1. The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:
A) a cost center.
B) an asset center.
C) an investment center.
D) a profit center.
2. Thanks to her firm's decentralization and use of responsibility accounting, Melanie has more time to review a proposed new joint venture with one of the firm's business partners. What advantage of decentralization does this illustrate?
A) Improves performance evaluation
B) Trains lower level managers to accept higher responsibilities
C) Encourages upper level management to concentrate on strategic decisions
D) Motivates managers to improve productivity
3. What amount of cash must be invested today in order to have $30,000 at the end of one year assuming the rate of return is 9%?
4. Chartreuse Company has two investment opportunities. Both investments cost $5,000 and will provide the following net cash flows:
The total present value of Investment A's cash inflows assuming a 10% minimum rate of return is (round to the nearest whole dollar):
5. Leon wants to determine the net present value for a proposed capital investment. He has determined the desired rate of return, the expected investment time period, a series of cash inflows of equal amount, the salvage value of the investment, and the required cash outflows. Which of the following tables would most likely be used to calculate the net present value of the investment?
A) Present Value of Annuity
B) Present Value of a Lump Sum
C) Both of the above
D) None of the above
6. A customary assumption in capital budgeting analysis is that:
A) the desired rate of return includes the effects of compounding.
B) the cash inflows generated by the investment are reinvested at the desired rate of return.
C) annual cash flows occur at the end of each period.
D) All of the above
7. Houston Corporation has two operating divisions, A and B. The following information is provided for Division A:
Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $45 to purchase the product from an outside source. If Division A sells internally it can save $1 per unit in variable costs. Assuming Division A is operating at capacity, what price should it charge Division B if the transfer is to be made?
8. The purposes of the postaudit for capital investments include all of the following except:
A) continuous improvement.
B) punishment for poor capital investment decisions.
C) determining whether the project generated the results expected.
D) ensuring that managers closely scrutinize capital investment decisions.
9. A capital investment project may provide cash inflows from:
A) incremental revenues.
B) cost savings.
C) the salvage value of the investment.
D) all of the above.
10. 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:
A) less than the desired rate of return.
B) equal to the desired rate of return.
C) greater than the desired rate of return.
D) the answer cannot be determined from the information provided.
11. A tool that is often used to depict the lines of authority and responsibility within a firm is:
A) a variance report.
B) a responsibility report.
C) a master budget.
D) an organization chart.
12. A major benefit of a decentralized organization is that:
A) upper level managers are more involved in routine decisions.
B) lower level managers are more motivated to improve productivity.
C) it avoids the necessity for a managerial accounting system.
D) it avoids decision making by less experienced lower level managers.
13. A responsibility report provided to a manager typically includes:
A) a list of all the items under the manager's control.
B) the budgeted amount for each item on the report.
C) the differences between the budgeted and actual amounts for each item on the report.
D) all of the above
14. Horak Company reported the following information for 2007:
The company's return on investment for 2007 was:
D) Cannot be determined from the information provided.
15. Johanssen Company reported the following information for 2007:
The company's operating income for 2007 was:
16. Management recently instituted a new training program for upper level managers. They budgeted the cost of the new program at $1,000 per employee trained but actual costs were $1,250 per employee trained. The difference between the budgeted cost for training and the actual cost of training is called a:
A) period cost.
D) controllable cost.
Melanie Company is considering a capital project that costs $16,000. The project will deliver the following cash flows:
Using the incremental approach, the payback period for the investment is:
A) 5 years.
B) 2.4 years.
C) 2 years.
D) 1.66 years.
18. Select the incorrect statement concerning the application of the controllability concept to responsibility accounting.
A) As a practical matter, control of costs or revenues may be shared rather than absolute.
B) The concept of control is crucial to an effective responsibility accounting system.
C) Each manager should be evaluated on the costs but not the revenues that are under his or her control.
D) Managers lose motivation when they are rewarded or punished for actions that are beyond their scope of control.
19. The Fairland Restaurant chain had a 12% return on a $60,000 investment in new ovens. The investment resulted in increased sales and an increase in income that was 4% of the increase in sales. The increase in sales was:
20. The rate of return that equates the present value of cash inflows and outflows is the:
A) minimum rate of return.
B) internal rate of return.
C) desired rate of return.
D) none of the above.
21. Which capital budgeting technique defines returns in terms of income instead of cash flows?
A) the unadjusted rate of return method
B) the internal rate of return technique
C) the net present value technique
D) the payback period
22. Which of the following statements about return on investment is false?
A) ROI is used to measure the performance of investment centers.
B) ROI = margin divided by investment turnover.
C) Seeking to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
D) The book value of operating assets is frequently used as the investment base for calculating return on investment.
23. Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?
C) Historical cost
D) Risk of failure to receive expected cash inflows
24. Which of the following would be considered a cash inflow in determining the value of a capital investment?
A) Incremental revenues from increased productivity
B) Cost savings from a reduction in labor hours
? C) A reduction in working capital commitments
D) All of the above are considered cash inflows
25. Which one of the following statements describes an ordinary annuity?
A) Series of cash inflows of varying amounts collected at the beginning of each period
B) Series of cash flows of equal amounts collected at the beginning of each period
C) Series of cash flows of varying amounts collected at the end of each period
D) Series of cash flows of equal amounts collected at the end of each period
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