Question;1. Question: (TCO 9) Which one of the following stages of the management decision-making process is properly sequenced? Student Answer: Evaluate possible courses of action, make decision Review the actual impact of the decision, determine possible courses of action Assign responsibility for the decision, identify the problem Make a decision, assign responsibility2. Question: (TCO 9) When is incremental analysis most useful? Student Answer: After a decision has been made to determine its effectiveness In choosing between capital budgeting methods In evaluating the profitability of a company In developing relevant information for management decisions3. Question: (TCO 9) Which of the following will never be a relevant cost? Student Answer: Opportunity cost Sunk cost Variable cost Fixed cost4. Question: (TCO 9) A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis? Student Answer: Annual operating cost of the new equipment Annual operating cost of the old equipment Net cost of the new equipment Book value of the old equipment5. Question: (TCO 9) It costs Lannon Fields $14 of variable costs and $6 of allocated fixed costs to produce an industrial trash can that sells for $30. A buyer in Mexico offers to purchase 2,000 units at $18 each. Lannon has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income? Student Answer: decrease $4,000 increase $4,000 increase $36,000 increase $8,0006. Question: (TCO 9) Wishnell Toys can make 1,000 toy robots with the following costs:Direct Materials $70,000Direct Labor 26,000Variable Overhead 15,000Fixed Overhead 15,000The company can purchase the 1,000 robots externally for $120,000. The avoidable fixed costs are $5,000 if the units are purchased externally. What is the cost savings if the company makes the robots? Student Answer: $1,000 $5,000 $10,000 $4,0007. Question: (TCO 9) All of the following are relevant to the sell or process-further decision, except for __________ Student Answer: costs incurred beyond the split-off point. revenues at the split-off point. costs incurred before the split-off point. revenues beyond the split-off point.8. Question: (TCO 8) Most of the capital budgeting methods use __________ Student Answer: accrual accounting numbers. cash flow numbers. net income. accrual accounting revenues.9. Question: (TCO 8) The capital budgeting decision depends in part on the __________ Student Answer: availability of funds. relationships among proposed projects. risk associated with a particular project. all of the above10. Question: (TCO 8) The cash-payback technique __________ Student Answer: 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.11. Question: (TCO 8) All of the following statements about intangible benefits in capital budgeting are correct, except that they __________ Student Answer: include increased quality and employee loyalty. are difficult to quantify. are often ignored in capital-budgeting decisions. cannot be incorporated into the NPV calculation.12. Question: (TCO 8) The profitability index __________. Student Answer: does not take into account the discounted cash flows. is calculated by dividing total cash flows by the initial investment. allows comparison of the relative desirability of projects that require differing initial investments. will never be greater than 1. 13. Question: (TCO 8) Post audits of capital projects __________ Student Answer: are usually foolproof. are done using different evaluation techniques than were used in making the original capital budgeting decision. provide a formal mechanism by which the company can determine whether existing projects should be supported or terminated. all of the above14. Question: (TCO 8) A company has a minimum required rate of return of 9% and is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $20,000 at the end of each year for 3 years. The profitability index for this project is __________ Student Answer: 0.99. 1.00. 1.01. 1.20.15. Question: (TCO 8) Disadvantages of the annual rate of return method include all of the following, except that __________ Student Answer: it relies on accrual accounting numbers instead of actual cash flows. it does not consider the time value of money. no consideration is given as to when the cash inflows occur. management is unfamiliar with the information used in the computation.
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