finance and data bank

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Multiple Choice Questions

1. Managerial accountants:

A. rarely become involved in an organization’s
decision-making activities.

B. make decisions that focus solely on an
organization’s accounting matters.

C. collect data and provide information so that
decisions can be made.

D. often serve as a cross-functional team
member, making a wide range of decisions.

E. become involved in activities “C”
and “D.”

2. Factors in a decision problem that cannot
be expressed in numerical terms are:

A. qualitative in nature.

B. quantitative in nature.

C. predictive in nature.

D. sensitive in nature.

E. uncertain in nature.

3. At which step or steps in the decision-making
process do qualitative considerations generally have the greatest impact?

A. Specifying the criterion and identifying the
alternatives.

B. Developing a decision model.

C. Collecting the data.

D. Making a decision.

E. Identifying the alternatives.

4. An accounting information system should be
designed to provide information that is useful.
To be useful the information must be:

A. qualitative rather than quantitative.

B. unique and unavailable through other sources.

C. historical in nature and not purport to
predict the future.

D. marginal between two alternatives.

E. relevant, accurate, and timely.

5. To be useful in decision making, information
should possess which of the following characteristics?

Relevance

Accuracy

Timeliness

A.

Yes

No

Yes

B.

Yes

Yes

No

C.

Yes

Yes

Yes

D.

No

Yes

Yes

E.

No

No

Yes

6. A trade-off in a decision situation sometimes
occurs between information:

A. accuracy and relevance.

B. relevance and uniqueness.

C. accuracy and timeliness.

D. sensitivity and accuracy.

E. sensitivity and relevance.

7. Which of the following best defines the
concept of a relevant cost?

A. A past cost that is the same among
alternatives.

B. A past cost that differs among alternatives.

C. A future cost that is the same among
alternatives.

D. A future cost that differs among
alternatives.

E. A cost that is based on past experience.

8. Consider the following costs and
decision-making situations:

I.
The
cost of existing inventory, in a keep vs. disposal decision.

II.
The
cost of special electrical wiring, in an equipment acquisition decision.

III.
The
salary of a supervisor who will be transferred elsewhere in the organization,
in a department-closure decision.

Which
of the above costs is (are) relevant to the decision situation noted?

A. I only.

B. II only.

C. III only.

D. I and II.

E. II and III.

9. The following costs are relevant to the
decision situation cited except:

A. the cost of hiring a full-time staff
attorney, in a decision to establish an in-house legal department or retain the
services of a prominent law firm.

B. the remodeling cost of existing office space,
in a firm’s decision to stay at its current location or move to a new building.

C. the long-term salary costs demanded by Joe
Torrez (a superstar) and Rip Moran (an average player) in baseball contract
negotiations, in a decision that determines the amounts by which ticket prices
must be raised.

D. the cost to enhance an airline’s Web site, in
a decision to expand existing service to either Salt Lake City or Phoenix.

E. the commissions that could be earned by a
salesperson, in a decision that involves salesperson compensation methods
(i.e., commissions or flat monthly salaries).

10. Which of the following costs can be ignored
when making a decision?

A. Opportunity costs.

B. Differential costs.

C. Sunk costs.

D. Relevant costs.

E. All future costs.

11. The book value of equipment currently owned
by a firm is an example of a(n):

A. future cost.

B. differential cost.

C. comparative cost.

D. opportunity cost.

E. sunk cost.

12. The cost of inventory currently owned by a
firm is an example of a(n):

A. opportunity cost.

B. sunk cost.

C. relevant cost.

D. differential cost.

E. future cost.

13. The City of Miami is about to replace an old
fire truck with a new vehicle in an effort to save maintenance and other
operating costs. Which of the following
items, all related to the transaction, would not be considered in the
decision?

A. Purchase price of the new vehicle.

B. Purchase price of the old vehicle.

C. Savings in operating costs as a result of the
new vehicle.

D. Proceeds from disposal of the old vehicle.

E. Future depreciation on the new vehicle.

14. Elegant, Inc., has $125,000 of inventory that
suffered minor smoke damage from a fire in the warehouse. The company can sell the goods “as
is” for $45,000; alternatively, the goods can be cleaned and shipped to
the firm’s outlet center at a cost of $23,000. There the goods could be sold for $80,000. What alternative is more desirable and what is
the relevant cost for that alternative?

A. Sell “as is,” $125,000.

B. Clean and ship to outlet center, $23,000.

C. Clean and ship to outlet center, $103,000.

D. Clean and ship to outlet center, $148,000.

E. Neither alternative is desirable, as both
produce a loss for the firm.

15.
In early July,
Mike Gottfried purchased a $70 ticket to the December 15 game of the Chicago
Titans. (The Titans belong to the
Midwest Football League and play their games outdoors on the shore of Lake
Michigan.) Parking for the game was
expected to cost approximately $22, and Gottfried would probably spend another
$15 for a souvenir program and food. It
is now December 14. The Titans were
having a miserable season and the temperature was expected to peak at 5 degrees
on game day. Mike therefore decided to
skip the game and took his wife to the movies, with tickets and dinner costing
$50. The sunk cost associated with this
decision situation is:

A. $20.

B. $50.

C. $70.

D. $107.

E. some other amount.

16.
In early July,
Jim Lopez purchased a $70 ticket to the December 15 game of the Chicago
Titans. (The Titans belong to the
Midwest Football League and play their games outdoors on the shore of Lake
Michigan.) Parking for the game was
expected to cost approximately $22, and Lopez would probably spend another $15
for a souvenir program and food. It is
now December 14. The Titans were having
a miserable season and the temperature was expected to peak at 5 degrees on
game day. Jim therefore decided to skip
the game and took his wife to the movies, with tickets and dinner costing
$50. The amount of sunk cost that should
influence Jim’s decision to take his wife to the movies and dinner is:

A.
$0.

B.
$20.

C.
$50.

D.
$70.

E.
some other
amount.

17. An opportunity cost may be described as:

A. a forgone benefit.

B. an historical cost.

C. a specialized type of variable cost.

D. a specialized type of fixed cost.

E. a specialized type of semivariable cost.

18. The term “opportunity cost” is best
defined as:

A. the amount of money paid for an item.

B. the amount of money paid for an item, taking
inflation into account.

C. the amount of money paid for an item, taking
possible discounts into account.

D. the benefit associated with a rejected
alternative when making a choice.

E. an irrelevant decision factor.

19. A factory that makes a part has significant
idle capacity. The factory’s opportunity
cost of making this part is equal to:

A. the variable manufacturing cost per unit.

B. the fixed manufacturing cost per unit.

C. the semivariable cost per unit.

D. the total manufacturing cost per unit.

E. zero.

20. Susan is contemplating a job offer with an
advertising agency where she will make $54,000 in her first year of employment.
Alternatively, Susan can begin to work
in her father’s business where she will earn an annual salary of $38,000. If Susan decides to work with her father, the
opportunity cost would be:

A. $0.

B. $38,000.

C. $54,000.

D. $92,000.

E. irrelevant in deciding which job offer to
accept.

21. Which of the following costs should be used
when choosing between two decision alternatives?

Relevant

Cost

Sunk

Cost

Opportunity

Cost

A.

No

Yes

No

B.

No

Yes

Yes

C.

Yes

No

No

D.

Yes

No

Yes

E.

Yes

Yes

Yes

22. Triumph, Inc., is studying whether to expand
operations by adding a new product line.
Which of the following choices correctly denotes the costs that should
be considered in this decision?

Opportunity Cost

Sunk Cost

A.

Yes

Yes

B.

Yes

Sometimes

C.

Yes

No

D.

No

Yes

E.

No

No

23. A special order generally should be accepted
if:

A. its revenue exceeds allocated fixed costs,
regardless of the variable costs associated with the order.

B. excess capacity exists and the revenue
exceeds all variable costs associated with the order.

C. excess capacity exists and the revenue
exceeds allocated fixed costs.

D. the revenue exceeds total costs, regardless
of available capacity.

E. the revenue exceeds variable costs,
regardless of available capacity.

24. Two months ago, Victory purchased 4,500
pounds of Hydrol, paying $15,300. The
market for this product has been very strong since the acquisition, with the
market price jumping to $4.05 per pound. (Victory can buy or sell Hydrol at this
price.) The company recently received a special-order
inquiry, one that would require the use of 4,200 pounds of Hydrol. Which of the following is (are) relevant in
deciding whether to accept the special order?

A. The 300-pound remaining inventory of Hydrol.

B. The $4.05 market price.

C. The $3.40 purchase price.

D. 4,500 pounds of Hydrol.

E. More than one of the above factors are
relevant.

25. Flower Company, which is operating at
capacity, desires to add a new service to its rapidly expanding business. The service should be added as long as service
revenues exceed:

A. variable costs.

B. fixed costs.

C. the sum of variable costs and fixed costs.

D. the sum of variable costs and any related
opportunity costs.

E. the sum of variable costs, fixed costs, and
any related opportunity costs.

26. Baxter has been approached about providing a
new service to its clients. The company
will bill clients $120 per hour; the related hourly variable and fixed
operating costs will be $65 and $15, respectively. If all employees are currently working at
full capacity on other client matters, the per-hour opportunity cost of being
unable to provide this new service is:

A. $0.

B. $40.

C. $55.

D. $80.

E. $120.

27. Snider, Inc., which has excess capacity, received
a special order for 4,000 units at a price of $15 per unit. Currently, production and sales are budgeted
for 10,000 units without considering the special order. Budget information for the current year
follows.

Sales

$190,000

Less: Cost of
goods sold

145,000

Gross margin

$ 45,000

Cost
of goods sold includes $30,000 of fixed manufacturing cost. If the special order is accepted, the
company’s income will:

A. increase by $2,000.

B. decrease by $2,000.

C. increase by $14,000.

D. decrease by $14,000.

E. change by some other amount.

28. Sound, Inc., reported the following results
from the sale of 24,000 units of IT-54:

Sales

$528,000

Variable
manufacturing costs

288,000

Fixed
manufacturing costs

120,000

Variable
selling costs

52,800

Fixed
administrative costs

35,200

Rhythm
Company has offered to purchase 3,000 IT-54s at $16 each. Sound has available capacity, and the
president is in favor of accepting the order. She feels it would be profitable because no
variable selling costs will be incurred. The plant manager is opposed because the
“full cost” of production is $17. Which of the following correctly notes the
change in income if the special order is accepted?

A. $3,000 decrease.

B. $3,000 increase.

C. $12,000 decrease.

D. $12,000 increase.

E. None of the above.

29. CompTronics, a manufacturer of computer
peripherals, has excess capacity. The
company’s Utah plant has the following per-unit cost structure for item no. 89:

Variable manufacturing

$40

Fixed manufacturing

15

Variable selling

8

Fixed selling

11

Traceable fixed
administrative

4

Allocated administrative

2

The
traceable fixed administrative cost was incurred at the Utah plant; in
contrast, the allocated administrative cost represents a “fair share”
of CompTronics’ corporate overhead. Utah
has been presented with a special order of 5,000 units of item no. 89 on which
no selling cost will be incurred. The
proper relevant cost in deciding whether to accept this special order would be:

A. $40.

B. $59.

C. $61.

D. $80.

E. some other amount.

30. The term “outsourcing” is most
closely associated with:

A. special-order decisions.

B. make-or-buy decisions.

C. equipment replacement decisions.

D. decisions to process joint products beyond
the split-off point.

E. decisions that involve limited resources.

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finance and data bank

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Description

Interest Rates

MULTIPLE CHOICE QUESTIONS

5.1 Interest Rate Quotes and Adjustments


2)

Which of the following equations is incorrect?

A)

– 1= APR


B)

Equivalent n-Period Discount Rate = (1 + r)n – 1

C)

1 + EAR =

D)

Interest Rate per Compounding Period =

3)

The effective annual rate (EAR) for a loan with a stated
APR of 8% compounded monthly is closest to:

A)

8.30%

B)

8.33%

C)

8.00%

D)

8.24%

4)

The effective annual rate (EAR) for a loan with a stated
APR of 10% compounded quarterly is closest to:

A)

10.52%

B)

10.25%

C)

10.38%

D)

10.00%

5)

The effective annual rate (EAR) for a savings account with
a stated APR of 4% compounded daily is closest to:

A)

4.00%

B)

4.10%

C)

4.08%

D)

4.06%

Use the table for the question(s) below.

Consider the following investment alternatives:

Investment

Rate

Compounding

A

6.25%

Annual

B

6.10%

Daily

C

6.125

Quarterly

D

6.120

Monthly

6)

Which alternative offers you the highest effective rate of
return?

A)

Investment A

B)

Investment B

C)

Investment C

D)

Investment D

l

You are purchasing a new home and need to borrow $250,000
from a mortgage lender. The mortgage
lender quotes you a rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if
you are willing to pay 2 points, they can offer you a lower rate of 6.0% APR
for a 30-year
fixed rate mortgage. One point is equal
to 1% of the loan value. So if you take
the lower rate and pay the points you will need to borrow an additional $5000
to cover points you are paying the lender.

17)

Assuming you don’t pay the points and borrow from the
mortgage lender at 6.25%, then your monthly mortgage payment (with payments
made at the end of the month) will be closest to:

A)

$1570

B)

$1530

C)

$1540

D)

$1500

18)

Assuming you pay the points and borrow from the mortgage
lender at 6.00%, then your monthly mortgage payment (with payments made at the
end of the month) will be closest to:

A)

$1540

B)

$1530

C)

$1570

D)

$1500

Use the information for the question(s) below.

Two years ago you purchased a new SUV. You financed your SUV for 60 months (with
payments made at the end of the month) with a loan at 5.9% APR. You monthly payments are $617.16 and you have
just made your 24th monthly payment on your SUV.

19)

The amount of your original loan is closest to:

A)

$37,000

B)

$32,000

C)

$20,300

D)

$31,250

20)

Assuming that you have made all of the first 24 payments on
time, then the outstanding principal balance on your SUV loan is closest to:

A)

$31,250

B)

20,300

C)

$19,200

D)

$32,000

Use the information for the question(s) below.

22)

You are in the process of purchasing a new automobile that
will cost you $25,000. The dealership is
offering you either a $1,000 rebate (applied toward the purchase price) or 3.9%
financing for 60 months (with payments made at the end of the month). You have been pre-approved for an auto loan through
your local credit union at an interest rate of 7.5% for 60 months. Should you take the $2000 rebate and finance
through your credit union or forgo the rebate and finance through the
dealership at the lower 3.9% APR?

.

23)

You are purchasing a new home and need to borrow $325,000
from a mortgage lender. The mortgage
lender quotes you a rate of 6. 5% APR for a 30-year fixed rate mortgage (with payments
made at the end of each month). The
mortgage lender also tells you that if you are willing to pay 1 point, they can
offer you a lower rate of 6.25% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan
value. So if you take the lower rate and
pay the points you will need to borrow an additional $3250 to cover points you
are paying the lender. Assuming that you do not intend to prepay your mortgage
(pay off your mortgage early),are you
better off paying the 1 point and borrowing at 6.25% APR or just taking out the
loan at 6.5% without any points?

Use the information for the question(s) below.

Two years ago you purchased a new SUV. You financed your SUV for 60 months (with
payments made at the end of the month) with a loan at 5.9% APR. You monthly payments are $617.16 and you have
just made your 24th monthly payment on your SUV.

24)

Assuming that you have made all of the first 24 payments on
time, then how much interest have you paid over the first two years of your
loan?

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