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Exam 5: Accounting for Inventory

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Question 1

Multiple Choice

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Factors that may affect the appropriate discount rate to use for determining the net present value of a capital investment project include

A) The riskiness of the investment
B) Expectations of inflation
C) Market rates of interest
D) All of the above

E) All of the above
F) A) and B)

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Question 2

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Both the "net present value" and the "internal rate of return" methods of evaluating capital investments consider the time value of money.

A) True
B) False

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Question 3

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If a company is making a decision that involves discontinuing a product, the "avoidable" costs associated with that product would be relevant costs in the decision.

"Key performance indicators" are quantitative measures that companies use to judge whether they are succeeding at critical tasks.

According to the IMA, the term used to describe a characteristic of a resource that allows it to be associated in its entirety with the change in a managerial objective's output resulting from a decision is "divisibility."

The variable overhead spending variance = standard price × (actual labor hours - standard labor hours)

An advantage of the internal rate of return method over the payback period is that the internal rate of return is easier to compute.

Let AP = actual price of raw materials, SP = the standard price, AQ = the actual quantity of materials used, and SQ = the standard quantity of materials for a given level of production. The raw materials price variance equals

In most companies, the starting point of setting a budget is typically

One potential problem in using regression analysis to find the relation between inputs and costs is that extreme observations can produce misleading regression results.

The Martin Car Company is considering whether to continue to make the tires for its cars, or to buy tires from Swift Corp. Which of the following would be considered a "sunk cost" with regard to this decision?

The Li Corp. plans to sell its products for $25 each. Its variable cost per unit = $15, and its fixed costs for the year = $10,000. What level of sales will Li need to make a profit of $200,000?

The statistical technique that can be used to find the best mathematical relationship between the cost of a product and several independent variables is called "variance analysis."

In general, when fixed operating costs become a larger percentage of a company's operating costs, operating leverage increases.

The net present value of a potential investment will normally increase when the required discount rate increases.

The Matt Truck Corp. is considering whether to continue to make steering wheels for its trucks, or whether to buy the steering wheels from an outside supplier. It can buy the gears from outside suppliers at $190 per unit. It needs 50,000 units each year. The company has the following manufacturing costs: raw materials = $130 per unit; direct labor = $20 per unit; variable overhead = $30 per unit; avoidable fixed costs of $200,000 per year and non-avoidable fixed costs of $500,000 per year. The e

The "minimum level approach" to budgeting is the same as the "incremental approach."

The "internal rate of return" of any investment equals the difference between the investment and the present value of the expected cash flows.

A manager is trying to model the costs of producing shirts. The company has two different models of machines that are used for sewing the shirts together. The manager needs to know if these two types of machines should be considered the same, or different, when computing the amount of labor needed to make the shirts. The concept involved here is best described as

The budgeting approach that focuses on what is likely to change during the coming year is best described as