Old Mod 3 Exam - INSTRUCTOR VERSION 1. What is the...

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INSTRUCTOR VERSION © D. Robinson, 2007. Do Not Copy 1. What is the definition of per unit contribution ? a. Selling Price—Fixed Costs b. Selling Cost—Actual Price c. Selling Price—Variable Cost d. Variable Cost—Fixed Cost Ans. C L1 & Q1 definitional 2. Break-even is a fairly simple calculation to make but it is of limited usefulness according to lecture, because: a. It doesn’t take into account Fixed Costs b. You need to guess an interest rate to make the calculation c. It makes no estimate of the likely overall profitability of a project d. It doesn’t take into account the planned Selling Price Ans. C L1 discussed not on slide 3. If you fail to identify certain costs as Sunk Costs , what is likely to happen in business decision-making? a. You are likely to fail to start some projects that could be profitable in future periods b. You under-estimate the Total Costs of a project c. You mis-estimate the Variable Costs of a project d. You are likely to start too many projects that have no hope of profitability in future periods Ans. A L1 difficult (Exam-taking technique suggests the correct answer is (a) or (d), then you have to figure out that (d) is wrong.) 4. Suppose Starbucks is doing reasonably well with Revenue growing reliably at 6 percent per year. However, management becomes undisciplined and starts giving employees at the head office free lunches and free gym memberships. How does this affect the Income Statement? a. COGS would go up faster than Revenue b. Gross Profit would decrease markedly c. Net Sales would go down even as Revenue went up d. SG&A would rise markedly Ans. D L2 discussed and Q2 this question gone over specifically
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INSTRUCTOR VERSION © D. Robinson, 2007. Do Not Copy 5. “Double Taxation” refers to the fact that: a. Corporations have to pay taxes on both interest paid and dividends paid, a double tax b. Dividends from corporations are paid after corporate taxes have been paid and are taxed again as income to shareholders c. Bond interest paid by corporations has been taxed at the corporate level and is taxed again as income to bondholders d. Partnerships pay taxes at the firm level and also as individuals Ans. B L2 definitional 6. A company is using accrual accounting . Management promises to pay employees a 10 percent bonus if a group of orders are completed and shipped to customers by the 25 th of this month. The bonus is paid by checks issued on the 15 th of next month. How is this bonus recorded on the Income Statement? a. As an Expense for this month b. As an Expense for next month c. As a Liability for this month d. As a Liability for next month Ans. A L2 & Q2 this exact question. Liabilities are part of the Balance Sheet, so you can dismiss (c) and (d). Because the goods are shipped this month, the bonus counts as part of COGS expenses for this month’s production, even though the checks aren’t written until next month—the whole essence of Accrual Accounting. 7.
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This note was uploaded on 03/22/2009 for the course UGBA 08403 taught by Professor Robinson during the Spring '09 term at University of California, Berkeley.

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Old Mod 3 Exam - INSTRUCTOR VERSION 1. What is the...

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