activity based questions

$8.00

Description

61. The
following information relates to Day Company:

Sales revenue

$12,000,000

Contribution margin

4,800,000

Net income

800,000

Day’s
operating leverage factor is:

A. 0.067.

B. 0.167.

C. 0.400.

D. 2.500.

E. 6.000.

62. The following information relates to Paterno
Company:

Sales revenue

$10,000,000

Contribution margin

4,000,000

Net income

1,000,000

If
a manager at Paterno desired to determine the percentage impact on net income
of a given percentage change in sales, the manager would multiply the
percentage increase/decrease in sales revenue by:

A. 0.25.

B. 0.40.

C. 2.50.

D. 4.00.

E. 10.00.

Use the
following to answer questions 63-64:

Edco Company
produced and sold 45,000 units of a single product last year, with the
following results:

Sales revenue

$1,350,000

Manufacturing
costs:

Variable

585,000

Fixed

270,000

Selling
costs:

Variable

40,500

Fixed

54,000

Administrative
costs:

Variable

184,500

Fixed

108,000

63. Edco’s operating leverage factor was:

A. 4.

B. 5.

C. 6.

D. 7.

E. 8.

64. If Edco’s sales revenues increase 15%, what
will be the percentage increase in income before income taxes?

A. 15%.

B. 45%.

C. 60%.

D. 75%.

E. An amount other than those above.

65. When advanced manufacturing systems are
installed, what effect does such installation usually have on fixed costs and
the break-even point?

Fixed Costs

Break-even Point

A.

Increase

Increase

B.

Increase

Decrease

C.

Decrease

Increase

D.

Decrease

Decrease

E.

Do not change

Does not
change

66. Which of the following statements is (are)
true regarding a company that has implemented flexible manufacturing systems
and activity-based costing?

I.
The
company has erred, as these two practices used in conjunction with one another
will severely limit the firm’s ability to analyze costs over the relevant
range.

II.
Costs
formerly viewed as fixed under traditional-costing systems may now be
considered variable with respect to changes in cost drivers such as number of
setups, number of material moves, and so forth.

III.
As
compared with the results obtained under a traditional-costing system, the
concept of break-even analysis loses meaning.

A. I only.

B. II only.

C. III only.

D. I and II.

E. II and III.

67. A company, subject to a 40% tax rate, desires
to earn $500,000 of after-tax income.
How much should the firm add to fixed costs when figuring the sales
revenues necessary to produce this income level?

A. $200,000.

B. $300,000.

C. $500,000.

D. $833,333.

E. $1,250,000.

68. Barney, Inc., is subject to a 40% income tax
rate. The following data pertain to the
period just ended when the company produced and sold 45,000 units:

Sales revenue

$1,350,000

Variable costs

810,000

Fixed costs

432,000

How
many units must Barney sell to earn an after-tax profit of $180,000?

A. 42,000.

B. 45,000.

C. 51,000.

D. 61,000.

E. An amount other than those above.

EXERCISES

Basic CVP
Relationships

69. Vince’s Pizza delivers pizzas to dormitories
and apartments near a major state university.
The company’s annual fixed costs are $48,000. The sales price averages $9, and it costs the
company $3 to make and deliver each pizza.

Required:

A.
How
many pizzas must Vince’s sell to break even?

B.
How
many pizzas must the company sell to earn a target net profit of $54,000?

C.
If
budgeted sales total 9,900 pizzas, how much is the company’s safety margin?

D.
Vince’s
assistant manager, an accounting major, has suggested that the firm should try
to increase the contribution margin per pizza.
Explain the meaning of “contribution margin” in layman’s
terms.

Basic CVP
Relationships

70. Seventh Heaven takes tourists on helicopter
tours of Hawaii. Each tourist buys a $150
ticket; the variable costs average $60 per person. Seventh Heaven has annual fixed costs of $702,000.

Required:

A.
How
many tours must the company conduct in a month to break even?

B.
Compute
the sales revenue needed to produce a target net profit of $36,000 per month.

C.
Calculate
the contribution margin ratio.

D.
Determine
whether the actions that follow will increase, decrease, or not affect the
company’s break-even point.

1.
A decrease
in tour prices.

2.
The
termination of a salaried clerk (no replacement is planned).

3.
A
decrease in the number of tours sold.


CVP:
Analysis of Operations

71.
Thompson
Company is considering the development of two products: no. 65 or no. 66. Manufacturing cost information follows.

No. 65

No. 66

Annual fixed costs

$220,000

$340,000

Variable cost
per unit

33

25

Regardless
of which product is introduced, the anticipated selling price will be $50 and
the company will pay a 10% sales commission on gross dollar sales. Thompson will not carry an inventory of these
items.

Required:

A.
What
is the break-even sales volume (in dollars) on product no. 66?

B.
Which
of the two products will be more profitable at a sales level of 25,000 units?

C.
At
what unit-volume level will the profit/loss on product no. 65 equal the
profit/loss on product no. 66?

Break-Even Analysis,
Decision Making

72. The Bruggs & Strutton Company
manufactures an engine for carpet cleaners called the “Snooper.” Budgeted cost and revenue data for the
“Snooper” are given below, based on sales of 40,000 units.

Sales

$1,600,000

Less:
Cost of goods sold

1,120,000

Gross
margin

$ 480,000

Less:
Operating expenses

100,000

Net
income

$ 380,000

Cost
of goods sold consists of $800,000 of variable costs and $320,000 of fixed
costs. Operating expenses consist of
$40,000 of variable costs and $60,000 of fixed costs.

Required:

A.
Calculate
the break-even point in units and sales dollars.

B.
Calculate
the safety margin.

C.
Bruggs
& Strutton received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but
variable costs will be reduced by $0.54 per unit because of cheaper
packaging. Determine the projected
increase or decrease in profit from the order.

Impact of Operating
Changes

73. Oakmark recently sold 70,000 units,
generating sales revenue of $4,900,000.
The company’s variable cost per unit and total fixed cost amounted to
$20 and $2,800,000, respectively.
Management is in the process of studying the dollar impact of various
transactions and events, and desires answers to the following independent
cases:

Case no. 1: Management wants to lower the firm’s
break-even point to 52,000 units. All
other things being equal, what must happen to fixed costs to achieve this
objective?

Case no. 2: The company anticipates a $2 hike in the
variable cost per unit. All other things
being equal, if management desires to keep the firm’s current break-even point,
what must happen to Oakmark’s selling price?
If selling price remains constant, what must happen to the firm’s total
fixed costs?

Required:

A.
Answer
the two cases raised by management.

B.
Determine
the impact (increase, decrease, or no effect) of the following operating
changes on the items cited:

1.
An
increase in variable selling costs on net income.

2.
A
decrease in direct material cost on the unit contribution margin.

3.
A decrease
in the number of units sold on the break-even point.

Impact of
Operating Changes

74. Wilcox Company is studying the impact of the
following:

1. An increase in sales price.

2. An increase in the variable cost per unit.

3.
An
increase in the number of units sold (note: each unit produces a $6
contribution margin).

4.
A
decrease in fixed costs.

5.
A
proposed change in the method of compensation for salespeople, away from
commissions based on gross sales dollars and toward higher monthly salaries.

Required:

Determine
the impact of each of these operating changes on Wilcox’s per-unit contribution
margin and break-even point by completing the chart that follows. Your responses should be Increase (INC),
Decrease (DEC), No Effect (NE), or Insufficient Information to Judge (II).

Per-Unit

Contribution

Margin

Break-Even

Point

1.

______

______

2.

______

______

3.

______

______

4.

______

______

5.

______

______

Impact of
Operating Changes

75.
Gladstone
Company is studying the impact of the following:

1. An increase in sales price on the break-even point.

2. A decrease in fixed costs on the contribution
margin.

3. An increase in the contribution margin on the
break-even point.

4. A decrease in the variable
cost per unit on the sales volume needed to achieve Gladstone’s $68,000 target
net profit.

5. An increase in sales commissions on the break-even point and the
contribution margin.

6. A decrease in anticipated advertising outlays
on fixed cost and the break-even point.

Required:

Determine the impact of these operating changes (increase,
decrease, no effect) on the item(s) noted.

Reviews

There are no reviews yet.

Be the first to review “activity based questions”

Your email address will not be published. Required fields are marked *

activity based questions

$8.00

Description

MULTIPLE CHOICE QUESTIONS

Use the
following to answer questions 31-32:

.png”>

31. Line A is the:

A. fixed cost line.

B. variable cost line.

C. total cost line.

D. total revenue line.

E. profit line.

32. The triangular area between the horizontal
axis and Line A, to the right of 4,000, represents:

A. fixed cost.

B. variable cost.

C. profit.

D. loss.

E. sales revenue.

33. A recent income statement of Oslo Corporation
reported the following data:

Units sold

8,000

Sales revenue

$7,200,000

Variable costs

4,000,000

Fixed costs

1,600,000

If
the company desired to earn a target net profit of $480,000, it would have to
sell:

A. 1,200 units.

B. 2,800 units.

C. 4,000 units.

D. 5,200 units.

E. an amount other than those above.

34. Yellow, Inc., sells a single product for
$10. Variable costs are $4 per unit and
fixed costs total $120,000 at a volume level of 10,000 units. What dollar sales level would Yellow have to
achieve to earn a target net profit of $240,000?

A. $400,000.

B. $500,000.

C. $600,000.

D. $750,000.

E. $900,000.

Use the
following to answer questions 35-37:

Archie sells a
single product for $50. Variable costs
are 60% of the selling price, and the company has fixed costs that amount to
$400,000. Current sales total 16,000
units.

35. Archie:

A. will break-even by selling 8,000 units.

B. will break-even by selling 13,333 units.

C. will break-even by selling 20,000 units.

D. will break-even by selling 1,000,000 units.

E. cannot break-even because it loses money on
every unit sold.

36. Each unit that the company sells will:

A. increase overall profitability by $20.

B. increase overall profitability by $30.

C. increase overall profitability by $50.

D. increase overall profitability by some other
amount.

E. decrease overall profitability by $5.

37. In order to produce a target profit of
$22,000, Archie’s dollar sales must total:

A. $8,440.

B. $21,100.

C. $1,000,000.

D. $1,055,000.

E. an amount other than those above.

38. The difference between budgeted sales revenue
and break-even sales revenue is the:

A. contribution margin.

B. contribution-margin ratio.

C. safety margin.

D. target net profit.

E. operating leverage.

39. Maxie’s budget for the upcoming year revealed
the following figures:

Sales revenue

$840,000

Contribution margin

504,000

Net income

54,000

If
the company’s break-even sales total $750,000, Maxie’s safety margin would be:

A. $(90,000).

B. $90,000.

C. $246,000.

D. $336,000.

E. $696,000.

:

40. If a company desires to increase its safety
margin, it should:

A. increase fixed costs.

B. decrease the contribution margin.

C. decrease selling prices, assuming the price
change will have no effect on demand.

D. stimulate sales volume.

E. attempt to raise the break-even point.

41. Dana sells a single product at $20 per
unit. The firm’s most recent income
statement revealed unit sales of 100,000, variable costs of $800,000, and fixed
costs of $400,000. If a $4 drop in
selling price will boost unit sales volume by 20%, the company will experience:

A. no change in profit because a 20% drop in
sales price is balanced by a 20% increase in volume.

B. an $80,000 drop in profitability.

C. a $240,000 drop in profitability.

D. a $400,000 drop in profitability.

E. a change in profitability other than those
above.

42. Grimes is studying the profitability of a
change in operation and has gathered the following information:

Current

Operation

Anticipated

Operation

Fixed costs

$38,000

$48,000

Selling price

$16

$22

Variable cost

$10

$12

Sales (units)

9,000

6,000

Should
Grimes make the change?

A. Yes, the company will be better off by
$6,000.

B. No, because sales will drop by 3,000 units.

C. No, because the company will be worse off by
$4,000.

D. No, because the company will be worse off by
$22,000.

E. It is impossible to judge because additional
information is needed.

43. Gleason sells a single product at $14 per
unit. The firm’s most recent income
statement revealed unit sales of 80,000, variable costs of $800,000, and fixed
costs of $560,000. Management believes
that a $3 drop in selling price will boost unit sales volume by 20%. Which of the following correctly depicts how
these two changes will affect the company’s break-even point?

Drop in

Sales Price

Increase in

Sales Volume

A.

Increase

Increase

B.

Increase

Decrease

C.

Increase

No effect

D.

Decrease

Increase

E.

Decrease

Decrease

44. All other things being equal, a company that
sells multiple products should attempt to structure its sales mix so the
greatest portion of the mix is composed of those products with the highest:

A. selling price.

B. variable cost.

C. contribution margin.

D. fixed cost.

E. gross margin.

45. O’Dell
sells three products: R, S, and T.
Budgeted information for the upcoming accounting period follows.

Product

Sales Volume (Units)

Selling Price

Variable Cost

R

16,000

$14

$9

S

12,000

10

6

T

52,000

11

8

The company’s weighted-average unit
contribution margin is:

A. $3.00.

B. $3.55.

C. $4.00.

D. $19.35.

E. an
amount other than those above.

46. Wells Corporation has the following sales mix
for its three products: A, 20%; B, 35%; and C, 45%. Fixed costs total $400,000 and the
weighted-average contribution margin is $100.
How many units of product A must be sold to break-even?

A. 800.

B. 4,000.

C. 20,000.

D. An amount other than those above.

E. Cannot be determined based on the information
presented.

Use the
following to answer questions 47-50:

Lamar &
Co., makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as
follows:

Plain

Fancy

Unit selling
price

$20.00

$35.00

Variable cost
per unit

12.00

24.50

Sixty percent
of the unit sales are Plain, and annual fixed expenses are $45,000.

47. The weighted-average unit contribution margin
is:

A. $4.80.

B. $9.00.

C. $9.25.

D. $17.00.

E. an amount other than those above.

48. Assuming that the sales mix remains constant,
the total number of units that the company must sell to break even is:

A. 2,432.

B. 2,647.

C. 4,737.

D. 5,000.

E. an amount other than those above.

49. Assuming that the sales mix remains constant,
the number of units of Plain that the company must sell to break even is:

A. 2,000.

B. 3,000.

C. 3,375.

D. 5,000.

E. 5,625.

50. Assuming that the sales mix remains constant,
the number of units of Fancy that the company must sell to break even is:

A. 2,000.

B. 3,000.

C. 3,375.

D. 5,000.

E. 5,625.

51. Which of the following underlying assumptions
form(s) the basis for cost-volume-profit analysis?

A. Revenues and costs behave in a linear manner.

B. Costs can be categorized as variable, fixed,
or semivariable.

C. Worker efficiency and productivity remain
constant.

D. In multiproduct organizations, the sales mix
remains constant.

E. All of the above are assumptions that
underlie cost-volume-profit analysis.

52. Cost-volume-profit analysis is based on
certain general assumptions. Which of
the following is not one of these assumptions?

A. Product prices will remain constant as volume
varies within the relevant range.

B. Costs can be categorized as fixed, variable,
or semivariable.

C. The efficiency and productivity of the
production process and workers will change to reflect manufacturing advances.

D. Total fixed costs remain constant as activity
changes.

E. Unit variable cost remains constant as
activity changes.

53. The assumptions on which cost-volume-profit
analysis is based appear to be most valid for businesses:

A. over the short run.

B. over the long run.

C. over both the short run and the long run.

D. in periods of sustained profits.

E. in periods of increasing sales.

54. The contribution income statement differs
from the traditional income statement in which of the following ways?

A. The traditional income statement separates
costs into fixed and variable components.

B. The traditional income statement subtracts
all variable costs from sales to obtain the contribution margin.

C. Cost-volume-profit relationships can be
analyzed more easily from the contribution income statement.

D. The effect of sales volume changes on profit
is readily apparent on the traditional income statement.

E. The contribution income statement separates
costs into product and period categories.

55. Which of the following does not
typically appear on a contribution income statement?

A. Net income.

B. Gross margin.

C. Contribution margin.

D. Total variable costs.

E. Total fixed costs.

56.
Which
of the following does not typically appear on an income statement
prepared by using a traditional format?

A.
Cost
of goods sold.

B.
Contribution
margin.

C.
Gross
margin.

D.
Selling
expenses.

E.
Administrative
expenses.

57. The extent to which an organization uses
fixed costs in its cost structure is measured by:

A. financial leverage.

B. operating leverage.

C. fixed cost leverage.

D. contribution leverage.

E. efficiency leverage.

58. A manager who wants to determine the
percentage impact on net income of a given percentage change in sales would
multiply the percentage increase/decrease in sales revenue by the:

A. contribution margin.

B. gross margin.

C. operating leverage factor.

D. safety margin.

E. contribution-margin ratio.

59. Which of the following calculations can be
used to measure a company’s degree of operating leverage?

A. Contribution margin ÷ sales.

B. Contribution margin ÷ net income.

C. Sales ÷ contribution margin.

D. Sales ÷ net income.

E. Sales ÷ fixed costs.

60. You are analyzing Becker Corporation and
Newton Corporation and have concluded that Becker has a higher operating
leverage factor than Newton. Which one
of the following choices correctly depicts (1) the relative use of fixed costs
(as opposed to variable costs) for the two companies and (2) the percentage
change in income caused by a change in sales?

Relative Use of Fixed

Costs as Opposed to

Variable Costs

Percentage Change in

Income Caused by

a Change in Sales

A.

Greater
for Becker

Greater
for Becker

B.

Greater
for Becker

Lower
for Becker

C.

Greater
for Becker

Equal
for both

D.

Lower
for Becker

Greater for
Becker

E.

Lower
for Becker

Lower
for Becker

Reviews

There are no reviews yet.

Be the first to review “activity based questions”

Your email address will not be published. Required fields are marked *

activity based questions

$4.00

Description

Multiple Choice Questions

1. Consider
the following statements regarding traditional costing systems:

I.
Overhead
costs are applied to products on the basis of volume-related measures.

II.
All
manufacturing costs are easily traceable to the goods produced.

III.
Traditional
costing systems tend to distort unit manufacturing costs when numerous goods
are made that have widely varying production requirements.

Which
of the above statements is (are) true?

A. I only.

B. II only.

C. III only.

D. I and III.

E. II and III.

2. Many
traditional costing systems:

A. trace manufacturing overhead to individual
activities and require the development of numerous activity-costing rates.

B. write off manufacturing overhead as an
expense of the current period.

C. combine widely varying elements of overhead
into a single cost pool.

D. use a host of different cost drivers (e.g.,
number of production setups, inspection hours, orders processed) to improve the
accuracy of product costing.

E. produce results far superior to those
achieved with activity-based costing.

3. The
following tasks are associated with an activity-based costing system:

1—Calculation of cost application rates

2—Identification of cost drivers

3—Assignment of cost to products

4—Identification of cost pools

Which
of the following choices correctly expresses the proper order of the preceding
tasks?

A. 1, 2, 3, 4.

B. 2, 4, 1, 3.

C. 3, 4, 2, 1.

D. 4, 2, 1, 3.

E. 4, 2, 3, 1.

4. Which of the following is the proper sequence
of events in an activity-based costing system?

A. Identification of cost drivers,
identification of cost pools, calculation of cost application rates, assignment
of cost to products.

B. Identification of cost pools, identification
of cost drivers, calculation of cost application rates, assignment of cost to
products.

C. Assignment of cost to products,
identification of cost pools, identification of cost drivers, calculation of
cost application rates.

D. Calculation of cost application rates,
identification of cost drivers, identification of cost pools, assignment of
cost to products.

E. Some other sequence of the four activities
listed above.

5. Which
of the following tasks is not normally associated with an activity-based
costing system?

A. Calculation of cost application rates.

B. Identification of cost pools.

C. Preparation of allocation matrices.

D. Identification of cost drivers.

E. Assignment of cost to products.

6. Which
of the following is not a broad, cost classification category typically
used in activity-based costing?

A. Unit-level.

B. Batch-level.

C. Product-sustaining level.

D. Facility-level.

E. Management-level.

7. In
an activity-based costing system, direct materials used would typically be
classified as a:

A. unit-level cost.

B. batch-level cost.

C. product-sustaining cost.

D. facility-level cost.

E. matrix-level cost.

8. Which of the following is least likely
to be classified as a batch-level activity in an activity-based costing system?

A. Shipping.

B. Receiving and inspection.

C. Production setup.

D. Property taxes.

E. Quality assurance.

9. In
an activity-based costing system, materials receiving would typically be
classified as a:

A. unit-level activity.

B. batch-level activity.

C. product-sustaining activity.

D. facility-level activity.

E. period-level activity.

10. Foster,
Inc., an appliance manufacturer, is developing a new line of ovens that uses
controlled-laser technology. The
research and testing costs associated with the new ovens is said to arise from
a:

A. unit-level activity.

B. batch-level activity.

C. product-sustaining activity.

D. facility-level activity.

E. competitive-level activity.

11. Consider
the following statements regarding product-sustaining activities:

I.
They
must be done for each batch of product that is made.

II.
They
must be done for each unit of product that is made.

III.
They
are needed to support an entire product line.

Which
of the above statements is (are) true?

A. I only.

B. II only.

C. III only.

D. I and II.

E. II and III.

12. Which
of the following is least likely to be classified as a facility-level
activity in an activity-based costing system?

A. Plant maintenance.

B. Property taxes.

C. Machine processing cost.

D. Plant depreciation.

E. Plant management salaries.

13. The salaries of a manufacturing plant’s
management are said to arise from:

A. unit-level activities.

B. batch-level activities.

C. product-sustaining activities.

D. facility-level activities.

E. direct-cost activities.

14. Which
of the following choices correctly depicts a cost that arises from a
batch-level activity and one that arises from a facility-level activity?

Batch-Level

Activity

Facility-Level

Activity

A.

Direct materials

Plant depreciation

B.

Inspection

Property taxes

C.

Quality assurance

Shipping

D.

Plant maintenance

Insurance

E.

Management salaries

Material handling

15.
The division of
activities into unit-level, batch-level, product-sustaining level, and
facility-level categories is commonly known as a cost:

A.
object.

B.
application
method.

C.
hierarchy.

D.
estimation
method.

classification scheme that is useful in traditional,
volume-based systems

16. Alamo’s customer service department follows
up on customer complaints by telephone inquiry.
During a recent period, the department initiated 7,000 calls and
incurred costs of $203,000. If 2,940 of
these calls were for the company’s wholesale operation (the remainder were for
the retail division), costs allocated to the retail division should amount to:

A. $0.

B. $29.

C. $85,260.

D. $117,740.

E. $203,000.

Use the
following to answer questions 17-18:

Riverside
Florists uses an activity-based costing system to compute the cost of making
floral bouquets and delivering the bouquets to its commercial customers. Company personnel who earn $180,000 typically
perform both tasks; other firm-wide overhead is expected to total $70,000. These costs are allocated as follows:

Bouquet Production

Delivery

Other

Wages and
salaries

60%

30%

10%

Other overhead

50%

35%

15%

Riverside
anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming year.

17. The cost of wages and salaries and other
overhead that would be charged to each bouquet made is:

A. $7.15.

B. $8.75.

C. $12.50.

D. $13.75.

E. some other amount.

18. The
cost of wages and salaries and other overhead that would be charged to each
delivery is:

A. $19.63.

B. $20.31.

C. $26.75.

D. $40.63.

E. some other amount.

Use the
following to answer questions 19-27:

HiTech Products
manufactures three types of remote-control devices: Economy, Standard, and
Deluxe. The company, which uses
activity-based costing, has identified five activities (and related cost
drivers). Each activity, its budgeted
cost, and related cost driver is identified below.

Activity

Cost

Cost
Driver

Material
handling

$
225,000

Number of
parts

Material
insertion

2,475,000

Number of
parts

Automated
machinery

840,000

Machine hours

Finishing

170,000

Direct labor
hours

Packaging


170,000

Orders
shipped

Total

$3,880,000

The following
information pertains to the three product lines for next year:

Economy

Standard

Deluxe

Units to be
produced

10,000

5,000

2,000

Orders to be
shipped

1,000

500

200

Number of
parts per unit

10

15

25

Machine hours
per unit

1

3

5

Labor hours
per unit

2

2

2

19. What is HiTech’s cost application rate for
the material-handling activity?

A. $1.00 per part.

B. $2.25 per part.

C. $6.62 per labor hour.

D. $13.23 per part.

E. A rate other than those listed above.

20. What is HiTech’s cost application rate for
the automated machinery activity?

A. $24.00 per machine hour.

B. $24.50 per labor hour.

C. $49.42 per unit.

D. $50.00 per machine hour.

E. A rate other than those listed above.

21. What is HiTech’s cost application rate for
the finishing activity?

A. $5.00 per labor hour.

B. $5.00 per machine hour.

C. $5.00 per unit.

D. $7.50 per unit.

E. A rate other than those listed above.

22. What is HiTech’s cost application rate for
the packaging activity?

A. $4.86 per machine hour.

B. $5.00 per labor hour.

C. $10.00 per unit.

D. $100.00 per order shipped.

E. A rate other than those listed above.

23. Under
an activity-based costing system, what is the per-unit cost of Economy?

A. $141.

B. $164.

C. $225.

D. $228.

E. An amount other than those listed above.

24. Under
an activity-based costing system, what is the per-unit cost of Standard?

A. $164.

B. $228.

C. $272.

D. $282.

E. An amount other than those listed above.

25. Under
an activity-based costing system, what is the per-unit cost of Deluxe?

A. $272.

B. $282.

C. $320.

D. $440.

E. An amount other than those listed above.

26. Assume that HiTech is using a volume-based
costing system, and the preceding manufacturing costs are applied to all
products based on direct labor hours.
How much of the preceding cost would be assigned to Deluxe?

A. $456,471.

B. $646,471.

C. $961,176.

D. $1,141,176.

E. An amount other than those listed above.

27. Assume that HiTech is using a volume-based
costing system, and the preceding manufacturing costs are applied to all
products based on direct labor hours.
How much of the preceding cost would be assigned to Standard?

A. $456,471.

B. $646,471.

C. $961,176.

D. $1,141,176.

E. An amount other than those listed above.

Reviews

There are no reviews yet.

Be the first to review “activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$4.00

Description

ACTIVITY BASED COSTING

Multiple Choice Questions

Use the
following to answer questions 1- 4 :

Century, Inc., currently
uses traditional costing procedures, applying $400,000 of overhead to products
X and Y on the basis of direct labor hours.
The firm is considering a shift to activity-based costing and the
creation of individual cost pools that will use direct labor hours (DLH),
production setups (SU), and number of parts components (PC) as cost
drivers. Data on the cost pools and
respective driver volumes follow.

Product

Pool No. 1

(Driver: DLH)

Pool No. 2

(Driver: SU)

Pool No. 3

(Driver: PC)

X

600

30

1,500

Y

1,400

50

1,000

Pool Cost

$80,000

$140,000

$180,000

1. The overhead cost allocated to product X by
using traditional costing procedures would be:

A. $120,000.

B. $184,500.

C. $215,500.

D. $280,000.

E. some other amount.

2. The overhead cost allocated to
product Y by using traditional costing procedures would be:

A. $120,000.

B. $184,500.

C. $215,500.

D. $280,000.

E. some other amount.

3. The overhead cost allocated to product X by
using activity-based costing procedures would be:

A. $120,000.

B. $184,500.

C. $215,500.

D. $280,000.

E. some other amount.

4. The
overhead cost allocated to product Y by using activity-based costing procedures
would be:

A. $120,000.

B. $184,500.

C. $215,500.

D. $280,000.

E. some other amount.

Use the following to answer questions 5
– 6 :

Kelly and Logan, an accounting firm, provides
consulting and tax planning services. A
recent analysis found that 65% of the
firm’s billable hours to clients resulted from tax planning and for many years, the firm’s total administrative cost
(currently $250,000) has been allocated to services on this basis.

The firm,
contemplating a change to activity-based costing, has identified three
components of administrative cost, as follows:

Staff support

$180,000

In-house computing charges

50,000

Miscellaneous office costs

20,000

Total

$250,000

A recent
analysis of staff support found a strong correlation with the number of clients
served (consulting, 20; tax planning, 60). In contrast, in-house computing and
miscellaneous office cost varied directly with the number of computer hours
logged and number of client transactions, respectively. Consulting consumed 30% of the firm’s
computer hours and had 20% of the total client transactions.

5. Assuming
the use of activity-based costing, the proper percentage to use in allocating
staff support costs to tax planning services is:

A. 20%.

B. 60%.

C. 65%.

D. 75%.

E. 80%

6. If
Kelly and Logan switched from its current accounting method to an
activity-based costing system, the amount of administrative cost chargeable to
consulting services would:

A. decrease by $23,500.

B. increase by $23,500.

C. decrease by $32,500.

D. change by an amount other than those listed
above.

E. change, but the amount cannot be determined
based on the information presented.

7. Activity-based
costing systems:

A. use a single, volume-based cost driver.

B. assign overhead to products based on the
products’ relative usage of direct labor.

C. often reveal products that were under- or
overcosted by traditional costing systems.

D. typically use fewer cost drivers than more
traditional costing systems.

E. have a tendency to distort product costs.

8. Dreyfus Manufacturing
sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 519 revealed a
traditionally-derived total cost of $1,019, a selling price of $1,850 based on
that figure, and a newly computed activity-based total cost of $1,215. Which of the following statements is true?

A. All other things being equal, the company
should consider a drop in its sales price.

B. The company may have been extremely
competitive in the marketplace from a price perspective.

C. Product no. 519 could be labeled as being
overcosted by the firm’s traditional costing procedures.

D. If product no. 519 is undercosted by
traditional accounting procedures, then all of the company’s other products
must be undercosted as well.

E. Generally speaking, the activity-based cost
figure is “less accurate” than the traditionally-derived cost figure.

9. Vanguard
combines all manufacturing overhead into a single cost pool and allocates this
overhead to products by using machine hours.
Activity-based costing would likely show that with Vanguard’s current
procedures,

A. all of the company’s products are
undercosted.

B. the company’s high-volume products are
undercosted.

C. all of the company’s products are overcosted.

D. the company’s high-volume products are
overcosted.

E. the company’s low-volume products are
overcosted.

10. Jackson
manufactures products X and Y, applying overhead on the basis of labor
hours. X, a low-volume product, requires
a variety of complex manufacturing procedures.
Y, on the other hand, is both a high-volume product and relatively
simplistic in nature. What would an
activity-based costing system likely disclose about products X and Y as a
result of Jackson’s current accounting procedures?

X

Y

A.

Undercosted

Undercosted

B.

Undercosted

Overcosted

C.

Overcosted

Undercosted

D.

Overcosted

Overcosted

E.

Costed correctly

Costed correctly

11. Koski
manufactures products J and K, applying overhead on the basis of labor
hours. J, a low-volume product, requires
a variety of complex manufacturing procedures.
K, on the other hand, is both a high-volume product and relatively
simplistic in nature. What would an
activity-based costing system likely disclose about products J and K as a
result of Koski’s current accounting procedures?

Undercosted

Overcosted

A.

J, K

B.

J, K

C.

J

K

D.

K

J

E.

None of the above, as both
products are costed correctly.

12. Consider the following statements:

I.
Product
diversity creates costing problems because diverse products tend to utilize
manufacturing activities in different ways.

II.
Overhead
costs that are not incurred at the unit level create costing problems because
such costs do not vary with traditional application bases such as direct labor
hours or machine hours.

III.
Product
diversity typically exists when a single product (e.g., a ballpoint pen) is
made in different colors.

Which
of the above statements is (are) true?

A. I only.

B. II only.

C. I and II.

D. I and III.

E. II and III.

13. Consumption ratios are useful in determining:

A. the existence of product-line diversity.

B. overhead that is incurred at the unit level.

C. if overhead-producing activities are being
utilized effectively.

D. if overhead costs are being applied to
products.

E. if overhead-producing activities are being
utilized efficiently

14. Widely varying consumption ratios:

A. are reflective of product-line diversity.

B. indicate an out-of-control production
environment.

C. dictate a need for traditional costing
systems.

D. work against the implementation of
activity-based costing.

E. create an unsolvable product-costing problem.

15. Moon Bay Manufacturing uses machine hours to
apply manufacturing overhead to products.
This method of costing would likely be acceptable if the company has:

A. a large proportion of unit-level activities.

B. a large proportion of unit-level activities
and fairly identical consumption ratios among product lines.

C. a large proportion of unit-level activities
and widely varying consumption ratios among product lines.

D. a large proportion of nonunit-level
activities.

E. a large proportion of nonunit-level
activities and fairly identical consumption ratios among product lines.

16. In comparison with a system that uses a
single, volume-based cost driver, an activity-based costing system is preferred
when a company has:

A. a large proportion of nonunit-level
activities.

B. product-line diversity or a large proportion
of nonunit-level activities.

C. minimal product-line diversity and a small
proportion of nonunit-level activities.

D. existing variances from budgeted amounts.

E. a situation other than those noted above.

17. Consider the following factors:

I.
The
degree of correlation between consumption of an activity and consumption of a
particular cost driver.

II.
The
likelihood that a particular cost driver will induce a desired behavioral
effect.

III.
The
likelihood that a particular cost driver will cause an increase in the cost of
measurement.

Which
of these factors should be considered in the selection of a cost driver?

A. I only.

B. I and II.

C. I and III.

D. II and III.

E. I, II, and III.

18. Which of the following activity cost pools
and activity measures likely has the lowest degree of correlation?

Activity Cost Pool

Activity Measure

A.

Order department

Number of orders processed

B.

Sales management

Time spent by managers in
each sales territory

C.

Accounts receivable
processing

Number of customers

D.

Catering

Numbers of meals served

E.

Employee travel to job
sites (sites are within 100-mile radius of company headquarters)

Number of employees

19.
Grossman Enterprises is converting
to an activity-based costing system and needs to depict the various activities
in its manufacturing process along with the activities’ relationships. Which of the following is a possible tool
that the company can use to accomplish this task?

A. Storyboards.

B. Activity relationship charts (ARCs).

C. Decision trees.

D. Simulation games.

E. Process organizers.

20. Successful adoptions of
activity-based costing typically occur when companies rely heavily on:

A. finance personnel.

B. accounting personnel.

C. manufacturing personnel.

D. office personnel.

E. multidisciplinary project teams.

21. Under
a traditional costing system, which of the following costs would likely be
classified as indirect with respect to the various products manufactured?

A. Plant maintenance.

B. Factory supplies.

C. Utilities.

D. Machinery depreciation.

E. All of the above would be considered indirect
costs.

22. Williams
Corporation is changing from a traditional costing system to an activity-based
system. As a result of this action,
which of the following costs would likely change from indirect to direct?

A. Direct materials.

B. Factory supplies.

C. Production setup.

D. Production setup and finished-goods
inspection.

E. Production setup, finished-goods inspection,
and product shipping.

23. Which
of the following generally fails to signal the need for a new
product-costing system?

A. Line managers do not believe reported product
costs.

B. Complex products have high reported
profitability despite the lack of premium prices.

C. Overhead rates are high and increasing over
time.

D. Line managers suggest that seemingly
profitable products be dropped.

E. Product-line profit margins are easy to
explain.

24. Of the following
organizations, activity-based costing cannot be used by:

A. manufacturers.

B. financial-services firms.

C. book publishers.

D. hotels.

E. none of the above, as all are able to use
this costing system.

25. Which of the following
statements about activity-based costing (ABC) is false?

A. ABC cannot be used by service businesses.

B. In comparison with traditional costing
systems, ABC tends to use more cost pools and more cost drivers.

C. In comparison with traditional-costing
systems, ABC results in less cost “averaging” of various diversified
activities.

D. In comparison with traditional-costing
systems, ABC results in more costs being classified as direct costs.

E. ABC tends to reduce cost distortion among
product lines.

26.A hospital administrator
is in the process of implementing an activity-based-costing system. which of the following tasks would not
be part of this process?

A.
Identification of
cost pools.

B.
Calculation of
cost application rates.

C.
Assignment of
cost to services provided.

D.
Identification of
cost drivers.

E. None of the above, as all these tasks would
be part of the process.

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$8.00

Description

MULTIPLE CHOICE

1.George operates a business that generated adjusted gross
income of $250,000 and taxable income of $170,000 this year (before

the domestic manufacturing deduction). Included in income was
$70,000 of qualified production activities income. George paid

$60,000 of wages to employees engaged in domestic manufacturing.
What domestic manufacturing deduction will George be

eligible to claim this year?

$5,400

$6,300

$7,200

$15,300

$22,500

2.Paris operates a talent agency as a sole proprietorship,
and this year she incurred the following expenses in operating her talent

agency. What is the total deductible amount of these expenditures?

$1,000 dinner with a film producer where no business was discussed

$500 lunch with sister Nicky where no business was discussed

$700 business dinner with a client but Paris forgot to keep any
records (oops!)

$900 tickets to the opera with a client following a business
meeting

$450

$900

$1,100

$1,200

$800

3.Qualified production activities income is defined as
follows for purposes of the domestic manufacturing deduction.

a) net income from selling or leasing property the taxpayer
manufactured in the United States.

b) revenue from selling or leasing property the taxpayer
manufactured in the United States.

c) revenue from selling or leasing property the taxpayer
manufactured in the United States but the revenue was less that 50

percent of qualifying wages used in the production.

d) 6 percent of revenue from selling or leasing property the
taxpayer manufactured in the United States.

e) None of these.

4.Clyde operates a sole proprietorship using the cash
method. This year, Clyde made the following expenditures:

$480 to US Bank for 12 months of interest accruing on a business
loan from September 1st of this year through August 31st of

next year

$600 for 12 months of property insurance beginning on July 1 of
this year.

What is the maximum amount Clyde can deduct this year?

a) $760

b) $600

c) $480

d) $160

e) $360

5.Which of the following types of expenditures is not
subject to capitalization under the UNICAP rules?

a) selling expenditures.

b) cost of manufacturing labor.

c) compensation of managers who supervise production.

d) cost of raw materials.

e) All of these are subject to capitalization under the UNICAP
rules.

6.Which of the following is an explanation for why insurance
premiums on a key employee are not deductible?

a) The insurance deduction would offset taxable income without the
potential for the proceeds generating taxable income.

b) The federal government does not want to subsidize insurance
companies.

c) It is impractical to trace insurance premiums to the receipt of
proceeds.

d) Congress presumes that all expenses are not deductible unless
specifically allowed in the Internal Revenue Code.

e) This rule was grandfathered from a time when the IRC disallowed
all insurance premiums deductions.

7.This year, Clark leased a car to drive between his office
and various work sites. Clark carefully recorded that he drove the car 23,000

miles this year and paid $7,200 of operating expenses ($2,700 for
gas, oil, and repairs, and $4,500 for lease payments). What amount

of these expenses may Clark deduct as business expenses?

a) $7,200.

b) Clark cannot deduct these costs but he must use the mileage
method to determine any deduction.

c) $4,500.

d) $2,700.

e) Clark is not entitled to any deduction if he used the car for
any personal trips.

8.Ajax Computer Company is an accrual method calendar year
taxpayer. Ajax has never advertised in the national media prior to this

year. In November of this year, however, Ajax paid $1 million for
television advertising time during a “super” sporting event scheduled

to take place in early February of next year. In addition, in
November of this year the company paid $500,000 for advertising time

during a professional golf tournament in April of next year. What
amount of these payments, if any, can Ajax deduct this year?

a) $1 million.

b) $500,000.

c) $1.5 million.

d) $1.5 million only if the professional golf tournament is played
before April 15.

e) No deduction can be claimed this year.

9.Ed is a self-employed heart surgeon who has incurred the
following reasonable expenses.

$1,000 in air fare to repair investment rental property in
Colorado.

$500 in meals while attending a medical convention in New York.

$300 for tuition for an investment seminar “How to pick
stocks.”

$100 for tickets to a football game with hospital administrators
to celebrate successful negotiation of a surgical contract earlier in the

day.

How much can Ed deduct?

a) $1,300 “for AGI.”

b) $1,300 “for AGI” and $300 “from AGI.”

c) $480 “for AGI.”

d) $80 “for AGI” and $1,300 “from AGI.”

e) None of these.

10.Brad operates a storage business on the accrual method. On
July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000

for insurance on the contents of the warehouse. The rent and
insurance covers the next 12 months. What is Brad’s deduction for the

rent and insurance?

a) $48,000 for the rent and $18,000 for the insurance.

b) $24,000 for the rent and $18,000 for the insurance.

c) $24,000 for the rent and $9,000 for the insurance.

d) $48,000 for the rent and $9,000 for the insurance.

e) None of these is true.

11.Which of the following is a true statement about
accounting for business activities?

a) An overall accounting method can only be adopted with the
permission of the Commissioner.

b) An overall accounting method is initially adopted on the first
return filed for the business.

c) The cash method can only be adopted by individual taxpayers.

d) The accrual method can only be adopted by corporate taxpayers.

e) None of these is true.

12.In order to deduct a portion of the cost of a business
meal, which of the following conditions must be met?

a) A client (not a supplier or vendor) must be present at the
meal.

b) The taxpayer or an employee must be present at the meal.

c) The total cost must be extravagant.

d) The meal must occur on the taxpayer’s business premises.

e) None of these is a condition for a deduction.

13.Beth operates a plumbing firm. In August of last year, she
signed a contract to provide plumbing services for a renovation. Beth began

the work that August and finished the work in December of last
year. However, Beth didn’t bill the client until January of this year and

she didn’t receive the payment until March when she received
payment in full. When should Beth recognize income under the accrual

method of accounting?

a) In August of last year

b) In December of last year

c) In January of this year

d) In March of this year

e) In April of this year

14.Colbert operates a catering service on the accrual method.
In November of year 1, Colbert received a payment of $9,000 for 18 months

of catering services to be rendered from December 1st of year 1
through May 31st year 3. When must Colbert recognize the income if his

accounting methods are selected to minimize income recognition?

a) $500 is recognized in year 1, $6,000 in year 2, and $2,500 in
year 3.

b) $500 is recognized in year 1 and $8,500 in year 2.

c) $9,000 is recognized in year 3.

d) $2,500 is recognized in year 1 and $6,500 in year 2.

e) $9,000 is recognized in year 1.

15.Shelley is employed in Texas and recently attended a
two-day business conference in New Jersey. Shelley spent the entire time at the

conference and documented her expenditures (described below). What
amount can Shelley deduct as an employee business expense?

Airfare to NJ $2,000

Meals 220

Lodging in NJ 450

Rental Car 180

a) $2,850.

b) $2,740.

c) $1,850 if Shelley’s AGI is $50,000.

d) All of these are deductible if Shelley is reimbursed under an
accountable plan.

e) None of the expenses are deductible – only employers can deduct
travel expenses.

16.According to the Internal Revenue Code §162, deductible
business expenses must be one of the following?

a) incurred for the production of investment income

b) ordinary and necessary

c) minimized

d) appropriate and measurable

e) personal and justifiable

17.Individual proprietors report their business income and
deductions on:

a) Form 1065

b) Form 1120S

c) Schedule C

d) Schedule A

e) Form 1041

18.Mike started a calendar year business on September 1st of
this year by paying 12 months’ rent on his shop at $1,000 per month. What

is the maximum amount of rent that Mike can deduct this year under
each type of accounting method?

a) $12,000 under the cash method and $12,000 under the accrual
method

b)$4,000 under the cash method and $12,000 under the accrual
method

c)$12,000 under the cash method and $4,000 under the accrual
method

d)$4,000 under the cash method and $4,000 under the accrual method

e)$4,000 under the cash method and zero under the accrual method

19.Big Homes Corporation is an accrual method calendar year
taxpayer that manufactures and sells modular homes. This year for the first

time Big Homes was forced to offer a rebate on the purchase of new
homes. At year end, Big Homes had paid $12,000 in rebates and

was liable for an additional $7,500 in rebates to buyers. What
amount of the rebates, if any, can Big Homes deduct this year?

a) $12,000 because rebates are payment liabilities.

b) $19,500 because Big Homes is an accrual method taxpayer.

c) $19,500 if this amount is not material, Big Homes expects to
continue the practice of offering rebates in future years, and Big Homes

expects to pay the accrued rebates before filing their tax return
for this year.

d) $12,000 because the $7,500 liability is not fixed and
determinable.

e) Big Homes is not entitled to a deduction because rebates are
against public policy.

20.Which of the following is a true statement about the
domestic manufacturing deduction?

a) This deduction is determined by the amount of goods
manufactured in the United States for export abroad.

b) The deduction is calculated as a percentage of the cost of
goods manufactured in the United States.

c) This deduction represents a subsidy to taxpayers who
manufacture or construct goods in the United States.

d) The domestic manufacturing deduction is not affected by the
cost of labor.

e) All of these are true.

21.Which of the following is a true statement?

a) Meals are never deductible as a business expense.

b) An employer can only deduct half of any meals provided to
employees.

c) The cost of business meals must be reasonable.

d) A taxpayer can only deduct a meal for a client if business is
discussed during the meal.

e) None of these is true.

22.The IRS would most likely apply the arm’s length
transaction test to determine which of the following?

a) whether an expenditure is related to a business activity

b) whether an expenditure will be likely to produce income

c) timeliness of an expenditure

d) reasonableness of an expenditure

e) All of these

23.Jim operates his business on the accrual method and this
year he received $4,000 for services that he intends to provide to his clients

next year. Under what circumstances can Jim defer the recognition
of the $4,000 of income until next year?

a) Jim can defer the recognition of the income if he absolutely
promises not to provide the services until next year.

b) Jim must defer the recognition of the income until the income
is earned.

c) Jim can defer the recognition of the income if he has requested
that the client not pay for the services until the services are provided.

d) Jim can elect to defer the recognition of the income if the
income is not recognized for financial accounting purposes.

e) Jim can never defer the recognition of the prepayments of
income.

24.Ronald is a cash method taxpayer who made the following
expenditures this year. Which expenditure is completely deductible in this

period as a business expense?

a) $4,000 for rent on his office that covers the next 24 months.

b) $3,000 for a new watch for the mayor to keep “good
relations” with city hall.

c) $2,500 for professional hockey tickets distributed to a
customer to generate “goodwill” for his business.

d) $55 to collect an account receivable from a customer who has
failed to pay for services rendered.

e) None of these is completely deductible.

25.When does the all-events test under the accrual method
require the recognition of income from the sale of goods?

a) when the title of the goods passes to the buyer.

b) when the business receives payment.

c) when payment is due from the buyer.

d) the earliest of the above three dates.

e) None of these.

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$8.00

Description

MULTIPLE CHOICE

26.Dick pays insurance premiums for his employees. What type
of insurance premium is not deductible as compensation paid to the

employee?

a) Health insurance with benefits payable to the employee.

b) Whole life insurance with benefits payable to the employee’s
dependents.

c) Group term life insurance with benefits payable to the
employee’s dependents.

d) key man life insurance with benefits payable to Dick.

e) All of these are deductible by Dick.

27.Which of the following cannot be selected as a valid tax
year end?

a) December 31st

b) January 31st

c) The last Friday of the last week of June

d) December 15th

e) A tax year can end on any of these days.

28.Joe is a self employed electrician who operates his
business on the accrual method. This year, Joe purchased a shop for his

business and at year end he received a bill for $4,500 of property
taxes on his shop. Joe didn’t pay the taxes until after year end.

Which of the following is a true statement?

a) If he elects to treat the taxes as a recurring item, Joe can
accrue and deduct $4,500 of taxes on the shop this year.

b) The taxes are a payment liability.

c) The taxes would not be deductible if Joe’s business was on the
cash method.

d) Unless Joe makes an election, the taxes are not deductible this
year.

e) All of these are true.

29.Bill operates a proprietorship using the cash method of
accounting, and this year he received the following payments:

• $100 in cash from a customer for services rendered this year

• a promise to pay $200 from a customer for services rendered this
year

• tickets to a football game worth $250 as payment for services
performed last year

• a check for $170 for services rendered this year that Bill
forgot to cash

How much income should Bill realize on Schedule C?

a) $100

b) $300

c) $350

d) $270

e) $520

30.Which of the following is a true statement about a request
for a change in accounting method?

a) Some requests are automatically granted.

b) Most requests require the permission of the Commissioner.

c) Many requests require payment of a fee and a good business
purpose for the change.

d) Form 3115 is required to be filed with a request for change in
accounting method.

e) All of these are true.

31.Which of the following expenses are completely deductible?

a) $1,000 spent on compensating your brother for a personal
expense.

b) $50 spent on meals while traveling on business.

c) $2,000 spent by the employer on reimbursing an employee for
entertainment.

d) All of these expenses are fully deductible.

e) None of these expenses can be deducted in full.

32.Which of the following business expense deductions is most
likely to be unreasonable in amount?

a) Compensation paid to the taxpayer’s spouse in excess of salary
payments to other employees.

b) Amounts paid to a subsidiary corporation for services where the
amount is in excess of the cost of comparable services by

competing corporations.

c) Cost of entertaining a former client when there is no
possibility of any future benefits from a relation with that client.

d) None of these is likely to be unreasonable in amount.

e) Compensation paid to the taxpayer’s spouse in excess of salary
payments to other employees, amounts paid to a subsidiary

corporation for services where the amount is in excess of the cost
of comparable services by competing corporations, and cost of

entertaining a former client when there is no possibility of any
future benefits from a relation with that client are all likely to be

considered unreasonable in amount.

33.The domestic manufacturing deduction is a deduction for
the incremental cost of manufacturing tangible assets in the United

States.

• True

• False

34.Reasonable in amount means that expenditures can be
exorbitant as long as the activity is motivated by profit.

True

False

35.All taxpayers must account for taxable income using a
calendar year.

• True

• False

36.The full-inclusion method requires cash basis taxpayers to
include prepayments for goods or services into realized income.

True

False

37.The phase “ordinary and necessary” has been
defined to mean that an expense must be essential and indispensable to the
conduct

of a business.

True

False

38.Illegal bribes and kickbacks are not deductible as
business expenses, but this prohibition does not include fines incurred in the

ordinary course of business.

• True

• False

39.Qualified production activity income for calculating the
domestic manufacturing deduction is limited to taxable income for a

business or modified AGI for an individual.

True

False

40.A business generally adopts a fiscal or calendar year by
using that year end on the first tax return for the business.

True

False

41.The domestic manufacturing deduction cannot exceed 50
percent of the wages paid to employees engaged in domestic

manufacturing activities during the year.

True

False

42.Only half the cost of a business meal is deductible even
if the meal is associated with the active conduct of business.

True

False

43.A fiscal tax year can end on the last day of any month
other than December.

True

False

44.Uniform capitalization of indirect inventory costs is
required for most large taxpayers.

True

False

45.The test for whether an expenditure is reasonable in
amount is whether the expenditure was for an “arm’s length” amount.

True

False

46.The Internal Revenue Code authorizes deductions for trade
or business activities if the expenditure is “ordinary and
necessary”.

• True

• False

47.Sole proprietorships must use the same tax year as the
proprietor of the business.

True

False

48.The all-events test for income determines the period in
which income will be recognized for tax purposes.

True

False

49.The 12-month rule allows taxpayers to deduct the entire
amount of certain prepaid business expenses.

True

False

50.When a taxpayer borrows money and invests the loan
proceeds in municipal bonds, the interest paid by the taxpayer on the debt

will not be deductible.

True

False

51.Business activities are distinguished from personal
activities in that business activities are motivated by the pursuit of profits.

True

False

52.Employees cannot deduct the cost of uniforms if the
uniforms are also appropriate for normal wear.

True

False

53.The Internal Revenue Code authorizes deductions for trade
or business activities if the expenditure is “ordinary and
necessary”.

True

False

54.The domestic manufacturing deduction cannot exceed 50
percent of the wages paid to employees engaged in domestic

manufacturing activities during the year.

• True

• False

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$8.00

Description

MULTIPLE CHOICE QUESTIONS

93. Using cost
analysis to analyze the money being spent by a firm is analogous to using
____________ to analyze the money coming into the firm.

sales
analysis

traditional
accounting reports

performance
analysis

the
iceberg principle

TQM
methods

94. The text’s
“full-cost approach” to marketing cost analysis:

looks
only at each customer or product’s “contribution margin.”

allocates
all costs to products, customers, or other categories.

looks
only at those costs which are directly related to particular alternatives.

is
misleading and should be avoided.

All of
the above.

95. The
“contribution-margin approach” to marketing cost analysis:

considers
only those costs which are directly related to particular alternatives.

is
especially useful for estimating the long-run profit of a proposed strategy.

allocates
variable costs which are hard to measure to overhead.

is
especially useful for determining if there should be more controls on fixed
costs.

All of
the above.

96. The
“contribution margin approach” to marketing cost analysis:

allocates
all costs to products or customers.

should
always be used instead of the full-cost approach–so that fixed costs are fully
considered.

focuses
management’s attention on variable costs rather than total costs.

assumes
that all costs must be allocated.

None of
the above.

97. Regarding
marketing cost analysis,

the
full-cost approach usually should be used as there are almost always some fixed
costs to be allocated.

the
contribution-margin approach focuses attention on variable costs.

fixed
costs should be allocated according to the contribution-margin approach.

the
action implications will be the same whether the full-cost or
contribution-margin approach is used.

the
contribution-margin approach provides the most complete allocation of total
expenses.

98. The main
difference between the full-cost approach and the contribution-margin approach
to marketing cost analysis is:

The
contribution-margin approach uses both mechanical and logical reasoning to
allocate marketing costs.

The
full-cost approach allocates all costs–even fixed costs–to products,
customers, or other categories.

The
contribution-margin approach allocates all costs to show how profitable various
customers are.

The
full-cost approach focuses on variable costs rather than total costs.

99. With the
“contribution-margin approach” to marketing cost analysis,

all
costs are allocated to products, customers, or other categories.

fixed
costs are allocated based on the profit contribution to the firm.

variable
costs are treated as common costs.

common
costs which are hard to allocate are ignored.

None of
the above is true.

100. Lori
Winters, a regional sales manager, is interested in the profitability of the
different sales reps in her region. She has used a variety of different
approaches for allocating fixed sales expenses to the different sales reps, but
she reaches very different conclusions depending on which allocation approach
is used. In this case, it would be wise for Ms. Winters to supplement her other
analyses with an analysis based on

the
contribution-margin approach.

the
full-cost approach.

the
marketing audit approach.

none of
the above.

all of
the above.

101. Regarding
the “contribution-margin approach” to marketing cost analysis, which
of the following statements is TRUE?

The
total net profit obtained with this approach is different from that obtained
using the “full-cost approach.”

It is
concerned with the amount contributed by a product or customer toward covering
variable costs–after fixed costs have been covered.

This
approach stresses the need for evaluating fixed costs.

This
approach may suggest a different action than the “full-cost
approach.”

All of
the above are true.

102. When the
“full-cost approach” to marketing cost analysis is used, allocating fixed
costs on the basis of sales:

may
make low-volume customers appear more profitable than they are.

increases
each customer’s contribution margin.

decreases
the profitability of the whole business.

makes
large-volume customers appear more profitable that they are.

increases
the profitability of the whole business.

103. If one were
using the “full-cost” approach to marketing cost analysis, then
allocating fixed costs on the basis of sales volume would:

make
some customers appear more profitable than they actually are.

not be
done–because only variable costs would be analyzed.

make
some products appear less profitable than they actually are.

decrease
the profitability of the whole business.

Both A
and C are true statements.

104. Which of
the following would be the BEST reason to use the “full-cost
approach” when comparing the performance of several product managers?

Unlike
the “contribution-margin approach,” it charges managers only for the
expenses which are directly related to their operations.

This
approach is required by Federal tax laws.

It
charges each product manager only for those expenses which he controls.

It
allows management to consider only the variable costs related to different
products.

It
makes each manager bear a share of the overhead expenses which were made for
everyone’s benefit.

105. A company
produces three product lines and a different marketing manager is responsible
for each line. Most marketing expenses are specific to each line, but a common
sales force sells all three lines. Sales reps are paid by commission, with a
different commission for each product line. In this case, in a marketing cost
analysis,

the
contribution-margin approach would probably divide personal selling expense
based on commission expense for each product line.

a
full-cost approach would ignore commission expense since it is not a fixed
cost.

sales
commissions are a variable expense and would not be considered in the
contribution-margin approach.

the
full-cost approach would be easier to do if all sales reps were paid a straight
salary.

None of
the above is true.

106. When
deciding how to evaluate costs, a marketing manager should realize that

the
best method for dealing with fixed costs depends on the objectives of the analysis.

according
to the iceberg principle too much detail in cost analysis obscures the big
problems by calling attention to the superficial problems.

the
full cost approach is misleading and should not be used.

the
contribution-margin approach ignores necessary fixed costs and should not be
used.

None of
the above.

107. Which of
the following statements about the contribution-margin approach is FALSE?

It is
concerned with the amount contributed by an item or group of items toward
covering fixed costs.

This
approach suggests that it is not necessary to consider all costs in all
situations.

Top
management almost always finds this approach more useful than full-cost
analysis.

This
approach frequently leads to data which suggest a different decision than might
be indicated by the full-cost approach.

It
focuses on controllable costs–rather than on total costs.

108. A
systematic, critical, and unbiased review and appraisal of the basic objectives
and policies of the marketing function–and of the organization, methods,
procedures, and people employed to implement the policies–is called a:

MIS
report.

marketing
audit.

management
review.

marketing
information system.

marketing
analysis survey.

109. A marketing
audit should help determine if:

current
marketing strategies are good ones.

the
company’s marketing objectives are reasonable.

implementation
of a marketing program was effective.

All of
the above.

None of
the above.

110. A marketing
audit is:

an
evaluation of day-to-day marketing operations.

an
analysis of the profitability of all profit centers.

a
review of a marketing program during a crisis.

a
detailed look by a CPA at how the company’s marketing costs are allocated.

a
systematic, critical, and unbiased review and appraisal of the objectives and
policies of the marketing function.

111. A
“marketing audit” should:

be done
by someone inside the finance department.

be
conducted whenever a crisis arises.

be
conducted by the person most familiar with each of the firm’s marketing plans.

evaluate
a company’s whole marketing program on a regular basis.

All of
the above.

112. Which of
the following statements about a “marketing audit” is true?

A
marketing audit should be conducted only when some crisis arises.

It
probably should be conducted by someone inside the marketing department who is
familiar with the whole program.

A
marketing audit should evaluate the company’s whole marketing program–not just
some parts of it.

A
marketing audit should be handled by the specialist most familiar with each of
the marketing plans in the program.

All of
the above are true statements.

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$8.00

Description

MULTIPLE CHOICE QUESTIONS

62. Sales
analysis is a:

well-accepted
trend analysis method.

necessity
for making all important marketing decisions.

way of
assuring that future sales will be profitable.

detailed
report of likely profitability.

detailed
breakdown of a company’s sales records.

63. The best
way to break down and analyze sales data is:

by
order size.

by
geographic region.

by
customer type.

by
product, package, size, grade or color.

any of
the above, depending on the situation.

64. The most useful
breakdown of data in a sales analysis is by:

size of
order.

product,
package size, grade, or color.

customer
type.

geographic
region.

any or
all of the above–depending on the situation.

65. A
marketing manager who wants to analyze the firm’s sales should be aware that:

sales
invoice files contain little useful information.

the
best way to analyze sales data is according to geographic regions.

sales
analysis involves a detailed breakdown of a company’s sales forecasts.

sales
analysis may not be possible unless the manager has made arrangements for the
company to capture identifying information about each sale.

a
manager can never have too much data.

66. Sales
analysis:

requires
more information than is available from traditional accounting reports.

can be
done in different ways–there is no single “best way.”

often
studies how sales patterns change over time.

All of
the above are true.

None of
the above is true.

67. Marketing
sales analysis:

keeps
track of whether a firm’s sales are increasing or decreasing.

requires
a detailed breakdown of a company’s sales records.

is very
hard to do–because computers must be involved.

looks
for exceptions or variations from planned performance.

tries
to avoid the 80/20 rule.

68. Detailed
sales analysis is:

not
worth the cost unless the firm is very unprofitable.

based
on the information available on traditional accounting reports.

important
for producers, but usually not that valuable for retailers.

most
useful when it analyzes costs from different possible target markets.

None of
the above is true.

69. Sales
analysis:

typically
involves reorganizing existing information rather than gathering new
information.

may
involve analyzing many different breakdowns of overall sales.

is
usually a good first step when setting up a control system.

All of
the above are true.

None of
the above is true.

70. The major
difference between a sales analysis and a performance analysis is that:

performance
analysis looks at variations from planned performance, while sales analysis
shows what happened.

sales
analysis looks at individual transactions, while performance analysis groups
them into categories.

sales
analysis is a control procedure, while performance analysis is part of
implementation.

sales
analysis is concerned with expected sales, while performance analysis is
concerned with past sales.

sales
analysis is used to find profitable sales patterns, while performance analysis
seeks unprofitable patterns.

71. Compared
with sales analysis, PERFORMANCE ANALYSIS:

shows
which customers should be dropped.

looks
for exceptions or variations from planned performance.

does
not do as much comparing against standards.

shows
how to improve performance.

All of
the above.

72. Performance
analysis differs from sales analysis in that performance analysis involves:

detailed
breakdowns of a company’s sales records.

analyzing
only the performance of sales representatives.

comparing
performance against standards–looking for exceptions or variations.

analyzing
only people–not products or territories.

budgeting
for marketing expenditures on the basis of contribution margins.

73. A
marketing “performance analysis” is most likely to compare:

an
individual sales rep’s performance to total company sales.

a
firm’s sales with its competitors’ sales.

sales
by product to sales by territory.

advertising
cost to sales.

planned
sales with actual sales.

74. The main
purpose of a performance analysis is to:

see
whether or not the 80/20 rule applies in a particular situation.

uncover
variations in performance that may be hidden in summary information.

determine
who should receive a performance bonus when profit is greater than expected.

determine
if the marketing budget is large enough to achieve the expected sales
performance.

provide
a detailed breakdown of a company’s sales records.

75. Which of
the following statements might result from a performance analysis?

Our California
salesman sold more aluminum tubing than any of our other reps.

Sophia
Sanchez calls on two of our three biggest customers.

Joshua
Voigt sold less tubing to wholesalers than to manufacturers.

Walker
Brown sold more aluminum tubing than steel tubing.

Pele
Ruiz’s sales are over his quota.

76. Doug
Selkirk is a sales manager for IBM. He has asked his assistant to prepare an
analysis that shows what percent over or under quota each sales rep was during
the last year. This is an example of

using
natural accounts.

the
contribution-margin approach.

sales
analysis.

target
market analysis.

performance
analysis.

77. Performance
analysis:

is
based on qualitative factors, as contrasted with sales and cost analysis which
are based on quantitative data.

is most
useful in situations where the iceberg principal is not likely to be a concern.

indicates
why problems have occurred and how to solve them.

may be
based on several different performance indexes.

All of
the above are true.

78. A good
reason for using performance indexes is to:

convert
sales data to profit data.

make it
easier to compare situations.

find
territories where actual sales are very high or low.

direct
management attention to territories where the market potential is greatest.

None of
the above is true.

79. Performance
indexes:

are
based on the “iceberg principle.”

show
the relation of one value to another.

are
used mainly to eliminate lazy salespeople.

provide
a qualitative measure of what “ought to happen.”

are
calculated from the Consumer Price Index.

80. If
Salesperson A has a performance index of 80 and Salesperson B has a performance
index of 120:

Salesperson
A’s performance should be used as a model to improve everyone’s performance.

Salesperson
B’s performance should be improved to bring it up to “average.”

Salesperson
A may be having some problems.

Salesperson
B should be fired.

the two
average out to 100–and “all is well.”

81. If
Salesperson X had a performance index of 80 and Salesperson Y had a performance
index of 120, then:

Salesperson
X may be having some problems and his sales performance should be investigated.

the two
would average out to 100–and this would suggest that “all is well.”

Salesperson
X’s performance should be investigated as a guide to improving everyone’s
performance.

Salesperson
Y probably should be fired.

Salesperson
Y obviously had higher sales than Salesperson X.

82. Information
about five sales reps and their territories is presented below. Which would
have the highest performance index?

Aayak

Bellio

Cadams

Dooty

Eayma

83. Avon,
Inc., has analyzed the market potential in its territories and set sales quotas
for its salespeople. It is now in a good position to develop ______________
indexes at the end of the year.

MIS

performance

PERT

sales

contribution

84. The
“iceberg principle”:

explains
why some firm’s sales are “cooler” that others.

explains
why some customers are more profitable than others.

suggests
that sales will vary from one territory to another.

suggests
that much good information may be hidden in summary data.

says
that sales reps should never make “cold calls” on customers.

85. The
iceberg principle suggests that:

most
competitors’ strategies are not obvious on the surface.

small
customers usually have the most hidden profit potential.

conclusions
based on summary information are often misleading.

no
matter what control procedure is used, most major problems are impossible to
detect until it is too late.

None of
the above is true.

ements best explains the “iceberg principle”?

Several
salespeople in a sales force usually meet their quotas while many others don’t.

Many salespeople
don’t make their quotas because they only try to sell to large customers.

Most
consumer decisions are at the 90 percent pre-conscious level.

Ten
percent of a firm’s customers usually account for 90 percent of its sales.

Good
performance in some areas may hide poor performance in other areas if only
averages are evaluated.

87. Averages
are useful for summarizing data–but only analyzing “averages” may be
misleading according to:

the
“iceberg principle.”

AIDA.

hypothesis–testing
theory.

the
“law of central tendency.”

the
“50/50” rule.

88. A sales
manager has just discovered that one of his sales reps has sales about 20
percent below his quota. The sales manager should conclude:

that
the sales rep’s quota was set too high.

that
the sales rep lacks the desire to succeed.

that
“all is well” because other salespeople had sales that were at least
20 percent over their quotas.

that
the salesperson’s performance index is 4 (i.e., 80:20).

nothing
thus far–because of the “iceberg principle.”

89. Which of
the following statements best describes the “iceberg principle”?

Problems
in one area may be offset by good performances in other areas–and thus the
problems may not be visible on the surface.

Ten
percent of the items in inventory usually account for 80 percent of the sales.

Within
a company’s sales force there are usually one or two sales reps who don’t carry
their weight.

Many
sales reps do not make their quotas because they ignore certain clients.

Airfreight
is less risky than shipping by boat.

90. Which of
the following statements by a sales manager best reflects an understanding of
the iceberg principle?

“Detailed
cost analysis gets you focused on small parts of the problem, whereas general
summaries make it easier to see the really big problems.”

“Most
costs that look like they’re fixed are actually changing all of the time.”

“Don’t
tell me that you’re certain we’re going to increase sales. They were certain
that an iceberg couldn’t sink the Titanic!”

“Let’s
not dwell on sales data summaries–let’s get below the surface and study the
details.”

“Cost
problems always show up first–but controlling expenses doesn’t mean that you
won’t run into revenue problems.”

91. General
summaries of overall marketing cost data

may
hide problems rather than highlighting them.

are
usually the key to identifying how to improve the marketing plan.

should
not be too detailed–since detailed analysis requires allocating costs that are
actually fixed.

are
usually enough to reveal areas where changes are needed.

All of
the above are true.

92. Marketing
cost analysis shows that one of Buildco, Inc.’s customers is unprofitable, so
Buildco should:

refuse
to sell to that customer.

try to
determine why this customer is unprofitable.

drop
the customer and shift all fixed costs to the other customers.

assign
a new salesperson to that account.

immediately
develop a plan to sell more to that customer.

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$8.00

Description

MULTIPLE CHOICE QUESTIONS

31. Cost
analysis and performance analysis are the same thing.

True

False

32. Experience
shows that it doesn’t make sense for marketing managers to allocate costs to
specific market segments or products.

True

False

33. In
general, the more products a company has the more difficult it will be to
allocate costs.

True

False

34. With the
full-cost approach to marketing cost analysis, all costs are allocated to
products, customers, or other categories.

True

False

35. With the
contribution-margin approach to marketing cost analysis, all costs are
allocated to products, customers, or other categories.

True

False

36. The
contribution-margin approach to marketing cost analysis focuses attention on
variable costs rather than total costs.

True

False

37. The contribution-margin
and the full-cost approaches to marketing cost analysis are different, but they
should lead to the same action implications.

True

False

38. The
full-cost approach to marketing cost analysis is likely to lead to arguments
among product managers about how costs are to be allocated.

True

False

39. When it
comes to marketing cost analysis, a sales rep is likely to favor the full-cost
approach over the contribution-margin approach.

True

False

40. A
marketing audit is a systematic procedure for allocating the full costs of
marketing to the appropriate functional accounts.

True

False

41. A
marketing audit is a systematic, critical, and unbiased review and appraisal of
the basic objectives and policies of the marketing function.

True

False

42. Marketing
audits consider future marketing plans, so they are not concerned with a
company’s current marketing strategies.

True

False

43. In a
marketing audit, the auditor evaluates the plans being implemented, but not the
quality of the effort.

True

False

44. A
marketing audit evaluates the whole marketing program as well as individual
plans.

True

False

45. Control
helps marketing managers learn how:

to plan
for the future.

implementation
is working.

ongoing
plans are working.

All of
the above.

None of
the above.

46. With
respect to marketing control,

all
cost records should be kept in the marketing department.

faster
feedback can often be the basis for a competitive advantage.

many
advances have been made, but there is still no effective way for a manager to
be sure that a product is actually selling to the intended target market rather
than to some other group.

All of
the above are true.

None of
the above is true.

47. To improve
the effectiveness of the marketing control process, the marketing manager
should:

realize
that most errors are made because managers react to detailed information too
quickly–instead of waiting to see what patterns show up in summary reports.

be the
supervisor for the data-processing manager.

have
all necessary data captured as it comes in and in a form that can be quickly
sorted and analyzed by computer.

be
certain that all cost records are kept in a central location controlled by the
marketing department.

All of
the above.

48. The basic
objectives of implementation are to do things:

better.

faster.

at
lower cost.

all of
the above.

A and
C, but not B.

49. Which of
the following statements about customer complaints is FALSE?

Customer
complaints that are handled well by the company usually help it win new
customers.

In
business markets, customer complaints are usually handled by the sales force.

In
consumer markets, customer complaints are usually handled by toll-free
telephone lines and via e-mail customer service reps.

Customer
complaints that are handled well by the company usually help it keep its
customers.

None of
the above is false.

50. A
marketing manager might use the total quality management approach to:

reduce
defects in goods produced in factories.

train
better salespeople.

improve
customer service.

make
delivery schedules more reliable.

all of
the above.

51. Total
quality management:

requires
that everyone in the organization be concerned with improving quality.

means
more than just using statistical controls to reduce manufacturing defects.

views
the cost of lost customers as an important result of quality problems.

applies
to service producers as well as manufacturers.

all of
the above are correct.

52. After a
problem has been identified, a fishbone diagram helps managers solve the
problem by:

identifying
how customer satisfaction can be improved.

creating
a visual aid of why things go wrong.

organizing
cause-and-effect relationships.

all of
the above.

none of
the above.

53. Using
total quality management to improve the implementation of a marketing program
is likely to include:

the use
of Pareto charts to determine the critical path for scheduling marketing
activities.

the use
of fishbone diagrams to show which problems are most important.

an
emphasis on treating routine customer problems and unusual ones in the same
way–because every problem is equally important.

all of
the above are correct.

54. Building
quality into services:

is made
easier by grouping services that require special attention with those that are
routine.

can be
accomplished by lowering customer expectations.

is not
necessary unless the service is guaranteed.

can be
easily accomplished with surprise quality inspections.

can be
improved by giving employees the authority to correct a problem on their own.

55. It might
be sensible for a company to benchmark each of its sales reps against:

another
firm’s sales reps who earn high customer satisfaction scores.

its
other sales reps.

a
competitor’s sales reps.

sales
reps of a firm in a different industry.

any of
the above.

56. Regarding
controlling marketing programs:

“sales
analysis” and “performance analysis” mean the same thing.

traditional
accounting reports are very useful for controlling marketing programs.

sales
analysis is so revealing that there is no such thing as having TOO MUCH data.

the
control process helps marketing managers learn how ongoing plans are working.

All of
the above are true.

57. The 80/20
rule suggests that

20
percent of marketing effort is wasted.

80
percent of marketing effort is well implemented, but the remaining 20 percent
is out of control.

80
percent of the business comes from 20 percent of the customers.

it will
take 80 percent more effort to get 20 percent more business.

None of
the above is true.

58. The
“80/20 rule” says that:

only 20
out of every 100 firms use formal accounting controls.

a firm
should hire 20 sales reps for every 80 customers.

marketing
accounts for 80 percent of a typical consumer’s dollar.

even
though a firm is showing a profit, 80 percent of its business might be coming
from only 20 percent of its customers.

usually
about 20 percent of a firm’s customers are unprofitable.

59. According
to the “80/20 rule”:

marketing
accounts for 80 percent of the consumer’s dollar.

only 20
out of every 100 firms use formal marketing control programs.

about
20 percent of a typical firm’s customers are unprofitable to serve.

even
though a firm might be showing a profit, 80 percent of its business might be
coming from only 20 percent of its products or customers.

None of
the above is correct.

60. Which of
the following statements illustrates the 80/20 rule?

“80
percent of our target market doesn’t respond to our marketing mix, and we only
have a 20 percent market share.”

“Of
the hundred retailers who carry our products, the top twenty account for nearly
80 percent of our total business.”

“20
percent of our marketing effort is wasted, but we don’t know which 20
percent.”

“We
don’t know whether our profits are 20 percent higher than we deserve, or only
80 percent of what might be easily obtained.”

None of
the above.

61. When
involved in the control process, the marketing manager should view company
profit

as a
gross index of performance that should be further broken down into smaller
components.

as a
guide to future operations.

as the
test of whether or not the marketing mix is successful.

All of
the above are true.

None of
the above is true.

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

Activity based questions

$8.00

Description

MULTIPLE CHOICE QUESTIONS

1. Traditional
accounting reports are usually too general to be much help to the marketing
manager in controlling marketing plans.

True

False

2. Digital
communication and e-commerce offer speed and detail in obtaining information
needed for better control.

True

False

3. The
development of electronic pipelines and inexpensive computer software has
helped small and large companies control their marketing strategies.

True

False

4. The ideal
of doing things better, faster, and at lower cost is easy to implement once it
is accepted.

True

False

5. Implementing
a strategy is straightforward; there are usually only a limited number of ways
things can go wrong.

True

False

6. The total
quality management approach recognizes that defects are an inevitable part of
mass production, and that the cost of replacing defective goods is just a cost
of doing business.

True

False

7. The
Japanese success showed that one of the biggest costs of poor quality is lost
customers.

True

False

8. The cost
of replacing defective parts is the biggest cost of poor quality.

True

False

9. Total
quality management applies when the firm’s product is a physical good, but not
if it is a service.

True

False

10. A Pareto
chart is a visual aid that helps organize cause and effect relationships for
“things gone wrong.”

True

False

11. A fishbone
diagram is a graph that shows the number of times a problem cause occurs, with
problem causes ordered from most frequent to least frequent.

True

False

12. The two
keys to improving how people implement quality service are: (1) training and
(2) more inspectors.

True

False

13. Empowerment
means giving employees the authority to correct a problem on their own.? True

False

14. A marketing
manager must use effective communication to manage customer expectations–or
customers will be dissatisfied because they expect more than the firm can
offer.

True

False

15. In a
service operation, customer satisfaction usually increases when routine
services and services that require special attention are grouped together–so
all customers are treated equally.

True

False

16. Services
that require special attention can often be made “routine” with
training.

True

False

17. A company
may decide to benchmark its sales reps against the sales reps of a competitor
or against the sales reps of a firm in a completely different industry.

True

False

18. A company
picking a basis of comparison for evaluating how well its sales reps are performing
is an example of benchmarking.

True

False

19. The money
spent to improve quality should not only satisfy customers but also justify the
cost through improved profit.

True

False

20. A manager
shouldn’t worry about making a financial return from money spent on a quality
program as long as customers recognize that the quality is high.

True

False

21. According
to the “80/20 rule,” it is common to find that about 80 percent of a
firm’s business comes from only about 20 percent of its customers.

True

False

22. The best
way to do a sales analysis is to first break down sales by customer type, and
then geographic region.

True

False

23. Because
too much sales data can drown a manager, it’s best to start by asking only for
breakdowns that involve customer type.

True

False

24. Advances
in computer software have accelerated the move to cost analysis and performance
analysis.

True

False

25. Statistical
packages and information systems that produce graphs and charts can make it
easier to see patterns that are hidden in a table of numbers.

True

False

26. Performance
analysis looks for exceptions or variations from planned performance.

True

False

27. As with
sales analysis, performance analysis is limited to sales data.

True

False

28. Marketing
managers use performance indexes to compare what did happen with what ought to
have happened.

True

False

29. The main
advantage of performance indexes is that they make it easier to compare numbers
in a performance analysis.

True

False

30. The
“iceberg principle” says that looking at detailed breakdowns of data
is not very useful, since most relevant information is revealed in good
summaries.

True

False

Reviews

There are no reviews yet.

Be the first to review “Activity based questions”

Your email address will not be published. Required fields are marked *

activity based questions

$8.00

Description

Investor
Behavior and Capital Market Efficiency

MULTIPLE CHOICE QUESTIONS

13.1 Competition and Capital Markets

Use the following information to answer
the question(s) below.

Assume that the CAPM is a good
description of stock price returns. The
market expected return is 8% with 12% volatility and the risk-free rate is
3%. New news arrives that does not
change any of these numbers, but it does change the expected returns of the
following stocks:

Stock

Expected

Return

Volatility

Beta

Taggart
Transcontinental

8%

28%

1.2

Rearden Metal

13%

40%

1.7

Wyatt Oil

7%

20%

0.8

Nielson Motors

10%

32%

1.3

1) The expected alpha for Taggart
Transcontinental is closest to:

A) -3.00%

B) -1.00%

C) 1.00%

D) 3.00%

2) The expected alpha for Wyatt Oil is
closest to:

A) -3.00%

B) -1.00%

C) 0.00%

D) 3.00%

3) Which of the following stocks
represent buying opportunities?

1. Taggart Transcontinental

2. Rearden Metal

3. Wyatt Oil

4. Nielson Motors

A) 1 only

B) 1 & 2 only

C) 2 & 3 only

D) 2 & 4 only

4) Which of the following stocks
represent selling opportunities?

1. Taggart Transcontinental

2. Rearden Metal

3. Wyatt Oil

4. Nielson Motors

A) 1 only

B) 1 & 2 only

C) 2 & 3 only

D) 2 & 4 only

5) A stock’s alpha is defined as
the stock’s:

A) expected return minus its required
return.

B) expected return minus its actual
return.

C) nominal return minus its required
return.

D) required return minus its actual
return.

13.2 Information and Rational Expectations

1) When all investors correctly
interpret and use their own information, as well as information that can be
inferred from market prices or the trades of others, they are said to have

A) sensation seeking expectations.

B) positive expectations.

C) rational expectations.

D) confident expectations.

2) The CAPM does not require investors
have homogeneous expectations, but rather that they have

A) rational biases.

B) no biases.

C) heterogenous expectations.

D) rational expectations.

13.3 The Behavior of Individual Investors

1) Investors that suffer from a
familiarity bias

A) prefer not to invest in companies
they are familiar with.

B) favor investments in companies they
are familiar with.

C) invest in the same stocks that their
friends or family recommend.

D) tend to overestimate the precision of
their knowledge.

2) The tendency of uninformed
individuals to overestimate the precision of their knowledge is known as

A) overconfidence bias.

B) herd behavior.

C) familiarity bias.

D) disposition bias.

3) If investors have relative wealth
concerns
, they care most about

A) the return on their portfolio
relative to their overall current wealth.

B) the performance of their portfolio
relative to that of their peers.

C) their current portfolio performance
relative to their past portfolio performance.

D) the performance of their current
wealth relative to their past wealth.

4) An individual’s desire for intense
risk-taking experiences is known as

A) phenomenon seeking.

B) herd seeking.

C)
sensation seeking.

D) rational expectations seeking.

\

5) Which of the following is not true
regarding individual investor behavior.

A) Individual investors fail to
diversify their portfolios adequately.

B) A vast majority of individual
investors hold fewer than 10 stocks in their portfolio.

C) Employees tend to overinvest in their
company’s own stock.

D) Individual investors’ portfolios
consistently outperform the market averages.

\

13.4 Systematic Trading Biases

Use the following information to answer
the question(s) below.

Consider the price paths of the
following stocks over a six-month period:

Stock

January

February

March

April

May

June

Taggart
Transcontinental

$15

$18

$21

$18

$20

$24

Rearden Metal

$30

$22

$16

$24

$30

$36

Wyatt Oil

$20

$21

$23

$24

$26

$26

Nielson Motors

$20

$17

$14

$12

$14

$12

None of these stocks pay dividends.

1) Assume that you are an investor with
the disposition effect and you bought each of these stocks in January. Suppose that it is currently the end of
March, which stocks are you most inclined to sell?

1. Taggart Transcontinental

2. Rearden Metal

3. Wyatt Oil

4. Nielson Motors

A) 1 only

B) 1 & 3 only

C) 2
only

D) 2 & 4 only

\

2) Assume that you are an investor with
the disposition effect and you bought each of these stocks in January. Suppose that it is currently the end of
March, which stocks are you most inclined to hold?

1. Taggart Transcontinental

2. Rearden Metal

3. Wyatt Oil

4. Nielson Motors

A) 1 only

B) 1 & 3 only

C) 2
only

D) 2 & 4 only

\

3) Assume that you are an investor with
the disposition effect and you bought each of these stocks in January. Suppose that it is currently the end of June,
which stocks are you most inclined to sell?

1. Taggart Transcontinental

2. Rearden Metal

3. Wyatt Oil

4. Nielson Motors

A) 1 only

B) 1 & 3 only

C) 2
only

D) 1, 2 & 3 only

4) Assume that you are an investor with
the disposition effect and you bought each of these stocks in January. Suppose that it is currently the end of June,
which stocks are you most inclined to hold?

1. Taggart Transcontinental

2. Rearden Metal

3. Wyatt Oil

4. Nielson Motors

A) 1 only

B) 4 only

C) 1 & 3 only

D) 2 & 4 only

5) If investors believe that others have
superior information which they can take advantage of by copying their trades,
this can lead to

A) an informational cascade effect.

B) a disposition effect.

C) a sensation seeking effect.

D) an overconfidence bias.

6) The tendency to hang on to losers and
sell winners is known as the

A) cascade effect.

B) disposition effect.

C) overconfidence bias.

D) systematic behavior bias.

7) When investors imitate each other’s
actions, this is known as ________ behavior.

A) pack

B) flock

C) herd

D) shepherd

13.5 The Efficiency of the Market Portfolio

Use the following information to answer
the question(s) below.

Assume that the economy has three types
of people. 20% are fad followers, 75%
are passive investors, and 5% are informed traders. The portfolio consisting of all informed
traders has a beta of 1.4 and an expected return of 16%. The market has an expected return of 10% and
the risk-free rate is 4%.

1) The alpha for the informed investors
is closest to:

A) -2.4%

B) -0.9%

C) 0.0%

D) 3.6%

2) The alpha for the passive investors
is closest to:

A) -2.4%

B) -0.9%

C) 0.0%

D) 3.6%

3) The expected return for the fad
follower’s portfolio is closest to:

A) 11.5%

B) 12.4%

C) 13.6%

D) 16.0%

+.

Use the following information to answer
the question(s) below.

John Galt is a mutual fund manager at
Atlas Asset Management. He can generate
an alpha of 2% a year up to $500 million of invested capital. After that amount his skills are spread too
thin, so he cannot add value and his alpha is zero for all investments over
$500 million. Atlas Asset Management
charges a fee of 0.80% on the total amount of money under management. Assume that there are always investors
looking for positive alpha investments and no investor would invest in a fund
with a negative alpha. Assume that the fund is in equilibrium, meaning that no
investor either takes out money or wishes to invest new money into the fund.

4) The expected return for the fad
follower’s portfolio is closest to:

A) -0.9%

B) 0.0%

C) 3.6%

D) 6.0%

5) The alpha that investors in Galt’s
fund expect to receive is closest to:

A) -0.80%

B) 0.00%

C) 0.80%

D) 1.80%

6) The amount of money that Galt’s fund
will have under management is closest to:

A) $500 million

B) $600 million

C) $1,000 million

D) $1,250 million

7) The amount of fee income that Galt’s
fund will generate is closest to:

A) $3.75 million

B) $8.00 million

C) $10.00 million

D) $25.00 million

8) A stock’s ________ measures the
stock’s return relative to that predicted based on its beta, at the time of
some event.

A) excessive abnormal return

B) cumulative average return

C) excessive predicted return

D) cumulative abnormal return

13.6 Style-Based Anomalies and the Market
Efficiency Debate

Use the following information to answer
the question(s) below.

Stock

Market

Capitalization

Expected

Liquidating

Dividend

Beta

Taggart
Transcontinental

$800

$920

1.10

Rearden Metal

$600

$720

1.20

Wyatt Oil

$1,000

$1,100

0.80

Nielson Motors

$400

$500

1.40

All amounts are in millions.

1) The correlation between the expected
return and the market capitalization of these stocks is

A) negative.

B) positive.

C) zero.

D) Unable to determine with the
information given

2) If the risk-free rate is 3% and the
market risk premium is 5%, then the CAPM’s predicted expected return for Wyatt
Oil is closest to:

A) 7.0%

B) 8.5%

C) 9.0%

D) 9.5%

3) If the risk-free rate is 3% and the
market risk premium is 5%, then the CAPM’s predicted expected return for Wyatt
Oil is closest to:

A) 8.5%

B) 9.0%

C) 9.5%

D) 10.0%

4) Which of the following statements is
false?

A) If the market portfolio is efficient,
then all securities and portfolios must plot on the SML, not just individual
stocks.

B) For most stocks the standard errors
of the alpha estimates are large, so it is impossible to conclude that the
alphas are statistically different from zero.

C) It is not difficult to find
individual stocks that, in the past have not plotted on the SML.

D) Small stocks (those with lower market
capitalization) have lower average returns.

5) Which of the following statements is
false?

A) The size effect is the observation
that small stocks have positive alphas.

B) When considering portfolios formed
based on the market-to-book ratio, most of the portfolios plot below the
security market line.

C) The largest alphas occur in the
smallest size deciles.

D) When considering portfolios formed
based on size, although the portfolios with the higher betas yield higher
returns, most size portfolios plot above the security market line.

6) Which of the following statements is
false?

A) Portfolios with high market
capitalizations will have positive alphas if the market portfolio is not
efficient.

B) The book-to-market is the observation
that firms with high book-to-market ratios have positive alphas.

C) If the market portfolio is not
efficient, then a portfolio of high book-to-market stocks will likely have
positive alphas.

D) Portfolios with low book-to-market
rations will have negative alphas if the market portfolio is not efficient.

7) Which of the following statements is
false?

A) A momentum strategy is one where you
buy stocks that have had low past returns and (short) sell stocks that have had
high past returns.

B) Over the years since the discovery of
the CAPM, it has become increasing clear to researchers and practitioners alike
that forming portfolios based on market capitalization, book-to-market ratios,
and past returns, one can construct trading strategies that have a positive
alpha.

C) Portfolios containing firms with the
highest realized returns over the previous six months have positive alphas over
the next six months.

D) If the market portfolio is not
efficient, then a portfolio of small stocks will likely have positive alphas.

Use the figure for the question(s)
below.

Consider the following graph of the
security market line:

8) Portfolio “B”

A) is less risky than the market
portfolio.

B) is overpriced.

C) has a positive alpha.

D) falls above the SML.

9) Portfolio “A”

A) has a relatively lower expected
return than predicted.

B) has a positive alpha.

C) falls below the SML.

D) is overpriced.

10) Portfolio “C”

A) is less risky than the market
portfolio.

B) has a relatively lower expected
return than predicted.

C) is underpriced.

D) has a negative alpha.

11) Portfolio “D”

A) falls below the SML.

B) has a negative alpha.

C) is overpriced.

D) offers an expected return equal to
the risk-free rate.

12) The market portfolio

A) is underpriced.

B) has a positive alpha.

C) is overpriced.

D) falls on the SML.

13) Which of the following statements
regarding portfolio “A” is/are correct?

1. Portfolio “A” has a positive alpha.

2. Portfolio “A” is overpriced.

3. Portfolio “A” is less risky than
the market portfolio.

4. Portfolio “A” should not exist if
the market portfolio is efficient.

A) 1 and 2

B) 1, 3, and 4

C) 1 and 3

D) 1, 2, 3, and 4

14) Which of the following statements
regarding portfolio “B” is/are correct?

1. Portfolio “B” has a positive alpha.

2. Portfolio “B” is overpriced.

3. Portfolio “B” is less risky than
the market portfolio.

4. Portfolio “B” should not exist if
the market portfolio is efficient.

A) 2 and 4

B) 4 only

C) 1, 3, and 4

D) 1 and 4

15) Which of the following statements
regarding portfolio “C” is/are correct?

1. Portfolio “C” has a negative alpha.

2. Portfolio “C” is overpriced.

3. Portfolio “C” is less risky than
the market portfolio.

4. Portfolio “C” should not exist if
the market portfolio is efficient.

A) 1 and 3

B) 2 and 4

C) 1, 3, and 4

D) 3 only


Use the information for the question(s)
below.

Consider two firms, ChihuahuaCorporation
and Bernard Industries that are each expected to pay the same $1.5 million
dollar dividend every year in perpetuity.
Chihuahua Corporation is riskier and has a cost of capital of 15%. Bernard Industries is not as shaky as
Chihuahua, so Bernard has a cost of capital of only 10%. Assume that the market portfolio is not
efficient. Both stocks have the same
beta and the CAPM would assign them both an expected return of 12% to both.

16) The market value for Chihuahua is
closest to:

A) $10.0 million

B) $12.5 million

C) $12.0 million

D) $15 million

17) The market value for Bernard is
closest to:

A) $12.0 million

B) $10 million

C) $15.0 million

D) $12.5 million

18) The alpha for Chihuahua is closest
to:

A) +2%

B) -5%

C) -3%

D) +3%

19) The alpha for Bernard is closest to:

A) +5%

B) -2%

C) -3%

D) +2%

20) Various trading strategies appear to
offer non-zero alphas when we examine real world data. If indeed these alphas are positive, it could
be explained by any of the following except:

A) Investors are systematically ignoring
positive-NPV investment opportunities.

B) The market portfolio is inefficient,
but the market portfolio proxy used to calculate the alphas is efficient.

C) A stock’s beta with the market
portfolio does not adequately measure a stock’s systematic risk.

D) The positive alpha trading strategies
contain risk that investors are unwilling to bear but the CAPM does not
capture.

21) Which of the following is not an
investment likely to be found in any proxy for the market portfolio?

A) Human capital

B) Stocks

C) Bonds

D) Precious metals

22) Which of the following statements is
false?

A) If the CAPM correctly computes the
risk premium, investors would stop investing only when they expected the alpha
of an investment strategy to be negative.

B) If the CAPM correctly computes the
risk premium, an investment opportunity with a positive alpha is a positive NPV
investment opportunity.

C) If the CAPM correctly computes the
risk premium, investors should flock to invest in positive alpha stocks.

D) Anyone can implement a momentum
trading strategy and therefore generate a positive investment opportunity.

23) Which of the following statements is
false?

A) If indeed alphas are positive, it is
possible that the positive alpha trading strategies contain risk that investors
are unwilling to bear but the CAPM does not capture.

B) If indeed alphas are positive, it is
possible that the costs of implementing investment strategies are larger than
the NPVs of undertaking them.

C) If indeed alphas are positive, then
investors have to be systematically ignoring positive-NPV investments
opportunities.

D) The only way a positive NPV
investment opportunity can exist in a market is if some barrier to entry
restricts competition.

24) Which of the following statements is
false?

A) The existence of the momentum trading
strategy has been widely known for at least ten years.

B) The information required to implement
a momentum strategy is not readily available to investors.

C) If the market portfolio is not
efficient, then a stock’s beta with the market is not an adequate measure of
its systematic risk.

D) If the market portfolio is not
efficient, then the so-called profits from a positive alpha trading strategy
are really returns for bearing risk that investors are averse to and the CAPM
doesn’t capture.

25) Which of the following statements is
false?

A) A significant fraction of investors
might care about aspects of their portfolios other than expected return and
volatility, and so would be unwilling to hold inefficient investment
portfolios.

B) Although the true market portfolio of
all invested wealth might be efficient, the proxy portfolio might not track the
actual market very well.

C) We might be using the wrong proxy
portfolio when we calculate alphas.

D) The true market portfolio consists of
all traded investment wealth in the economy.

Reviews

There are no reviews yet.

Be the first to review “activity based questions”

Your email address will not be published. Required fields are marked *

activity based questions

$8.00

Description

Investor Behavior and Capital Market Efficiency

MULTIPLE CHOICE QUESTIONS

26) Which of the following statements is
false?

A) Nonzero alphas may merely indicate
that the wrong market proxy is beings used; they do not necessarily indicate
forgone positive NPV investment opportunities.

B) The true market portfolio contains
much more than just stocks, it includes bonds, real estate, art, precious
metals, and any other investment vehicles available.

C) If the true market portfolio is
efficient, but the proxy portfolio is not highly correlated with the true
market portfolio, then the true market portfolio will not be efficient and
stocks will have nonzero alphas.

D) Much of the investment wealth cannot
be included in the proxy for the market portfolio since it does not trade in
competitive markets.

27) Which of the following statements is
false?

A) The most important example of
non-tradeable wealth is human capital.

B) If investors have a significant
amount of non-tradeable wealth, this wealth will be an important part of their
portfolios, but will not be part of the market portfolio of tradeable
securities.

C) If the entire portfolio of
investments is efficient, then just the tradeable part of the portfolio should
be efficient also.

D) Researchers have found evidence that
the presence of human capital can explain at least part of the reason for the
inefficiency of the most commonly used market proxies.

28) What does the existence of a
positive alpha investment strategy imply?

29) Explain why the market portfolio
proxy may not be efficient.

13.7 Multifactor Models of Risk

1) A group of portfolios from which we
can form an efficient portfolio are called

A) factor portfolios.

B) semi-efficient portfolios.

C) partially efficient portfolios.

D) characteristic portfolios.

2) The term asis a(n)

A) error term that has an expectation of
zero and is uncorrelated with either factor.

B) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the first factor portfolio.

C) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the second factor portfolio.

D) constant term.

3) The term

is a(n)

A) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the second factor portfolio.

B) error term that has an expectation of
zero and is uncorrelated with either factor.

C) constant term.

D) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the first factor portfolio.

4) The term

is a(n)

A) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the second factor portfolio.

B) constant term.

C) error term that has an expectation of
zero and is uncorrelated with either factor.

D) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the first factor portfolio.

5) The term ? is a(n)

A) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the first factor portfolio.

B) error term that has an expectation of
zero and is uncorrelated with either factor.

C) measure of the expected percent
change in the excess return of a security for a 1% change in the excess return
of the second factor portfolio.

D) constant term.

6) Which of the following statements is
false?

A) The risk premium of any marketable
security can be written as the sum of the risk premium of each factor
multiplied by the sensitivity of the stock with that factor.

B) The factor betas measure the
sensitivity of the stock to a particular factor.

C) If we use more than one portfolio as
factors, then together these factors will capture systematic risk, but each
factor captures different components of the systematic risk.

D) When we use more than one portfolio
to capture risk, the model is known as asingle factor model.

7) Which of the following statements is
false?

A) It is not actually necessary to
identify the efficient portfolio itself. All that is required is to identify a
collection of portfolios from which the efficient portfolio can be constructed.

B) Although we might not be able to
identify the efficient portfolio itself, we know some characteristics of the
efficient portfolio.

C) An efficient portfolio can be
constructed from other diversified portfolios.

D) An efficient portfolio need not be
well diversified.

8) Which of the following statements is
false?

A) A portfolio costs nothing to
construct is called a self-financing portfolio.

B) The most obvious portfolio to use in
a multifactor model is the market portfolio itself.

C) In general, a self-financing
portfolio is any portfolio with portfolio weights that sum to one rather than
zero.

D) We can construct a self-financing
portfolio by going long some stocks, and going short other stocks with equal
market value.

9) Which of the following statements is
false?

A) Rather than relying on the efficiency
of a single portfolio (such as the market), multifactor models rely on the
weaker condition that an efficient portfolio can be constructed from a
collection of well-diversified portfolios or factors.

B) A positive alpha in a single factor
model means that the portfolios that implement the trading strategy capture
risk that is not captured by the market portfolio.

C) Multifactor models have a distinct
advantage over single-factor models in that it is much easier to identify a
collection of portfolios that captures systematic risk than just a single
portfolio.

D) Trading strategies based on market
capitalization, book-to-market ratios, and momentum have been developed that
appear to have zero alphas.

10) Which of the following statements is
false?

A) Because expected returns are not easy
to estimate, each portfolio that is added to a multifactor model increases the
difficulty of implementing the model.

B) The self-financing portfolio made
from high minus low book-to-market stocks is called the high-minus-low (HML)
portfolio.

C) The FFC factor specification was
identified a little more than ten years ago. Although it is widely used in
academic literature to measure risk, much debate persists about whether it
really is a significant improvement over the CAPM.

D) A trading strategy that each year
short sells portfolio S (small stocks) and uses this position to buy portfolio
B (big stocks) has produced positive risk adjusted returns historically. This
self-financing portfolio is widely known as the small minus big (SMB)
portfolio.

11) Which of the following statements is
false?

A) As a practical matter, it is
extremely difficult to identify portfolios that are efficient because we cannot
measure the expected return and the standard deviation of a portfolio with
great accuracy.

B) The portfolios in a multifactor model
can be thought of as either risk factors themselves or portfolios of stocks
correlated with unobservable risk factors.

C) Each factor beta is the expected
percent change in the excess return of a security for a 1% change in the excess
return of the factor portfolio.

D) Even if the market portfolio is not
efficient, it still must capture all components of systematic risk.

Use the equation for the question(s)
below.

Consider the following factor model:

E[Rs] – rf =

(E[RMkt] – rf) +

E[RSMB] +

E[RHML] +

E[RPR1 YR]

12) The term

measures the
sensitivity of the securities returns to

A) size.

B) book to market.

C) momentum.

D) the overall market.

13) The term

measures the
sensitivity of the securities returns to

A) momentum.

B) the overall market.

C) book to market.

D) size.

14) The term

measures the
sensitivity of the securities returns to

A) book to market.

B) momentum.

C) size.

D) the overall market.

15) The term

measures the
sensitivity of the securities returns to

A) the overall market.

B) book to market.

C) size.

D) momentum.


Use the table for the question(s) below.

Consider the following information
regarding the Fama French Carhart four factor model:

Factor Portfolio

Average
Monthly Return (%)

IBM Factor
Betas

GE Factor
Betas

Wal-Mart
Factor Betas

Rmrf

0.64

0.712

0.937

0.782

SMB

0.17

-0.103

-0.214

0.224

HML

0.53

0.124

0.154

0.123

PR1
YR

0.76

0.276

-0.147

0.247

16) Using the FFC four factor model and
the historical average monthly returns, the expected monthly return for IBM is
closest to:

A) 0.79%

B) 0.53%

C) 0.71%

D) 1.01%

17) Using the FFC four factor model and
the historical average monthly returns, the expected monthly return for GE is
closest to:

A) 0.53%

B) 0.73%

C) 0.79%

D) 0.71%

18) Using the FFC four factor model and
the historical average monthly returns, the expected monthly return for
Wal-Mart is closest to:

A) 0.71%

B) 0.53%

C) 1.38%

D) 0.79%

13.8 Methods Used in Practice

1) According to a survey of 392 CFOs
conducted by John Graham and Campbell Harvey, the most common method used in
corporate America to estimate the cost of capital is

A) the CAPM.

B) multifactor models.

C) characteristic models.

D) the dividend discount model.

Reviews

There are no reviews yet.

Be the first to review “activity based questions”

Your email address will not be published. Required fields are marked *

activity based questions

$8.00

Description

Cost-Volume-Profit
Analysis, Multiple Products

76. Boise Company manufactures and sells three
products: Good, Better, and Best. Annual
fixed costs are $3,315,000, and data about the three products follow.

Good

Better

Best

Sales mix in
units

30%

50%

20%

Selling price

$250

$350

$500

Variable cost

100

150

250

Required:

A.
Determine
the weighted-average unit contribution margin.

B.
Determine
the break-even volume in units for each product.

C.
Determine
the total number of units that must be sold to obtain a profit for the company
of $234,000.

D.
Assume
that the sales mix for Good, Better, and Best is changed to 50%, 30%, and 20%,
respectively. Will the number of units
required to break-even increase or decrease?
Explain. Hint: Detailed
calculations are not needed to obtain the proper solution.

Cost-Volume-Profit
Analysis, Multiple Products

77. Alphabet Corporation sells three products: J,
K, and L. The following information was
taken from a recent budget:

J

K

L

Unit sales

40,000

130,000

30,000

Selling price

$60

$80

$75

Variable cost

40

65

50

Total
fixed costs are anticipated to be $2,450,000.

Required:

A.
Determine
Alphabet’s sales mix.

B.
Determine
the weighted-average contribution margin.

C.
Calculate
the number of units of J, K, and L that must be sold to break even.

D.
If
Alphabet desires to increase company profitability, should it attempt to
increase or decrease the sales of product K relative to those of J and L? Briefly explain.

Traditional
and Contribution Income Statements

78. Price Publications, Inc., produces and sells
business books. The results of the
company’s operations for the year ended December 31, 20×1, are given below.

Sales revenue

$400,000

Manufacturing
costs:

Fixed

100,000

Variable

200,000

Selling
costs:

Fixed

10,000

Variable

20,000

Administrative
costs:

Fixed

24,000

Variable

6,000

Required:

A.
Prepare
a traditional income statement for the company.

B.
Prepare
a contribution income statement for the company.

C.
Which
income statement (traditional or contribution) would an operating manager most
likely use to study changes in operating income that are caused by changes in
sales? Why?

Traditional
and Contribution Income Computations

79.
High
Point Corporation reported sales revenues of $1,850,000 for the period just
ended. Cost of goods sold, selling expenses,
and administrative expenses totaled $1,200,000, $280,000, and $170,000,
respectively. A detailed analysis of the
latter three amounts revealed respective fixed cost components of $780,000,
$60,000, and $130,000.

Required:

A.
Determine
the amounts that High Point would report on a traditional income statement for
(1) gross margin, (2) contribution margin, and (3) net income.

B.
Determine
the amounts that High Point would report on a contribution income statement for
(1) gross margin, (2) contribution margin, and (3) net income.

C.
Which
of the two income statements (traditional or contribution) is more useful for
studying a company’s cost-volume-profit relationships.


Cost
Structure, Operating Leverage

80. Once upon a time, two brothers (Barry and
Larry) dreamt about owning and operating companies in the same line of
business. Barry believed in maintaining
a very large, highly efficient manual labor force; Larry, on the other hand,
favored automated-production processes.
One business was located in Madison and the other was located in
Austin. Recent data follow.

Madison

Austin

Sales

$2,000,000

$2,000,000

Contribution margin

1,700,000

400,000

Net income

150,000

150,000

Required:

A.
Which
of the two businesses, Madison or Austin, has the highest level of (1) variable
cost and (2) highest level of fixed cost?
Explain how you determined your answer.

B.
Determine
the probable owner of the firm located in (1) Madison and (2) Austin. Briefly explain your logic.

C.
Compute
the operating leverage factor for Madison and Austin.

D.
Suppose
that both Madison and Austin had the opportunity to increase sales by 10%. Which of the two locations would experience a
larger percentage change in net income?
Why?

Operating
Leverage

81. Metropolitan Enterprises is studying the
addition of a new product that would have an expected selling price of $160 and
expected variable cost of $100.
Anticipated demand is 8,000 units.

A
new salesperson must be hired because the company’s current sales force is
working at capacity. Two compensation
plans are under consideration:

Plan 1: An annual salary of $32,000 plus
10% commission based on gross sales dollars

Plan 2: An annual salary of $140,000 and no commission

Required:

A.
What
is meant by the term “operating leverage”?

B.
Calculate
the contribution margin and net income of the two plans at 8,000 units.

C.
Compute
the operating leverage factor of the two plans at 8,000 units. Which of the two plans is more highly
leveraged? Why?

D.
Assume
that a general economic downturn occurred during year no. 2, with product
demand falling from 8,000 to 6,400 units.
By using the operating leverage factors, determine and show which plan
would produce a larger percentage decrease in net income.

DISCUSSION QUESTIONS

Cost-Volume-Profit
Analysis

82. The BoSan Corporation makes major household
appliances such as refrigerators, stoves, and dishwashers. Sales are heavily dependent on the number of
housing starts and the level of disposable income. Next year, the number of housing starts in
the Central region is expected to be the same as this year’s; however, about
two-thirds of these starts will be for rental apartments as compared to an
historical average of one-third. The
remaining housing starts will be for single-family homes and upscale
condominiums.

BoSan
generally makes two models of each product: Economy (fully functional, but with
few special features) and Prestige (with the most popular special
features). BoSan assumes a product mix
of 40% Economy and 60% Prestige.

Required:

A.
Explain
how a cost-volume-profit (CVP) analysis may be used by management.

B.
One
of the assumptions that underlies CVP analysis is a constant sales mix over the
relevant range of activity. What are
three other assumptions of CVP analysis?

C.
Describe
how the percentage change in rental units could create a problem with BoSan’s
CVP analysis.

Contribution
Margin

83. Maddox Corporation’s product no. H647 has a
negative contribution margin. How can
such a situation arise? Should the
company continue to stock and sell product no. H647? Explain.

.”

Cost
Structure and Operating Leverage

84. Operating leverage is an important concept
for many companies.

Required:

A.
Define
operating leverage.

B.
Assume
that a firm pays no income taxes and is planning to increase its selling
price. If sales volume in units does not
change, what will be the effect on the operating leverage factor? Explain.

C.
Assume
that another firm that pays no income taxes is planning to increase fixed
manufacturing costs and decrease variable manufacturing costs per unit. At the present volume of production, the total
manufacturing costs will be unchanged. What
will this change do to the operating leverage factor? Explain.

Advanced
Manufacturing Effects on Cost-Volume-Profit Relationships

85. Many firms are moving toward flexible
manufacturing systems and adopting the just-in-time (JIT) philosophy.

Required:

A.
How
is cost behavior altered in the typical flexible manufacturing environment as
compared to a traditional manufacturing system?
What is the impact on the break-even point? Explain.

B.
One
of the assumptions underlying cost-volume profit analysis is that sales volume
and production volume are equal. Stated
another way, inventories are assumed to remain constant. Is this assumption likely to be violated
under an ongoing JIT philosophy?
Explain.

Reviews

There are no reviews yet.

Be the first to review “activity based questions”

Your email address will not be published. Required fields are marked *