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business
accounting for business

Questions and Answers of Accounting for Business

7. Which of the following indicates increasing sales?& Reduction in market share& Reduction in the size of the market as a whole& Stable levels of repeat business& Sales steadily increasing month on
8. Reducing selling price leads to& Increases in the total value of sales& Reduction in gross profit %& Increase in net profit %& More spending on research and development& Lower purchases
9. Venture capitalists are attracted to& High dividends& Companies with high borrowings (high gearing)& Companies already quoted on major stock exchanges& Risky companies with potential for high
1. Which of the following business sectors tend to have a short-term planning horizon?& Pensions& Airports and air travel& Insurance companies& Motor manufacturing& Fashion
2. Within an NPV calculation what is year zero?& Now, the present day& Last year& Next year& The second year of a project& The tenth year of a project
3. At the 20% rate, what is the present value of £1 in four years’ time?& £1& £1.20& £0.80& £0.50& £0.482
4. What is the present value of £1,000,000 in a year’s time at the 5% rate?& £1& £952,000& £1.05m& £0.95m& £920,000
5. What is the present value of £1,000,000 received in one year’s time at the 15% rate?& £1& £850,000& £1.15m& £0.85m& £870,000
6. The Internet allows firms to communicate with customers all over the world. Within Porter’s Five Forces model, this can be interpreted as& Increasing buyer power& Reducing buyer power&
5. New smaller e-business ventures selling to consumers are characterised by?& Cash sales and cash purchases& Cash sales and credit purchases& Credit sales and cash purchases& Credit sales and credit
6. A subsidiary company has earned profits of $13,567,891 and the average exchange rate during the year is £1 ¼ $1.66. In £ terms the profit is?& $13,567,891& £6,783,945& £8,173,428&
7. What percentage of shares is needed to control a company?& 100%& 99%& 51%& 50%& 25%
8. Why is the average rate of exchange used to translate the foreign subsidiary P&L account, rather than the closing rate?& P&L account reflects the assets at the end of the year& Closing rate of
9. Which of the following is not an advantage of a joint venture?& Accesses local knowledge and skills& Holding company doesn’t have to provide all the capital& Easier to put local management in
1. A web site costs £24,000 per year to maintain and the annual subscription is £20.Breakeven number of subscriptions is?& 24,000& 12,000& 1200& 120& Zero
2. A recently started e-business incurring monthly losses of £10,000 has a £150,000 cash balance. The cash burn rate is?& 24 months& 20 months& 15 months& 12 months& 6 months
3. A company with market share of 10% means& The company has ten customers& Competitors have one in ten of available customers& The company has 10% of the total value of the market& Gross profit % is
4. Which of the following is not a cost of starting a retail company on the Internet?& Securing a domain name& Investing in brand recognition& Renting high street premises& Recruiting skilled web
6. What is the present value of £1,000,000 received in both one and two years’ time at the 15% rate?& £870,000þ£756,000 ¼ £1,626,000& £1,000,000þ£1,000,000 ¼ £2,000,000&
7. What is the definition of net present value?& The initial cost of a project& The cash receipts generated by a project& The net cash flow of a project& The profit of a project& The PV of the cash
8. What is the definition of cost of capital?& Goods bought to sell at a profit& The rate of inflation& The return that has to be offered to attract capital investment& Initial costs of a project&
10. Which accounting technique complements a strict, target-led style of management?& Ratios& Traditional costing& Breakeven& Budgeting& Non-financial ratios
9. In relation to companies with bank borrowings, what is the impact of a rise in interest rates on company profits?& Increases expenses and reduces net profit& Increases sales and net profit&
8. Over the trade cycle, when are profits likely to be highest?& Bottom of the slump& Top of the boom& During the upturn& During the downswing& Profits constant throughout
7. Over the product life cycle when are losses most likely to occur?& Initial launch& Rapid growth& Maturity& Steady decline& Losses constant throughout
6. Low interest rates encourage?& Less investment in business& Less borrowing& More money deposited in banks& More investment in business& Higher internal rate of return
5. Which of these problems can be solved by good financial management?& Customers do not like the product& Staff are not punctual& Delivery to customers is too slow& Product is not reliable&
4. Which of these do not reduce net profit (profit before taxation)?& Increasing the expected life of fixed assets, e.g. computers, 10 years (10%)& Treating fixed assets as an expense, e.g. software&
3. Which of the following does not reflect high risk?& Gearing ¼ 150%& Margin of safety ¼ 5%& High fixed costs& Current ratio ¼ 0.75& Margin of safety ¼ 50%
2. In a competitive high technology manufacturing environment which of these would work best?& Breakeven& Ratio analysis& Traditional costing& Activity-based costing& Payback period
1. Which of these is the first document to prepare when evaluating a new business idea suggested by an individual with limited capital?& Cash flow forecast& Balance sheet& Ratio analysis&
15. Competitors are introducing new technology that reduces costs and increases profits.What impact does this have on an individual company’s appraisal of the new technology?& No impact& Less
14. A tunnelling project will cost £1.4 billion (£1,400,000,000). Net cash flow will be£200,000,000 per year starting in year 1. What is the PBP?& 5 years& 6 years& 7 years& 8 years& 9 years
13. Consider buying a company for £2.5m. Annual net cash flow is £250,000. What is the payback period?& 0 years& 1 year& 5 years& 10 years& 20 years
12. What is the definition of the payback period?& The number of years in a project& The breakeven units of a project& The margin of safety& The length of time that elapses between initial investment
11. A business is evaluating a project that is more risky than its core business. The appropriate discount rate should be?& Lower than the normal cost of capital& Higher than the normal cost of
10. What is the time value of money?& The return that can be earned simply by depositing cash in a bank& The working capital cycle& Depreciation& Current ratio& Debtor days
9. A company increases its cost of capital from 15% to 20%. What impact does this have on a project it is considering?& Increases the NPV of the project& Reduces the NPV of the project& No impact on
10. An unexpected increase in interest rates in the USA& Reduces the value of the $ against the £& Increases company profits in the USA& Has no effect on stock markets& Increases the value of the $&
4. Overheads divided by total direct labour hours worked ¼ ?& Overhead per direct labour hour& Overhead per machine hour& Overhead per product& Overhead per employee& Overhead per year
3. Overheads divided by the number of products made ¼ ?& Overhead per labour hour& Overhead per machine hour& Overhead per product& Overhead per employee& Overhead per year
2. What is the difference between a production and a service department?& Service departments make products& Production departments provide services& Production departments are an overhead& Service
1. What question is costing designed to answer?& How much does it cost to run a company car?& How much does it cost to make a unit of product?& How big is the telephone bill?& How much do we spend on
10. High fixed costs indicate?& Low breakeven& The possibility of a large worst case loss& High profits& The possibility of a small worst case loss& Low risk
9. Which of these is best for a business?& High risk and high return on capital& High risk and low return on capital& No risk and no return on capital& Low risk and low return on capital& Low risk
8. Selling price £1, variable cost per unit 20p; contribution per unit?& £1& 60p& 20p& 80p& £1.20
7. Fixed costs £10m per month, contribution per unit £1000; breakeven units?& 10,000 units per year& 1000 units per year& 1,000,000 units per month& 10,000 units per month& 100 units per month
6. A reduction in fixed costs leads to?& Higher breakeven and no change to margin of safety %& Higher breakeven and lower margin of safety& Lower breakeven and higher margin of safety %& No change in
5. If variable cost per unit is zero, selling price is the same as?& Fixed costs& Variable costs& Total costs& Contribution per unit& Margin of safety %
4. A high margin of safety % means?& No profit& Low risk& High breakeven& High risk& High fixed costs
3. What is the breakeven point?& Revenue ¼ variable costs& Revenue ¼ total costs& Revenue ¼ zero& Revenue ¼ margin of safety& Revenue ¼ fixed costs
2. Fixed costs £100,000, contribution per unit £25; breakeven units?& 4 units& 25%& £25,000& 2 units& 4000 units
1. Selling price £100, variable cost per unit £75; contribution per unit?& £175 per unit& £100 per unit& £75 per unit& £1 per unit& £25 per unit
15. Which of these is not a way of reducing bad debt?& Perform credit checks on all new customers& Set a credit limit for all customers& Review aged debt analysis regularly& Wait patiently for
14. Aged debtor analysis& Identifies slow paying customers& Shows customer’s birthdays& Shows the amount of money owed to suppliers& Is a list of suppliers& Is the same as debtor days ratio
13. Why should credit notes be issued quickly to customers?& Credit notes increase sales& Credit notes increase bad debts& Outstanding queries prevent prompt payment& Credit notes increase the sales
5. What is apportionment?& Splitting service department costs between production departments& Spreading the cost of a fixed asset over its expected life& Dividing overheads by labour hours& Portion
6. Why is overhead per hour more useful than overhead per product?& Because most firms have only one product& Because some products take longer to make than others& Because machine hours are better
7. Which of these is not a good way of apportioning the cost of a maintenance service department?& Number of maintenance visits& Number of maintenance hours& Number of machines& Number of employees
8. Which of the following is not a part of ABC implementation?& Interviewing staff about their work& Reviewing job specifications& Producing detailed departmental costing& Producing departmental
9. What are the four steps in an ABC implementation?& Allocate, apportion, absorb and control& Cash flow, P&L account, balance sheet and ratios& Mirror, signal, manoeuvre and move out& Selling price,
10. Which of the following is a disadvantage of ABC systems?& Provides accurate costings& Have to be implemented throughout the company& Can be used to reduce costs& Provides useful non-financial
1. If the value of the £ falls in comparison to the $, this is& Beneficial to UK firms selling in the USA& Beneficial to UK firms selling in the UK& Beneficial to UK firms buying in the UK&
2. If £1 ¼ $2, $1,000,000 is equivalent to?& $2,000,000& £2,000,000& £1,000,000& $1,000,000& £500,000
3. If £1 ¼ $1.5, what is $1 worth?& 75p& 120 cents& 66p& 50p& £1.20
4. An ‘income statement’ is& A bank statement& A balance sheet& A cash flow& A P&L account& A pension
5. Which of these encourages UK tourists to go to the USA?& Weak euro& High interest rates in UK& Weak $ compared to £& Weak £ compared to $& High airport tax
7. Which of these is not an example of a good cost driver?& Number of production runs& Number of inspection visits& Number of orders& Number of absence days through sickness& Number of set ups on the
6. Which of these is not a feature of a good cost driver?& Easy to measure, e.g. the number of invoices& Increases in busy periods& Closely related to the work of a key activity& Stays the same all
8. Overhead per labour hours ¼ £10.00, labour time taken to make the product ¼ 15 minutes; therefore, overhead absorbed ¼ ?& £1 per product& £2.50 per product& £5 per product& £10 per
9. Overhead per machine hour ¼ £12.00, machine time taken to make the product ¼10 minutes; therefore, overhead absorbed ¼ ?& £1 per product& £2 per product& £6 per product& £10 per product&
10. Direct labour per product ¼ £1, direct materials per product ¼ £2.50, overhead absorbed per product ¼ £2; therefore, full cost per unit of product ¼ ?& £1.00 per product& £2.50 per
1. Which of the following is not a feature of modern flexible manufacturing?& Low stocks& Small production runs& Quality control& Team working& Large batches of standard product
2. Which of the following is not a key activity in a purchasing department?& Processing supplier orders& Finding new suppliers& Checking deliveries& Checking invoices& Preparing P&L account and
3. Which of these is not an appropriate cost driver in a purchasing department?& Number of purchase orders& Number of supplier invoices& Number of deliveries received& Number of sales invoices issued
4. Which of these is not an effective way of finding key activities, and costs of activities, in a purchasing department?& Interview members of the purchasing team& Ask the team to complete time
5. Cost of order processing ¼ £150,000, number of orders processed ¼ 10,000;therefore, cost driver rate ¼ ?& £15 per order& £150 per order& £150,000 per order& £10,000 per order& Zero
9. Current assets are £24,410 and current liabilities are £32,220, therefore& Net current assets ¼ þ£8810& Net current assets ¼ þ£56,630& Net current assets ¼ þ£7810& Net current assets ¼
12. Which of the following does the production department not liaise with when preparing its budget?& Marketing department& Purchasing department& Product development team& Sales team& Competitors
13. Which of the following is the most urgent problem to address?& Zero variance on net profit& 50% unfavourable variance on sales& 1% unfavourable variance on expenses& 5% favourable variance on
1. Which of these causes a reduction in sales (an unfavourable sales variance)?& Increase in selling price& General economic boom& Reduction in interest rates& Successful advertising campaign&
2. Which of these causes a favourable sales variance?& Launch of a successful new product line& General economic recession& Increase in interest rates& Increase in selling price& Competitor reduces
3. Which of these causes an unfavourable wages expense variance?& Staff leaving the company and not replaced& Fall in overtime hours& Unexpected increase in wages and salaries& Reduction in the
4. Which of these does not cause an expense variance?& A large bad debt& An increase in depreciation& Scrapping a fixed asset half way through its useful life& An increase in purchases& A large pay
5. Taking out a new bank loan will& Reduce cash in the bank& Reduce interest payments to the bank& Increase interest payments to the bank& Increase income& Reduce liabilities
6. If sales variance is 10% favourable, what would you expect to happen to debtors and cash?& No impact on debtors& Debtors higher than budgeted and cash lower than budgeted& Both lower than
7. Which of these causes an unfavourable cash variance?& Acquisition of a fixed asset for cash& Scrapping a fixed asset& Increase in the useful life of fixed assets& Borrowing money from the bank&
8. If a company has a large overdraft, an increase in interest rates will cause& An increase in interest received& A reduction in purchases& A reduction in depreciation& Increases in interest paid&
9. If the owner of a business increases drawings& Sales increase& Net profit falls& Expenses rise& Cash falls& Fixed assets fall
10. In a report to the ‘Board of Directors’ about the potential of e-business, which of the following should be explained?& The recent history of the company& Products manufactured and services
1. Which ratio gives the average amount of gross profit per £ of sales?& Net profit %& Expense %& Current ratio& ROCE& Gross profit %
2. Which of the following increases the gross profit %?& Increase in the volume of sales& Reduction in expenses& Giving longer credit to customers& Increasing the selling price& Increase in the price
11. Which of these is not a valid objective for a business?& Expand market share& Expand the product range& Increase profit by 20%& Launch a web site for customers& Reduce market share and profits
10. What is the difference between budgeted net cash flow and actual net cash flow?& Actual comes before the budget& Actual cash flow is monthly, the budgeted is quarterly& Actual cash flow is
9. What is the most likely constraint on a new Internet business started by one individual with limited savings and no other sources of finance?& Cash& Office space& Availability of web designers&
10. Which of these is paid out last in a company liquidation?& Sales tax& Corporation tax& Secured bank loan& Secured overdraft& Creditors
11. Which of these is not a reason for writing off a fixed asset?& Computer system out of date& Delivery vans do not meet new pollution regulations& Factory roof declared unsafe by local building
12. Sales commission paid a month late leads to?& A prepayment& An accrual& A stock write off& A fixed asset reduction& An increase in cash
13. January rent of £2500 paid in advance on 29th December leads to a December prepayment of?& £0& £500& £2000& £2500& £5000
14. Insurance for the whole year paid in advance during June is £1000. The December(end of financial year) prepayment should be& £0& £100& £500& £1000& £2000

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