1)
Management by ________ is the practice that directs executive attention to large budget variances.
A.
control
B.
exception
C.
objective
D.
analysis
2)
The maintenance department that focuses on efficiency at Continental Airlines may be classified as a(n)
A.
cost center.
B.
investment center.
C.
profit center.
D.
revenue center.
3)
Which type of variance causes operating income to be greater than the budgeted operating income?
A.
Reverse variance
B.
Favorable variance
C.
Unfavorable variance
D.
Neutral variance
4)
A manager can increase return on investment (ROI) by doing which of the following?
A.
Increase operating expenses
B.
Decrease operating expenses
C.
Decrease sales
D.
Increase operating assets
5)
Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Management’s target rate of return is
15%
and the weighted average cost of capital is 20%. Its effective tax rate is 35%.
Sales
$5,000,000
Operating income
$2,250,000
Total assets
$1,500,000
Current liabilities
$810,000
What is the division’s Return on Investment (ROI)?
A.
150.00%
B.
33.33%
C.
54.00%
D.
45.00%
6)
The following data relates to Haven Corporation and its Northern Division.
Light Bulb Division sales
$6,500,000
Light Bulb Division operating income
$780,000
Light Bulb Division total assets
$3,250,000
Light Bulb Division current liabilities
$530,000
Corporate target rate of return
19%
Corporate weighted average cost of capital
10%
What is the Northern Division’s Residual Income (RI)?
A.
$780,000
B.
$617,500
C.
$162,500
D.
$325,000
7)
With regard to a static budget instead of a flexible budget, which of the following is
true?
A.
A static budget is adjusted for changes in the level of sales activity.
B.
A static budget is prepared for only one level of sales activity.
C.
A static budget is also known as a fixed budget.
D.
A static budget is a budget that stays the same from one period to the next.
8)
The number of new services offered during the period may be an example of measuring which perspective of the balanced scorecard?
A.
Financial
B.
Customer
C.
Internal business
D.
Learning and growth
9)
The type of standard that provides allowances for normal amounts of waste and inefficiency in the production process is referred to as a(n)
A.
practical standard.
B.
ideal standard.
C.
realistic standard.
D.
perfection standard.
10)
Piper Corporation, which manufactures dog toys, is developing direct labor standards. The basic direct labor rate is
$15.70
per hour. Payroll taxes are
8%
of the basic direct labor rate, while fringe benefits such as vacation and health care insurance, are
$4.30
per hour. What is the standard rate per direct labor hour?
A.
$16.96
B.
$20.00
C.
$21.26
D.
$15.70
11)
Which variance is directly impacted if a worker drops the raw material during production and the raw material must be discarded?
A.
Direct labor efficiency variance
B.
Direct materials price variance
C.
Direct materials quantity variance
D.
Direct labor rate variance
12)
A favorable direct materials price variance indicates which of the following?
A.
The Actual Quantity (AQ) of materials used was less than the standard quantity of materials used for actual production.
B.
The standard cost of materials purchased was greater than the actual cost of materials purchased.
C.
The actual cost of materials purchased was greater than the standard cost of materials purchased.
D.
The standard cost of materials purchased was less than the actual cost of materials purchased.
13)
Which variance is directly impacted if the employees who build the product go on strike and temporary workers who are slower and not as skilled are hired?
A.
Direct materials quantity variance
B.
Direct labor efficiency variance
C.
Direct labor rate variance
D.
Direct materials price variance
14)
A favorable direct labor efficiency variance and an unfavorable direct labor rate variance might indicate which of the following?
A.
Unskilled workers using more actual hours than standard, paid at a higher rate per hour than the standard rate
B.
Unskilled workers using less actual hours than standard, paid a lesser rate per hour than the standard rate
C.
Skilled workers using less actual hours than standard, paid at a higher rate per hour than the standard rate
D.
Skilled workers using more actual hours than standard, paid at a higher rate per hour than the standard rate
15)
The following information describes a company’s usage of direct labor in a recent period:
Actual direct labor hours used
33,000
Actual rate per hour
$24.00
Standard rate per hour
$13.75
Standard hours for units produced
27,500
How much is the direct labor rate variance?
A.
$338,250
unfavorable
B.
$338,250
favorable
C.
$281,875
unfavorable
D.
$281,875
favorable
16)
Which of the following is an advantages of using standard costs and variances?
A.
The timeliness that occurs when computing standards monthly.
B.
Maintaining updated standards is inexpensive.
C.
Standard costs are benchmarks that managers use to judge actual costs.
D.
Price and efficiency variances motivate
frontminus−line
employees more than operational performance measures.
17)
The Stallard Corporation manufactures Product X that consumes a large amount of overhead. For the month of October Stallard produced
15,850
units of Product X and incurred actual overhead costs of
$211,000.
The standard costs developed for Product X by Stallard follow:
Standard direct labor hours per unit
33
Standard direct labor rate per hour
$15.00
Standard overhead hours per unit
8
Standard overhead rate per hour
$6.60
What was the total variable overhead variance for Product X in October?
A.
$625,880
unfavorable
B.
$625,880
favorable
C.
$106,390
unfavorable
D.
$106,390
favorable
18)
Which of the following examples may lead directly to a favorable fixed overhead volume variance?
A.
Producing more units than anticipated
B.
A decrease in wages paid to factory maintenance workers
C.
Receiving a volume discount on indirect materials purchased
D.
A decrease in county property taxes for the factory
19)
Redwood Corporation is considering two alternative investment proposals with the following data:
Proposal X
Proposal Y
Investment
$820,000
$481,000
Useful life
7 years
7 years
Estimated annual net
cash inflows for
77
years
$135,000
$89,000
Residual value
$43,000
$-
Depreciation method
Straight-Line
Traight-Line
Required rate of return
18%
11%
How long is the payback period for Proposal X?
A.
6.07
years
B.
5.4
years
C.
9.21
years
D.
19.07
years
20)
Redwood Corporation is considering two alternative investment proposals with the following data:
Proposal X
Proposal Y
Investment
$880,000
$ 496 $496,000
Useful life
10 years
10 years
Estimated annual net
cash inflows for 10 10
years
$ $100,000
$86,000
Residual value
$14,000
$-
Depreciation method
Straight-Line
Straight-Line
Required rate of return
10%
9%
What is the accounting rate of return for Proposal X? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)
A.
1.36%
B.
7.34%
C.
1.52%
D.
11.36%
21)
On a whim you purchased a
scratchminus−off
lottery ticket at the gas station. It must have been your lucky day because you won
$2,500,000. Being logical and rational you decide to invest the money at 2%
for 12 years until you are ready to start a family. At the end of 12
years, how much will your investment be worth?
(Click
the icon to view the future value of $1 table.)
LOADING…
(Click
the icon to view the future value of annuity of $1 table.)
A.
1,970,000
B.
$33,530,000
C.
$3,170,000
D.
$3,235,000
22)
What will happen to the net present value (NPV) of a project if the discount rate is increased from 8% to 10%?
A.
NPV will always decrease.
B.
NPV will always increase.
C.
The discount rate change will not affect NPV.
D.
We cannot determine the direction of the effect on NPV from the information provided.
23)
Coyne Corporation is evaluating a capital investment opportunity. This project would require an initial investment of $40,000 to purchase equipment. The equipment will have a residual value at the end of its life of $1,000.
The useful life of the equipment is 5 years. The new project is expected to generate additional net cash inflows of $23,000 per year for each of the five years. Coyne’s required rate of return is
12%.
The net present value of this project is closest to:
(Click
the icon to view the present value of $1 table.)
LOADING…
(Click
the icon to view the present value of annuity of $1 table.)
A.
$43,482.
B.
$13,002.
C.
$42,915.
D.
$60,802.
24)
Glassworks Inc. is considering the purchase of a special
blowminus−molding machine that would cost $53,854
and would have a useful life of 6 years. The machine would generate
$13,100 of net annual cash inflows per year for each of the
6 years of its life. The internal rate of return on the machine would be closest to:
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the icon to view the present value of $1 table.)
LOADING…
(Click
the icon to view the present value of annuity of $1 table.)
A.
10%.
B.
12%.
C.
14%.
D.
8%.
25)
In what ways are the Net Present Value and Internal Rate of Return methods of capital budgeting alike?
A.
They both compute the project’s unique rate of return.
B.
They both factor in the time value of money.
C.
They both focus on GAAP.
D.
They both measure the profitability index.
26)
Results from Super Corporation’s most recent year of operations are presented in the following table.
(Click
the icon to view the information.)
Requirements
1.
Calculate the sales margin, capital turnover, and return on investment (ROI).
2.
Calculate the residual income (RI).
Requirement 1. Calculate the sales margin, capital turnover, and return on investment (ROI).
First enter the formula, then calculate the sales margin.
Next enter the formula, then calculate the capital turnover. (Round your answer to two decimal places.)
Now enter the formula, then calculate the ROI.
Requirement 2. Calculate the residual income (RI).
Enter the formula, then calculate the residual income.
28)
Awning manufactures awnings and uses a standard cost system. The company allocates overhead based on the number of direct labor hours. The following are the company’s cost and standards data:
(Click
the icon to view the standards.)
Actual cost and operating data from the most recent month are as follows:
LOADING…
(Click
the icon to view the actual results.)
All manufacturing overhead is allocated on the basis of direct labor hours.
1.
Calculate the standard cost of one awning.
2.
Calculate the following variances:
a. The direct material variances.
b. The direct labor variances.
c. The variable manufacturing overhead variances.
d. The fixed manufacturing overhead variances.
3.
Explain what each of the variances you calculated means and give at least one possible explanation for each of those variances. Are any of the variances likely to be interrelated?
Requirement 1. Calculate the standard cost of one awning.
Requirement 2a. Calculate the direct material variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DM = Direct materials.)
First determine the formula for the price variance, then compute the price variance for direct materials.
Determine the formula for the quantity variance, then compute the quantity variance for direct materials.
Requirement 2b. Calculate the direct labor variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DL = Direct labor.)
First determine the formula for the rate variance, then compute the rate variance for direct labor.
First determine the formula for the efficiency variance, then compute the efficiency variance for direct labor.
Requirement 2c. Calculate the variable manufacturing overhead variances. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U).)
First determine the formula for the rate variance, then compute the rate variance for variable manufacturing overhead. (Round interim calculations to the nearest cent.)
Now compute the variable manufacturing overhead efficiency variance. First determine the formula for the efficiency variance, then compute the efficiency variance for variable manufacturing overhead.
Requirement 2d. Calculate the fixed manufacturing overhead variances. (Enter the variance as a positive number. Label the variance as favorable (F) or unfavorable(U).)
Begin by computing the fixed manufacturing overhead budget variance. First determine the formula for the budget variance, then compute the budget variance for fixed manufacturing overhead.
Fixed MOH
Actual fixed overhead
–
Budgeted fixed overhead
=
budget variance
57200
–
51200
=
6000
U
Now compute the fixed manufacturing overhead volume variance. First determine the formula for the volume variance, then compute the volume variance for fixed manufacturing overhead.
Requirement 3. Explain what each of the variances you calculated means and give at least one possible explanation for each of those variances.
.
28)
Scenario 1.
AdamAdam
just hit the jackpot in Las Vegas and won $50,000! If he invests it now at a 10%
interest rate, how much will it be worth in 20 years? (Round your answer to the nearest whole dollar.)
Future value
= $
336350
Scenario 2.
Roderick would like to have $3,000,000 saved by the time he retires in
30 years. How much does he need to invest now at a 10%
interest rate to fund his retirement goal? (Round your answer to the nearest whole dollar.)
Present value
= $
171000
Scenario 3.
Assume that Vivian accumulates savings of $ 2million by the time she retires. If she invests this savings at 8%, how much money will she be able to withdraw at the end of each year for 20 years? (Round your answer to the nearest whole dollar and enter as a positive amount.)
Scenario 4.
Jessica plans to invest $4,500 at the end of each year for the next eight
years. Assuming a 14% interest rate, what will her investment be worth
eight years from now? (Round your answer to the nearest whole dollar.)
Scenario 5.
Assuming a 6% interest rate, how much would Amanda have to invest now to be able to withdraw $10,000 at the end of every year for the next ten years? (Round your answer to the nearest whole dollar.)
Present value
= $
Scenario 6.
Chuckie is considering a capital investment that costs $520,000 and will provide
net cash inflows for three years.
Using a hurdle rate of 10%, find the NPV of the investment. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negative NPV.)
Net Present Value (NPV)
Scenario 7.
What is the IRR of the capital investment described in Question 6?
The IRR is the interest rate at which the investment
NPV = 0.
We tried 10% in question 6, now we’ll try 12% and calculate the NPV. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negative NPV.)
The IRR for the project is
between 10% and 12%
between 8% and 10%
between 10% and 12%
between 12% and 14%
between 14% and 16%
.
29)
is considering purchasing a water park in
Newark comma New JerseyNewark, New Jersey, for $2,050,000.
The new facility will generate annual net cash inflows of
$520,000 for eight years. Engineers estimate that the facility will remain useful for
eight years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10%
or more. Management uses a 12% hurdle rate on investments of this nature.
Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.)
The payback period is
(Round the percentage to the nearest tenth percent.)
The ARR (accounting rate of return) is
(Round your answer to the nearest whole dollar.)
Net present value $
The IRR (internal rate of return) is between
18% and 20%
16% and 18%
20% and 22%
22% and 24%
18% and 20%
.
Requirement 2. Recommend whether the company should invest in this project.
Recommendation:
Invest in the new facility.
Do not invest in the new facility.
Invest in the new facility.
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