assuming actual volume is 11,000 units and planned volume is 10,000 units, the sales volume variance: (Points : 2)

is 1,000 units favorable.
is 1,000 units unfavorable.
cannot be determined without additional information.
none of the above.

6. The practice of delegating authority and responsibility is referred to as: (Points : 2)
standard costing.
management by exception.
centralization of authority.

7. A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a: (Points : 2)

flexible budget variance.
volume variance.
production activity variance.
static budget variance.

8. Which of the following income statement formats is most commonly used with flexible budgeting? (Points : 2)

Sales – manufacturing costs – selling and administrative costs = net income
Sales – cost of goods sold = gross margin – operating expenses = net income
Sales – variable costs = contribution margin – fixed costs = net income
None of the above

9. Bilbo Company evaluates its managers on the basis of return on investment (ROI). Division Three has an ROI of 15% while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the managers of Division Three to accept a project earning a 12% return? (Points : 2)

Return on investment (ROI)
Residual income (RI)
Both ROI and RI will motivate the manager to accept the project
Neither ROI nor RI will motivate the manager to accept the project

10. Which of the following statements about ROI is false? (Points : 2)

ROI is used to measure the performance of investment centers.
ROI = margin divided by investment turnover.
Trying to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
The book value of operating assets is frequently used as the investment base for calculating return on investment.

11. When using residual income (RI) as a project-screening tool, management should accept a project if: (Points : 2)

RI is negative.
RI is positive.
RI equals return on investment.
none of the above.

12. A cash flow that only occurs once is referred to as: (Points : 2)

an annuity.
a lump sum.
a principal sum.
none of the above.

13. Which statement characterizes the time value of money concept? (Points : 2)

The future value of a present dollar is less than one dollar.
The present value of a future dollar is less than one dollar.
The timing of cash flows is not relevant to decision making.
None of the above.

14. The rate of return that equates the present value of cash inflows and outflows from a capital investment is the: (Points : 2)

minimum rate of return.
internal rate of return.
desired rate of return.
none of the above.

15. Austin Company is considering a capital project that will return $100,000 each year for five years. At the company's hurdle rate of 10%, the present value of the annuity is $379,100. What will be the company's return on investment in Year 1? (Points : 2)

None of the above

16. Which of the following computer applications would be most useful for capital investment analysis? (Points : 2)

Word processing
Web browser
Presentation software

17. Which of the following statements concerning payback analysis is true? (Points : 2)

An investment with a longer payback is preferable to an investment with a shorter payback.
The payback method ignores the time value of money concept.
The payback method and the unadjusted rate of return are different approaches that will consistently lead to the same conclusion.
All of the above are true.

18. An investment that cost $48,000 provided annual cash inflows of $9,000 per year for six years. The desired rate of return is 10%. The actual return from the investment was: (Points : 2)

less than the desired rate of return.
equal to the desired rate of return.
greater than the desired rate of return.
the answer cannot be determined from the information provided.

19. Select the incorrect statement regarding postaudits of capital investment decisions. (Points : 2)

A postaudit should be conducted at the end of the project.
The postaudit helps management determine whether a project that was accepted should have been rejected.
A postaudit is not necessary for a capital investment selected using a technique that considers the time value of money.
The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.

20. Which of the following does not represent an advantage of the unadjusted rate of return over the payback method for evaluating capital projects? (Points : 2)

The unadjusted rate of return method considers the investment's profitability.
The unadjusted rate of return method measures the recovery of the initial investment in the project.
The unadjusted rate of return is a percentage that can be compared to a stated hurdle rate.
All of the above are advantage.

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