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(TCO 1) A common starting point in the budgeting process is __________. (Points: 5) expected future net income. past performance. to motivate the...

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.

2. (TCO 2) Which of the following is not a qualitative forecasting method? (Points: 5)
Executive opinions
Sales force polling
Delphi method
Classical decomposition

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

4. (TCO 4) Which of the following is not a reason why capital expenditures are incurred? (Points: 5)
Changes in production methods
Changes in style
Reduced costs
Reduced sales

5. (TCO 5) Which of the following is true when ranking proposals using zero-base budgeting? (Points: 5)
Nonfunded packages should not be ranked.
Adjustments are not allowed once the ranking is complete.
Due to changing circumstances, a low-priority item may later become a high-priority item.
Decision packages are ranked in order of increasing benefit.

6. (TCO 6) When using the payback period technique, the payback period is expressed in terms of _______. (Points: 5)
a percent.

7. (TCO 6) All of the following statements about the accounting rate of return method are correct except that it ________ (Points: 5)
considers the profitability of a capital expenditure.
ignores the salvage value of an investment.
does not consider the time value of money.
uses income data rather than cash flow data.

8. (TCO 6) A company projects annual cash inflows of $85,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $75,000. What is the accounting rate of return on this investment? (Points: 5)

9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its ten-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

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

Initial Investment

Present value of cash inflows

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.

11. (TCO 6) Cleaners, Inc. is considering purchasing equipment costing $30,000 with a six-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)

12. (TCO 7) Which one of the following is not needed in preparing a production budget? (Points: 5)
Budgeted unit sales
Budgeted raw materials
Beginning finished goods units
Ending finished goods units

13. (TCO 7) A company budgeted unit sales of 102,000 units for January, 2008 and 120,000 units for February, 2008. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 30,600 units of inventory on hand on December 31, 2007, how many units should be produced in January, 2008 in order for the company to meet its goals? (Points: 5)
107,400 units
102,000 units
96,600 units
138,000 units

14. (TCO 8) A variance that results from expected economic conditions that do not materialize is called what? (Points: 5)
Sales variance
Planning variance
Economic variance
Material variance

15. (TCO 9) A static budget is appropriate for __________ (Points: 5)
variable overhead costs.
direct materials costs.
fixed overhead costs.
none of these.

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

17. (TCO 9) Using the high-low method, what is the fixed cost for the following information?
Total Cost





(Points: 5)

18. (TCO 10) Which of the following statements regarding budget reports is incorrect? (Points: 5)
The cost of budget reports should not outweigh the benefits.
Budget reports are used for planning, control, and information.
Reports prepared for upper management typically have fewer details than reports prepared for lower-level managers.
Reports are prepared more frequently for upper management than for lower-level managers.

This question was asked on Feb 24, 2011.

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