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1. The direct materials quantity standard should
A) exclude unavoidable waste.
B) exclude quality considerations.
C) allow for normal spoilage.
D) always be expressed as an ideal standard.
use the following to answer questions 2-4:
Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds.
2. Stiner Company’s materials price variance is
A) $100 U.
B) $1,000 U.
C) $900 U.
D) $1,000 F.
3. Stiner Company’s materials quantity variance is
A) $1,000 U.
B) $1,000 F.
C) $1,100 F.
D) $1,100 U.
4. Stiner Company’s total materials variance is
A) $2,000 U.
B) $2,000 F.
C) $2,100 U.
D) $2,100 F.
5. Which of the following will increase the net present value of a project?
A) An increase in the initial investment.
B) A decrease in annual cash inflows.
C) An increase in the discount rate.
D) A decrease in the discount rate.
6. Which of the following is true?
A) The form, content, and frequency of variance reports vary considerably among companies.
B) The form, content, and frequency of variance reports do not vary among companies.
C) The form and content of variance reports vary considerably among companies, but the frequency is always weekly.
D) The form and content of variance reports are consistent among companies, but the frequency varies.
7. All of the following are involved in the capital budgeting evaluation process except a company’s
A) board of directors.
B) capital budgeting committee.
C) officers.
D) stockholders.
8. The primary capital budgeting method that uses discounted cash flow techniques is the
A) net present value method.
B) cash payback technique.
C) annual rate of return method.
D) profitability index method.
9. What is a standard cost?
A) The total number of units times the budgeted amount expected.
B) Any amount that appears on a budget.
C) The total amount that appears on the budget for product costs.
D) The amount management thinks should be incurred to produce a good or service.
10. Standard costs
A) may show past cost experience.
B) help establish expected future costs.
C) are the budgeted cost per unit in the present.
D) all of these.
11. The cash payback technique
A) should be used as a final screening tool.
B) can be the only basis for the capital budgeting decision.
C) is relatively easy to compute and understand.
D) considers the expected profitability of a project.
12. The cash payback period is computed by dividing the cost of the capital investment by the
A) annual net income.
B) net annual cash inflow.
C) present value of the cash inflow.
D) present value of the net income.
13. An unfavorable materials quantity variance would occur if
A) more materials were purchased than were used.
B) actual pounds of materials used were less than the standard pounds allowed.
C) actual labor hours used were greater than the standard labor hours allowed.
D) actual pounds of materials used were greater than the standard pounds allowed.
14. The labor price variance is
A) (AH x AR) – (SH x SR).
B) (AH x AR) – (AH x SR).
C) (AH x SR) – (SH x SR).
D) (AH x SR) – (SH x AR).
15. The labor quantity variance is
A) (AH x AR) – (SH x SR).
B) (AH x AR) – (AH x SR).
C) (AH x SR) – (SH x SR).
D) (AH x SR) – (SH x AR).
16. Which of the following ignores the time value of money?
A) Internal rate of return
B) Profitability index
C) Net present value
D) Cash payback
17. The profitability index is computed by dividing the
A) total cash flows by the initial investment.
B) present value of cash flows by the initial investment.
C) initial investment by the total cash flows.
D) initial investment by the present value of cash flows.
18. To avoid rejecting projects that actually should be accepted,
1. intangible benefits should be ignored.
2. conservative estimates of the intangible benefits’ value should be incorporated into the NPV calculation.
3. calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV.
A) 1
B) 2
C) 3
D) both 2 and 3 are correct
19. The standard direct materials quantity does not include allowances for
A) unavoidable waste.
B) normal spoilage
C) unexpected spoilage
D) all of the above are included.
20. A project with a zero net present value indicates that it is
A) unacceptable
B) profitable
C) acceptable
D) going to have an acceptable cash payback period.
21. The capital budget for the year is approved by a company’s
A) board of directors
B) capital budgeting committee
C) officers
D) stockholders.
22. When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the
A) internal rate of return.
B) annual rate of return.
C) required rate of return.
D) profitability index.
23. Performing a post-audit is important because
A) managers will be more likely to submit reasonable data when they make investment proposals if they know their estimates will be compared to actual results.
B) it provides a formal mechanism by which the company can determine whether existing projects should be terminated.
C) it improves the development of future investment proposals because managers improve their estimation techniques by evaluating their past successes and failures.
D) all of these.
24. Intangible benefits in capital budgeting
A) should be ignored because they are difficult to determine.
B) include increased quality or employee loyalty.
C) are not considered because they are usually not relevant to the decision.
D) have a rate of return in excess of the company’s cost of capital.
25. The difference between a budget and a standard is that
A) a budget expresses what costs were, while a standard expresses what costs should be.
B) a budget expresses management’s plans, while a standard reflects what actually happened.
C) a budget expresses a total amount, while a standard expresses a unit amount.
D) standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.
26. A disadvantage of the cash payback technique is that it
A) ignores obsolescence factors.
B) ignores the cost of an investment.
C) is complicated to use.
D) ignores the time value of money.
27. The total materials variance is equal to the
A) materials price variance.
B) difference between the materials price variance and materials quantity variance.
C) product of the materials price variance and the materials quantity variance.
D) sum of the materials price variance and the materials quantity variance.
28. The cash payback technique
A) considers cash flows over the life of a project.
B) cannot be used with uneven cash flows.
C) is superior to the net present value method.
D) may be useful as an initial screening device.
29. Most companies that use standards set them at
A) the normal level.
B) a conceivable level.
C) the ideal level.
D) last year’s level.
30) Which of the following statements is true?
A) Variances are the differences between total actual costs and total standard costs.
B) When actual costs exceed standard costs, the variance is favorable.
C) An unfavorable variance results when actual costs are decreasing but standards are not changed.
D) All of the above are true.