BUSN 278 Final Exam Answers Solution
1. (TCO 1) Which one of the following is not a benefit of
budgeting?
It facilitates the coordination of activities.
It provides definite objectives for evaluating performance.
It provides assurance that the company will achieve its
objectives.
It provides early warning signs of potential threats.
2. (TCO 2) Which of the following is not a qualitative
forecasting method?
Executive opinions
Sales force polling
Delphi method
Classical decomposition
3. (TCO 3) Which of the following statements regarding the
t-statistic is true?
The t-statistic cannot be negative.
The t-statistic measures how many standard errors the
coefficient is away from the independent variable.
The higher the t-value, the more confidence we have in the
coefficient.
Low t-values indicate high reliability.
4. (TCO 4) Which of the following statements regarding the
risk associated with R&D activities is incorrect?
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
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.
5. (TCO 5) Program budgeting does not include:
Controlling
Programming
Budgeting
Planning
6. (TCO 6) The payback period technique ___________
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.
7. (TCO 6) The profitability index is computed by dividing
the ___________
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.
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?
28.3%
13.3%
15%
43.3%
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 _____.
5 years
6 years
7 years
8 years
10. (TCO 6) Hyde Inc. is comparing several alternative
capital budgeting projects as shown below:
Projects A B C
Initial Investment $110,000 $90,000 $50,000
Present value of cash inflows $100,000 $100,000 $60,000
Using the profitability index, rank the projects, starting
with the most attractive.
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?
$13,800
$1,794
$886
$2,748
12. (TCO 7) Which of the following would not appear as a
fixed expense on a selling and administrative expense budget?
Freight-out
Office salaries
Property taxes
Depreciation
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?
107,400 units
102,000 units
96,600 units
138,000 units
14. (TCO 8) Standards that are based on efficient activity
with allowances for unavoidable losses are called _______
basic standards.
maximum efficiency standards.
currently attainable standards.
expected standards.
15. (TCO 9) A static budget is appropriate for __________
variable overhead costs.
direct materials costs.
fixed overhead costs.
none of these.
16. (TCO 9) If the activity level increases 10%, total
variable costs will ___________.
remain the same
increase by more than 10%
decrease by less than 10%
increase 10%
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?
$12,000
$6,000
$3,600
$8,400
18. (TCO 10) Which of the following statements regarding
budget reports is incorrect?
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.
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