DeVry BUSN 278 Week 8 Final Exam

1. (TCO 1) A common starting point in the budgeting process is _____. (Points : 5)

      expected future net income
      past performance
       to motivate the sales force
     a clean slate, with no expectations

Question 2. 2. (TCO 2) “Groupthink” is a primary disadvantage of which qualitative forecasting method? (Points : 5)

      Executive opinions
      Sales force polling
      Delphi method
      Consumer surveys

Question 3. 3. (TCO 3) Which of the following is not an example of a seasonal variation? (Points : 5)

      Increased restaurant sales on Fridays and Saturdays
      Increased retail sales in the fourth quarter
      Increased sales of jet skis in the summer
      Increased sales resulting from a special promotion

Question 4. 4. (TCO 4) Which of the following statements regarding the risk associated with R & D activities is incorrect? (Points : 5)

      The amount of time between the R & D activity and the cash flows from the project does not affect risk.
      Greater risk is associated with creating new products than with improving existing products.
       Risk increases as the time between the R & D activity and the cash flows from the project increases.
     Assessing risk is a vital part of research and development.

Question 5. 5. (TCO 5) Program budgeting does not include _____.
(Points : 5)

      controlling
       programming
      [removed]budgeting
      planning

Question 6. 6. (TCO 6) The payback period technique _____.
(Points : 5)

      should be used as a final screening tool
      can be the only basis for the capital budgeting decision
      is relatively easy to compute and understand
      considers the expected profitability of a project

Question 7. 7. (TCO 6) The profitability index is computed by dividing the _____.
(Points : 5)

      total cash flows by the initial investment
      present value of cash inflows by the present value of each outflow
      initial investment by the total cash flows
      initial investment by the present value of cash flows

Question 8. 8. (TCO 6) A company projects annual cash inflows of $90,000 each year for the next 5 years if it invests $450,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $150,000. What is the accounting rate of return on this investment? (Points : 5)

      6.7%
      13.3%
      20%
      33.3%

Question 9. 9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $30,000 each year, the payback period is _____. (Points : 5)

      5 years
      6 years
      7 years
      8 years

Question 10. 10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as shown below.

Projects	A	B	C
Initial Investment	$40,000	$60,000	$80,000
Present value of cash inflows	$60,000	$55,000	$100,000

Using the profitability index, rank the projects, starting with the most attractive. (Points : 5)

      A, C, B
      A, B, C
      C, A, B
      C, B, A

Question 11. 11. (TCO 6) Cleaners, Inc. is considering purchasing equipment costing $30,000 with a 6-year useful life. The equipment will provide cost savings of $7,300 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. What is the approximate net present value of this investment? (Points : 5)

      $13,800
      $1,794
      $886
      $2,748

Question 12. 12. (TCO 7) Which of the following is not an operating budget? (Points : 5)

      Selling and administrative expense budget
      Direct materials budget
      Pro forma balance sheet
      Pro forma income statement

Question 13. 13. (TCO 7) If the required materials to be purchased are 18,000 pounds, the production needs are three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? (Points : 5)

      45,000
      9,000
      27,000
      18,000

Question 14. 14. (TCO 8) Which of the following is not a cause of profit variance? (Points : 5)

     Changes in sales price
      Changes in sales mix
      Changes in sales volume
      All of the above are causes of profit variance.

Question 15. 15. (TCO 9) A static budget is appropriate in evaluating a manager's performance if _____.
(Points : 5)

      actual activity closely approximates the master budget activity
      actual activity is less than the master budget activity
      the company prepares reports on an annual basis
      the company is a not-for-profit organization

Question 16. 16. (TCO 9) If costs are not responsive to changes in activity level, how are they best described? (Points : 5)

      Mixed
      Flexible
      Variable
      Fixed

Question 17. 17. (TCO 9) At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, what is the estimated fixed cost element of power costs? (Points : 5)

      $12,000
      $6,000
      $3,600
      $8,400

Question 18. 18. (TCO 10) What is the method used to determine whether the budgeting process is operating effectively? (Points : 5)

      Budget evaluation
      Budget review
      Budget appraisal
      Budget audiT

5. (TCO 8) Eastern Company’s budgeted and actual sales for 2009 were as follows.

Product	Budgeted Sales	Actual Sales
A	35,300 units at $2.00 per unit	32,700 units at $2.60 per unit
B	27,900 units at $5.00 per unit	29,200 units at $4.70 per unit

Part (a): Calculate the sales volume variance.
Part (b): Calculate the sales price variance.
Part (c): Calculate the total sales variance. (Points : 30)

(TCO 6) Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.

Part (a): Compute each of the following.
1: Payback period
2: Net present value
3: Profitability index
4: Internal rate of return
5: Accounting rate of return

(b): Indicate whether the investment should be accepted or rejected. (Points : 30)

(TCO 7) Farris Co.’s projected sales are as follows.

August	$240,000
September	$270,000
October	$330,000

Farris estimates that it will collect 30% in the month of sale, 50% in the month after the sale, and 18% in the second month following the sale. Two percent of all sales are estimated to be bad debts. How much are Farris Co.'s budgeted cash receipts for October? (Points : 30)

Herbart Company gathered the following information on power costs and factory machine usage for the last 6 months.

	Power Cost	Factory Machine Hours
January	$24,400	13,900
February	30,300	17,600
March	29,000	16,800
April	22,340	13,200
May	19,900	11,600
June	14,900	6,600

Using the high-low method of analyzing costs, answer the following questions and show computations to support your answers.

Part (a): What is the estimated variable portion of power costs per factory machine hour?
Part (b): What is the estimated fixed power cost each month?

Part (c): If it is estimated that 10,000 factory machine hours will be run in July, what is the expected total power cost for July? (Points : 30)

(TCO 9) Understanding how costs behave can help managers plan operations and choose between various courses of action.

Part (a): Identify and describe the three types of cost behavior, including examples of each.

Part (b): As a manager, which cost behavior would you prefer and why? (Points : 20)

1. (TCO 7) At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Al Talbott, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process. As the accounting manager, write a memo to Mr. Talbott, explaining why the ending inventory figure should be extremely accurate, with as little slack as possible. (Points : 20)

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DeVry BUSN 278 Week 8 Final Exam

DeVry BUSN 278 Week 8 Final Exam....