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The practice of delegating authority and responsibility is referred to as: (Points : 2)
decentralization.
standard costing.
management by exception.
centralization of authority.

2. Johansson Company developed the following static budget at the beginning of the company’s accounting period:
Revenue (8,000 units) $16,000
Variable costs 4,000
Contribution margin $12,000
Fixed costs 4,000
Net income $ 8,000

If the actual volume of sales was 8,200 units, the flexible budget would show variable costs of: (Points : 2)
$16,400
$ 4,000
$ 4,100
$4,800

3. A budget prepared at a single volume of activity is referred to as a: (Points : 2)
strategic budget.
static budget.
standard budget.
flexible budget.

4. The kind of responsibility center that would be evaluated by comparing the amount of income earned to the amount of assets invested is a(n): (Points : 2)
cost center.
asset center.
investment center.
profit center.

5. Which of the following income statement formats is most commonly used with flexible budgeting? (Points : 2)
Sales – manufacturing costs – selling and administrative costs = net income
Sales – cost of goods sold = gross margin – operating expenses = net income
Sales – variable costs = contribution margin – fixed costs = net income
None of the above

6. Standard cost systems and the calculation of variances facilitate the management practice known as: (Points : 2)
management development.
management by exception.
just-in-time management.
managing by the numbers.

7. The review of a capital budgeting decision to determine whether a project was accepted that should have been rejected is referred to as: (Points : 2)
a capital budget.
a preaudit.
a postaudit.
a capital review.

8. Which of the following is not typically found in a decentralized organization? (Points : 2)
Asset center
Cost center
Investment center
Profit center

9. Which of the following would increase residual income? (Points : 2)
Decrease in operating income
Decrease in operating assets
Increase in the required ROI
Decrease in margin

10. Picard Company reported the following information for 2010:
Sales $800,000
Average Operating Assets $300,000
Desired ROI 8%
Operating Income $ 50,000

The company’s residual income for 2010 was: (Points : 2)
$3,200
$24,000
$26,000
$64,000

11. Which of the following should not be included in the investment base used to compute residual income? (Points : 2)
Accounts receivable
An idle warehouse
Cash
Inventory

12. What amount of cash would result at the end of one year, if $17,000 is invested today and the rate of return is 10%? (Points : 2)
$17,000
$18,530
$18,700
None of the above

13. The purposes of the postaudit for capital investments include all of the following except: (Points : 2)
continuous improvement.
punishment for poor capital investment decisions.
determining whether the project generated the results expected.
ensuring that managers closely scrutinize capital investment decisions.

14. Select the incorrect statement regarding postaudits of capital investment decisions. (Points : 2)
A postaudit should be conducted at the end of the project.
The postaudit helps management determine whether a project that was accepted should have been rejected.
A postaudit is not necessary for a capital investment selected using a technique that considers the time value of money.
The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.

15. An investment that costs $30,000 will produce annual cash flows of $10,000 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a: (Points : 2)
positive net present value of $33,121.
positive net present value of $3,121.
negative net present value of $33,121.
negative net present value of $3,121.

16. Henderson Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:
Investment I Investment II
Period 1 $1,000 $1,000
Period 2 1,000 2,000
Period 3 2,000 3,000
Period 4 4,000 2,000
Total $8,000 $8,000

The net present value of Investment II assuming a 10% minimum rate of return would be which of the following amounts? (round to nearest whole dollar) (Points : 2)
$(679)
$3,415
$1,182
($3,415)

17. Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar? (Points : 2)
Inflation
Interest
Historical cost
Risk of failure to receive expected cash inflows

18. A customary assumption in capital budgeting analysis is that: (Points : 2)
the desired rate of return includes the effects of compounding.
the cash inflows generated by the investment are reinvested at the desired rate of return.
annual cash flows occur at the end of each period.
all of the above.

19. Which of the following would be considered a cash inflow in determining the value of a capital investment? (Points : 2)
Incremental revenues from increased productivity
Cost savings from a reduction in labor hours
A reduction in working capital commitments
All of the above are considered cash inflows

20. An investment that costs $5,000 is expected to produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 10%, the investment will generate a present value index of: (Points : 2)
0.789
1.268
2.500
7.745

Time Remaining: