- 1. MANAGEMENT ADVISORY SERVICESQUESTIONS AND ANSWERSTHEORY1. Which of the following costs should consider the tax shield effect in computing the costs of capital?A A. Cost of debtB. Cost of common stockC. Cost of preferred stockD. Cost of retained earnings2. Which of the following is not considered in the cash conversion cycle?B A. Receivable collection periodB. Debt repayment periodC. Inventory conversion periodD. Payable deferral period3. Cash flows from capital budgeting projects are assumed to be receivedC A. At the beginning of the yearB. Evenly during the yearC. At the end of the yearD. At a certain point of the year4. In the absence of shutdown costs,B A. Shutdown point is higher than breakeven pointB. Shutdown point is equal to the breakeven pointC. Shutdown point is lower than breakeven pointD. One cannot determine the relationship between shutdown point and breakeven point5. The balanced scorecard approach does not require looking at performance from which of thefollowing perspectives?C A. CustomerB. EmployeesC. CompetitorD. Internal business processes6. Contribution margin profit after interests and preferred dividends =C A. Degree of operation leverageB. Degree of financial leverageC. Degree of total leverageD. No meaningful amount7. If an increase in product price by 5% causes a decrease in quantity demanded by the samepercentage, then the demand for the product is said to beB A. ElasticB. Unit-elasticC. InelasticD. Perfectly Elastic8. Under the high-low method, the unit variable cost closely resembles the math concept ofC A. Y-interceptB. X-interceptC. Slope of the lineD. Independent variable9. Profit under variable costing fluctuates withA A. Sales onlyB. Production onlyC. Both sales and productionD. Neither sales nor production10. The path that has the highest slack time in the PERT network isC A. Critical pathB. Longest pathC. Shortest pathD. Psychopath11.Which of the following is an invalid measure of productivity?
2. C A. Partial operationalB. Partial financialC. Total operationalD. Total financial12.Which of the following situations is among the concerns of a controller (as opposed to those of atreasurer)?D A. The company is in need of financing from external sources.B. The company is already late in filing its monthly VAT returns.C. The company is guilty of unplanned material bank overdraft.D. The company is in default of its account payable to suppliers.13. A firms working capital financing requirements may be divided intoB A. Aggressive and conservativeB. Seasonal and permanentC. Current and non-currentD. Internal and external14. Dividend yield multiplied by price-earnings ratioA A. Pay-out ratioB. Retention ratioC. Equity ratioD. Earnings per share15. A term descriptive of managerial accounting.C A. Historical financial statementsB. Generally accepted accounting principlesC. DiscretionaryD. Regulatory16. Identify the term that does not belong to the group.A A. Differential costB. Prevention costC. Appraisal costD. Internal failure cost17. Which of the following capital budgeting techniques is non-discounted?A A. Simple rate of returnB. Sophisticated rate of returnC. Benefit-cost ratioD. Net present value18. Identify the term that does not belong to the group.A A. Probability analysisB. Regression analysisC. High-low methodD. Scattergraph method19. A system not used in inventory management.A A. Lockbox systemB. Economic order quantityC. Materials requirement planning systemD. ABC system20. A factor that is dealt with by both linear programming and best product combination.D A. EfficiencyB. ProductivityC. SolvencyD. Scarcity21. A(n) ________ cost increases or decreases in intervals as activity changes.a. historical costb. fixed costc. step costd. budgeted costANS: C22. which of the following is not a product cost component?a. rent on a factory building 3. b. indirect production labor wagesc. janitorial supplies used in a factoryd. commission on the sale of a productANS: D23. Which of the following always has a direct cause-effect relationship to a cost?PredictorCostdrivera. yes yesb. yes noc. no yesd. no noANS: C24.The distinction between direct and indirect costs depends on whether a costa. is controllable or non-controllable.b. is variable or fixed.c. can be conveniently and physically traced to a cost object underconsideration.d. will increase with changes in levels of activity.ANS: C25.Costs that are incurred for monitoring and inspecting are:a. prevention costs c. appraisal costsb. detection costs d. failure costsANS: C26.Costs that are incurred to preclude defects and improper processing are:a. prevention costs c. appraisal costsb. detection costs d. failure costsANS: A27. Costs that are incurred when customers complain are:a. prevention costs c. appraisal costsb. detection costs d. failure costsANS: D28.The estimated maximum potential activity for a specified time is:a. theoretical capacity c. normal capacityb. practical capacity d. expected capacityANS: A29. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $37,200and that this amount is material. What journal entry is needed to close the overheadaccount? (Round decimals to nearest whole percent.)a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of GoodsSold $15,450 and credit Overhead $37,200b. Debit Overhead $37,200 and credit Work in Process $8,456; FinishedGoods $13,294; Cost of Goods Sold $15,450c. Debit Work in Process $37,200 and credit Overhead $37,200d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200ANS: AWIP: 73,150/321,800 = $ 4. 8,456FG: 115,000/321,800 =$13,294EI: 133,650/321,800 =$15,45030.If a firm produces more units than it sells, absorption costing, relative to variable costing,will result ina. higher income and assets.b. higher income but lower assets.c. lower income but higher assets.d. lower income and assets.ANS: A31. A functional classification of costs would classify "depreciation on office equipment"as aa. product cost.b. general and administrative expense.c. selling expense.d. variable cost.ANS: B32. If a firm uses variable costing, fixed manufacturing overhead will be includeda. only on the balance sheet.b. only on the income statement.c. on both the balance sheet and income statement.d. on neither the balance sheet nor income statement.ANS: B33.The costing system that classifies costs by both functional group and behavior isa. process costing.b. job order costing.c. variable costing.d. absorption costing.ANS: C34. Unabsorbed fixed overhead costs in an absorption costing system area. fixed manufacturing costs not allocated to units produced.b. variable overhead costs not allocated to units produced.c. excess variable overhead costs.d. costs that cannot be controlled.ANS: A35. A firm presently has total sales of $100,000. If its sales rise, itsa. net income based on variable costing will go up more than its netincome based on absorption costing.b. net income based on absorption costing will go up more than its netincome based on variable costing.c. fixed costs will also rise.d. per unit variable costs will rise.ANS: A36.The term cost driver refers toa. any activity that can be used to predict cost changes.b. the attempt to control expenditures at a reasonable level.c. the person who gathers and transfers cost data to the managementaccountant.d. any activity that causes costs to be incurred.ANS: D 5. 37.The term cost driver refers toa. any activity that can be used to predict cost changes.b. the attempt to control expenditures at a reasonable level.c. the person who gathers and transfers cost data to the managementaccountant.d. any activity that causes costs to be incurred.ANS: D38. Activity-based costing and activity-based management are effective in helping managersdo all of the following excepta. trace technology costs to products.b. promote excellence standards.c. identify only value-added activities.d. analyze performance problems.ANS: C39.The amount of time between the development and the production of a product isa. the product life cycle.b. lead time.c. production time.d. value-added time.ANS: B40. In the pharmaceutical or food industries, quality control inspections would most likely beviewed asa. non-value-added activities.b. business-value-added activities.c. value-added-activities.d. process-efficiency activities.ANS: C41.If a firms net income does not change as its volume changes, the firm(s)a. must be in the service industry.b. must have no fixed costs.c. sales price must equal $0.d. sales price must equal its variable costs.ANS: D42. Cost-volume-profit analysis is a technique available to management to understand betterthe interrelationships of several factors that affect a firms profit. As with many suchtechniques, the accountant oversimplifies the real world by making assumptions. Whichof the following is not a major assumption underlying CVP analysis?a. All costs incurred by a firm can be separated into their fixed andvariable components.b. The product selling price per unit is constant at all volume levels.c. Operating efficiency and employee productivity are constant at allvolume levels.d. For multi-product situations, the sales mix can vary at all volumelevels.ANS: D43.Consider the equation X = Sales - [(CM/Sales) (Sales)]. What is X?a. net income 6. b. fixed costsc. contribution margind. variable costsANS: D44. The contribution margin ratio always increases when thea. variable costs as a percentage of net sales increase.b. variable costs as a percentage of net sales decrease.c. break-even point increases.d. break-even point decreases.ANS: B45. In a multiple-product firm, the product that has the highest contribution margin per unitwilla. generate more profit for each $1 of sales than the other products.b. have the highest contribution margin ratio.c. generate the most profit for each unit sold.d. have the lowest variable costs per unit.ANS: C46.If a companys fixed costs were to increase, the effect on a