GB519: Unit 4 Quiz



1. Question
: Done on a regular basis,
relevant cost pricing in special order decisions can erode normal pricing
policies and lead to:

Overconfidence in decision-making.

A decrease in the firm’s long-term

Goal congruence between management and sales

A cost leadership strategy.

Maximization of the value stream.

Question 2. Question
: In a sell-or-process-further
decision, joint production costs:

Are irrelevant to the decision.

Should be allocated to outputs on the basis
of relative sales dollars.

Should be allocated to outputs on the basis
of relative physical units.

Cannot be allocated to products for financial
reporting purposes.

Question 3. Question
: Joint (common) costs in a
joint production process are relevant for determining:

Whether to produce at all.

Which products should be produced up to the
split-off point in the production process.

Which products should be produced internally
and which products should be outsourced.

The set of products that should be subjected
to additional processing.

The selling price of individual products
produced as part of the joint production process.

Question 4. Question
: In deciding whether to
manufacture a part or buy it from an outside vendor, a cost that is irrelevant
to this short-run decision is:

Direct labor.

Variable overhead.

Fixed overhead that will be avoided if the
part is bought from an outside vendor.

Fixed overhead that will continue even if the
part is bought from an outside vendor.

Question 5. Question
: Value streams are useful in
decision-making because:

They identify all value-added products and

They help to highlight the improved
efficiency in the plant.

Special orders can be evaluated within the
context of the value stream.

Irrelevant costs are identified.

Lean thinking produces better decision

Question 6. Question
: When deciding whether to
discontinue a segment of a business, managers should focus on:

The amount of operating income per unit
produced by the segment.

The amount of contribution margin per direct
labor hour in the segment.

How corporate-level administrative costs
would be redistributed if the segment were eliminated.

Equipment from the segment that could go idle
if the segment were discontinued.

The total contribution margin generated by
the segment relative to any traceable (avoidable) fixed costs associated with
the segment.

Question 7. Question
: Which one of the following is
an advantage of the book (accounting) rate of return method for analyzing
capital investment proposals?

It is not affected by different accounting

It is precise and objective.

Data for calculating the return are typically
readily available.

The method explicitly adjusts for the time
value of money.

The accounting rate of return is generally
approximately equal to a project’s internal rate of return (IRR).

Question 8. Question
: Which of the following
characteristics is not true of the modified internal rate of return (MIRR)?

Unlike IRR, MIRR does not consider the time
value of money.

It focuses on after-tax cash flows, rather
than accounting income amounts.

It cannot be used reliably to choose between
mutually exclusive projects.

Its use may not lead to an optimum capital

Question 9. Question
: Research has shown that in
framing capital investment decisions, sunk costs tend to:

Have no discernible impact on decisions by

Have a slight impact on the decision-making

Have an impact only when capital funds are

Escalate commitment in making capital
budgeting decisions.

Question 10. Question
: Which of the following
statements regarding capital investment analysis is false?

A long-term planning horizon is assumed.

Benefits of potential investment projects are
conceptually expressed in terms of accounting income (or reduction in costs).

Project acceptance decisions are based on
models that explicitly incorporate the time value of money.

Need to incorporate income-tax effects in the
analysis, for both revenues (gains) as well as expenses (losses).

Discounted cash flow (DCF) decision models
are used by a majority of large organizations.

Question 11. Question
: Which of the following is not
a characteristic of capital budgeting post-audits?

They provide feedback to managers regarding
the soundness of their decision-making.

They encourage managers to build slack into
capital investment proposals.

They are sometimes difficult to implement in

They may be cost-prohibitive to accomplish.

They help keep actual projects on target
(e.g., by limiting project managers from diverting project funds, without
authorization, to other uses).

Question 12. Question
: Which of the following is NOT
one of the more common strategic benefits provided by capital investment

Being able to deliver a product that
competitors cannot (i.e., product differentiation).

Improving product quality.

Reducing manufacturing cycle time.

Reducing the number of short-term (i.e.,
operational) decisions that management must make.

Providing significant cost reductions, in
terms of production and/or marketing costs.

Question 13. Question
: A truck, costing $25,000 and
uninsured, was wrecked the very first day it was used. It can either be
disposed of for $5,000 cash and be replaced with a similar truck costing
$27,000, or rebuilt for $20,000 and be brand new as far as operating
characteristics and looks are concerned. The net relevant cost of the replacing
option is:





Question 14. Question
: You just bought a new car for
$125,000. Before you had time to get insurance, the car was wrecked. Weird
Wally offers to take it off your hands for $10,000. You can then purchase a
similar model for $128,000. A body-shop with an excellent reputation offers to rebuild
it for $90,000 and loan you a similar model while the vehicle is being rebuilt.
Once rebuilt, the body-shop claims, it will run like a new car and nobody will
be able to tell the difference. What would you do from a financial point of

Rebuild to save $13,000.

Rebuild to save $28,000.

Rebuild to save $38,000.

Sell to Weird Wally and save $7,000.

Question 15. Question
: Pique Corporation wants to
purchase a new machine for $300,000. Management predicts that the machine can
produce sales of $200,000 each year for the next 5 years. Expenses are expected
to include direct materials, direct labor, and factory overhead (excluding
depreciation) totaling $80,000 per year. The firm uses straight-line
depreciation with no residual value for all depreciable assets. Pique’s
combined income tax rate is 40%. Management requires a minimum after-tax rate
of return of 10% on all investments.

What is the net present value (NPV) of the investment? (The
PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows
occur at year-end.






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