Multiple Choice Answers

1) A company just starting in business purchased three merchandise
inventory items at the following prices. First purchase $80; Second
purchase $95; Third purchase $85. If the company sold two units for a
total of $240 and used FIFO costing, the gross profit for the period would
be _____.

2) These are selected account balances on December 31, 2008.
Land (location of the corporation’s office building) $150,000
Land (held for future use) 225,000
Corporate Office Building 900,000
Inventory 300,000
Equipment 675,000
Office Furniture 150,000
Accumulated Depreciation 450,000
What is the net amount of property, plant, and equipment that will appear
on the balance sheet?

3) Which list below best describes the major services performed by public

Auditing, taxation, management consulting
Cost accounting, production scheduling, recruiting
Employee training, auditing, bookkeeping
Bookkeeping, mergers, budgets
4) The major reporting standard for management accounts is __________.
the Standards of Ethical Conduct for Practitioners of Management Accounting
and Financial Management
the Sarbanes-Oxley Act of 2002

generally accepted accounting principles
relevance to decisions
5) The primary purpose of the statement of cash flows is to __________.
provide information about the investing and financing activities during a
prove that revenues exceed expenses if there is a net income

facilitate banking relationships
provide information about the cash receipts and cash payments during a
6) “Generally accepted” in the phrase generally accepted accounting
principles means that the principles __________.

are proven theories of accounting
have substantial authoritative support
have been approved for use by the managements of business firms
have been approved by the Internal Revenue Service
7) The first step in activity-based costing is to __________.

assign manufacturing overhead costs for each activity cost pool to products
compute the activity-based overhead rate per cost driver
identify the cost driver that has a strong correlation to the activity cost pool
identify and classify the major activities involved in the manufacture of
specific products
8) In what situations will a static budget be most effective in evaluating a
manager’s effectiveness?

The company has substantial fixed costs.
The company has substantial variable costs.
The company has no fixed costs.
The planned activity levels match actual activity levels.
9) These are selected account balances on December 31, 2008.
Land (location of the corporation’s office building) $100,000
Land (held for future use) 150,000
Corporate Office Building 600,000
Inventory 200,000
Equipment 450,000
Office Furniture 100,000
Accumulated Depreciation 300,000
What is the net amount of property, plant, and equipment that will appear
on the balance sheet?

10) The standards and rules that are recognized as a general guide for
financial reporting are called __________.

generally accepted accounting standards
generally accepted accounting principles
standards of financial reporting
operating guidelines
11) Multinational corporations __________.

are required to use international accounting standards
are U.S. companies that sell goods and services in other countries
are U.S. companies that trade their securities on the exchanges in other
are firms that conduct their operations in more than one country through
subsidiaries, divisions, or branches in foreign countries
12) Which one of the following is a product cost?

Sales person’s salaries
Advertising costs
Indirect labor
Office salaries
13) The cost principle requires that when assets are acquired, they be
recorded at __________.

selling price
list price
appraisal value
exchange price paid
14) One of Astro Company’s activity cost pools is machine setups, with
estimated overhead of $150,000. Astro produces sparklers (400 setups)
and lighters (600 setups). How much of the machine setup cost pool
should be assigned to sparklers?

15) A production possibilities frontier will be a straight line if __________.

the economy is producing efficiently
the economy is engaged in trade with at least one other economy
increasing the production of one good by x units entails no opportunity cost in
terms of the other good
increasing the production of one good by x units entails a constant
opportunity cost in terms of the other good
16) Maurice receives $100 as a birthday gift. In deciding how to spend the
money, he narrows his options down to four choices: Option A, Option B,
Option C, and Option  Each option costs $100. Finally he decides on
Option  The opportunity cost of this decision is __________.
the value to Maurice of the option he would have chosen had Option B not
been available
the value to Maurice of Options A, C and D combined
17) For a college student who wishes to calculate the true costs of going to
college, the costs of room and board __________.

usually exceed the opportunity cost of going to college
plus the cost of tuition, equals the opportunity cost of going to college
should be counted in full, regardless of the costs of eating and sleeping
should be counted only to the extent that they are more expensive at college
than elsewhere
18) Which of the following statements about GDP is correct?

GDP is to a nation’s economy as household income is to a househol
GDP increases if the total population increases.
GDP measures two things at once: the total income of everyone in the
economy and the unemployment rat
Money continuously flows from households to government and then back to
households, and GDP measures this flow of money.
19) When a firm sells a good or a service, the sale contributes to the
nation’s income __________.
whether the buyer of the good or a service is a household, another firm, or
the government
We have to know whether the item being sold is a good or a service in order
to answer the question
only if the buyer of the good or service is a household

only if the buyer of the good or service is a household or another firm
20) In computing GDP, market prices are used to value final goods and
services because __________.
market prices reflect the values of goods and services
market prices do not change much over time, so it is easy to make
comparisons between years
if market prices are out of line with how people value goods, the government
sets price ceilings and price floors
Market prices are not used in computing GDP
21) One characteristic of an oligopoly market structure is:
firms in the industry are typically characterized by very diverse product lines.
firms in the industry have some degree of market power.
products typically sell at a price that reflects their marginal cost of
the actions of one seller have no impact on the profitability of other sellers.
22) Many U.S. business leaders argue that the current state of U.S. net
exports is the result of __________.

U.S. export subsidies.
free trade policies of foreign governments.
unproductive U.S. workers.
unfair foreign competition.
23) The balance of payment account is made up of:

a current account and a financial and capital account.
an import account and an export account.
an investment account and a consumption account.
a monetary account and a fiscal account.
24) The model of short-run economic fluctuations focuses on the price
level and __________.

real GDP
economic growth
the neutrality of money
25) Consider two items that might be included in GDP: (1) The estimated
rental value of owner-occupied housing; and (2) purchases of newlyconstructed

Both item (1) and item (2) are included in the consumption component of
Item (1) is included in the consumption component, while item (2) is included
in the investment component.
Item (1) is included in the investment component, while item (2) is included
in the consumption component.
Only item (2) is included in GDP and it is included in the investment
26) Over the past two decades, the United States has __________.

generally had, or been very near to a trade balanc
had trade deficits in about as many years as it has trade surpluses.
persistently had a trade deficit.
persistently had a trade surplus.
27) The Federal Reserve will tend to tighten monetary policy when

interest rates are rising too rapidly
it thinks the unemployment rate is too high
the growth rate of real GDP is quite sluggish
it thinks inflation is too high today, or will become too high in the future
28) Having individuals actually do the job they are applying for as a test to
see if they can do it is __________.
an informal means of screening candidates
an approach with high reliability
an approach with low reliability
a formal means of screening candidates

an approach with high face validity
29) One study found that manufacturing labor costs about _____ an hour
in China, compared to _____ dollars in the United States.

Less than $1; about 25
$2; about 25
Less than $1; about 15
Less than $1; about 40
About $2; about 15
30) Your roommate is interested in starting a business and everybody has
been giving him different information about being an entrepreneur. Since
you have been studying about entrepreneurship and new ventures, which
of these would you tell him is true?

Money should not be considered a start-up ingredient
Successful entrepreneurs take very careful, calculated risks
Anyone can start a business
All entrepreneurs need venture capital in order to get started
Entrepreneurs are their own bosses and completely independent
31) Managers will utilize __________ skills with increasing frequency as
they rise within an organization.

Conceptual and decision
Interpersonal and communication
32) Which of the following statements does NOT support Total Quality

Build long-term relationships instead of awarding business on price tag alone
Use numerical quotas
Strive for long-term improvement rather than short-term profit
Creating silos between departments
Break down barriers among departments
33) To be competitive in a global economy, Europeans must increase their
level of:

Espionage activity
Philanthropic contributions
Population density
Financial subsidy
34) __________ is the process of working with people and resources to
accomplish organizational goals.

Decision making
35) The term used to refer to all kinds of differences including religious
affiliation, age, disability status, economic class and lifestyle in addition to
gender, race, ethnicity and nationality is:

Managerial ethics
36) The basic components of an effective sexual harassment policy include
the following EXCEPT:

To establish a formal complaint procedure
To act immediately when employees complain of sexual harassment
To develop an organization wide policy on sexual harassment
To establish a means for ongoing training
To establish a performance appraisal system
37) An organization that is managed aggressively and has growth and high
profits as primary objectives may be considered a(n):
Multinational corporation
Large corporation
Small business
Online Business

Entrepreneurship venture
38) Sebastian Stabilio just joined a team of people from throughout his
organization whose primary task is to recommend valuable uses for the
scrap generated in the manufacturing process. The team meets twice per
week; otherwise members work within the usual organizational structur
The team, not permanent, which Sebastian has joined, would be
considered a:

Work team
Working group
Project group
Parallel team
Project team
39) A leader is:

Someone with authority over others
The top level manager in a firm or business
A strategic level manager
Someone well-respected by others
Someone who influences others to attain goals
40) ABC International carefully watches the actions of its most innovative
competitor and learns from them. ABC can establish a low-cost position by:
Making subtle changes to the product, thereby avoiding patent restrictions
Producing an imitation of the new technology that utilizes lower-quality and
lower-cost materials
Learning from the leader thereby avoiding the costs and risks of technology
Technology followers are not successful at low-cost strategies

Mass-producing products that have an established market niche
41) A manager’s ability to stimulate people to be high performers is
referred to as:


42) Thirty patients are selected from a filing cabinet containing 812 patient
folders by choosing every 27th patient folder. Which sampling method is

Cluster sample
Stratified sample
Systematic sample
Simple random sample
43) Twelve randomly-chosen students were asked how many times they
had missed class during a certain semester, with this result: 2, 1, 5, 1, 1, 3,
4, 3, 1, 1, 5, 18.
For this sample, the standard deviation is approximately _____.

44) William used a sample of 68 U.S. cities to estimate the relationship
between Crime (annual property crimes per 100,000 persons)
and Income (median income per capita). His estimated regression
equation was Crime = 428 + .050 Incom
Which outcomes would be likely in a bivariate regression on 45 randomly
chosen U.S. cities in 2005 with
Y = number of robberies in each city (thousands of robberies) and
X = size of police force in each city (thousands of police)?

No correlation.
Positive slope (due to city size).
High R2 (due to city size).
45) Use the following table to answer question:
P(M A) is approximately _____.

46) In a random sample of 810 women employees, it is found that 81
would prefer working for a female boss. The width of the 95% confidence
interval for the proportion of women who prefer a female boss is _____.

± .0105
± .0196
± .0207
± .0288
47) Sampling error can be reduced by __________.

utilizing simple random samples
decreasing the sample size
increasing the sample size
none of the these affect sampling error
48) Theoretically, service capacity must exceed demand, lest queues
become infinitely long. If capacity does not exceed demand, what is likely
to happen?
Servers will eliminate time-consuming portions of their jobs, thereby
increasing capacity.
Servers will decrease time spent per customer, thereby increasing capacity.

Customers will renege or balk, thereby reducing deman
All of these
49) A computer analysis reveals that the best-fitting trend model is Yt =
4.12 e 0.987 t. The trend was fitted using year-end common stock prices
for Melodic Kortholt Outlet for the last six years. The R2 is 0.8571.
If we fit a linear trend to data that are growing exponentially __________.

few investments could match the astounding growth rate
at the end of year 3 the stock price would be nearly $80
the stock’s true intrinsic value is $4.12
the absolute annual growth (in dollars per share) is increasing
50) The one-worker, multiple machines approach functions as:

a poka-yoke devic
a production bottleneck.
a one-person production lin
a way to create uniform workstation loads.
51) You are faced with a linear programming objective function of:
Max P = $20X + $30Y
and constraints of:
3X + 4Y = 24 (Constraint A)
5X – Y = 18 (Constraint B)
You discover that the shadow price for Constraint A is 7.5 and the shadow
price for Constraint B is 0. Which of these statements is TRUE?
For every additional unit of the objective function you create, the price of A
rises by $7.50.
For every additional unit of the objective function you create, you lose 0 units
You can change quantities of X and Y at no cost for Constraint

The most you would want to pay for an additional unit of A would be $7.50.
52) A computer analysis reveals that the best-fitting trend model is Yt =
4.12 e 0.987 t. The trend was fitted using year-end common stock prices
for Melodic Kortholt Outlet for the last six years. The R2 is 0.8571.
Which conclusion is not correct?

Few investments could match the astounding growth rat
At the end of year 3 the stock price would be nearly $80.
The stock’s true intrinsic value is $4.12.
The absolute annual growth (in dollars per share) is increasing.
53) Various organizations that promote fair and responsible use of
information systems often develop __________.
a code of ethics
a strategic plan
a mission statement

a goals outline
responsibility charters
54) The force behind globalization in _____ was the amount of muscle,
horsepower, wind power, or steam power that a country could deploy.

Globalization 1.0
Globalization 2.0
Globalization 3.0
None of these
55) Which of the following statements is correct?

An individual’s right to privacy is absolute
It is difficult to determine and enforce privacy regulations
An individual’s right to privacy supersedes the needs of society
The Internet has increased individuals’ privacy
Advances in information technologies have not affected individual privacy
56) In the _____ phase of the decision making process, managers test
potential solutions “on paper.”

57) It is very difficult to manage data for which of the following reasons?

amount of data stays about the same over time
data are scattered throughout organizations
decreasing amount of external data needs to be considered
data are stored in the same format throughout organizations
data security is easy to maintain
58) International Game Technology’s new ERP system produced all of the
following benefits except:
Integrated the company’s business functions
Company was able to maintain its original business processes
ERP system connected the company’s global operations
Operations employees were able to access manufacturing process details at
their workstations

The company gained flexibility in manufacturing products
59) Information-based industries are most susceptible to which one of
Porter’s five forces?

bargaining power of suppliers
bargaining power of customers
threat of substitute products
rivalry among existing firms in an industry
60) Credit card companies would most likely use which of the following to
check for fraudulent credit card use?

Data mining
Expert systems
Neural networks
Multidimensional data analysis
Structured query language
61) The end result of the Data Life Cycle is the generation of _____.

62) Which of the following statements about information systems is not

Information systems are concentrated in the IS Department.
Information systems tend to follow the structure of the organization.
Information systems are based on the needs of employees.
Managing information systems is difficult.
Any information system can be strategi
63) Petrified Forest Skin Care, In pays an annual perpetual dividend of
$1.70 per shar If the stock is currently selling for $21.25 per share, what
is the expected rate of return on this stock?

64) An increase in future value can be caused by an increase in the

original amount invested
starting value
annual interest rate and number of compounding periods
rate of return
dividends paid
65) Given the following annual net cash flows, determine the IRR to the
nearest whole percent of a project with an initial outlay of $1,520.
Year Net Cash Flow

$ 500
66) Mortgage bonds:

usually pay little or no interest.
are secured by a lien on real property.
are a type of debentur
can only be issued by financial institutions.
67) The common stockholders are most concerned with:
the risk of the investment.
the size of the firm’s beginning earnings per shar
the percentage of profits retaine

the spread between the return generated on new investments and the
investor’s required rate of return.
68) Exchange rate risk:
has been phased out due to recent international legislation.
applies only to certain types of domestic businesses.
arises from the fact that the spot exchange rate on a future date is a random
doesn’t affect trades made in US Dollars.
69) PepsiCo calculates unlevered betas for each peer group in order to:

eliminate judgment factors.
eliminate competitive factors.
eliminate different business risks.
eliminate different financial risks.
70) Suppose you determine that the NPV of a project is $1,525,855. What
does that mean?
Under all conditions, the project’s payback would be less than the profitability
The project would add value to the firm.
In all cases, investing in this project would be better than investing in a
project that has an NPV of $850,000.
The project’s IRR would have to be less that the firm’s discount rat
71) Dublin International Corporation’s marginal tax rate is 40%. It can
issue three-year bonds with a coupon rate of 8.5% and par value of
$1,000. The bonds can be sold now at a price of $938.90 each. The
underwriters will charge $23 per bond in flotation costs. Determine the
approximate after-tax cost of debt for Dublin International to use in a
capital budgeting analysis.

72) Which of the following best represents the stream of income that is
available to common stockholders?
Operating profit
Gross profit

Net profit after tax and after preferred dividend payments
Earnings before interest and taxes
73) According to the hedging principle, permanent assets should be
financed with _____ liabilities.

74) Forward rates are quoted:

on financial statements
by the FDIC
in direct form and at a premium or discount
in an indirect form
75) Tri State Pickle Company preferred stock pays a perpetual annual
dividend of 2 1/2% of its par valu Par value of TSP preferred stock is
$100 per shar If investors’ required rate of return on this stock is 15%,
what is the value of per share?