Q1. If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease.

a. true

b. false

Q2. Which of the following describes the behavior of the variable cost per unit?

a. Decreases with increasing production

b. Decreases with decreasing production

c. Remains constant with changes in production

d. Increases with increasing production

Q3. Even if a business sells six products, it is possible to estimate the break-even point.

a. true

b. false

Q4. If the volume of sales is $4,000,000 and sales at the break-even point amount to $3,200,000, the margin of safety is 20%.

a. true

b. false

Q5. Variable costs are costs that vary on a per-unit basis as the level of manufacturing activity changes.

a. true

b. false

Q6. The fixed cost per unit varies with changes in the level of activity.

a. true

b. false

Q7. If fixed costs are $220,000 and the unit contribution margin is $25, the sales necessary to earn an operating income of $30,000 are 10,000 units.

a. true

b. false

Q8. Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart.

a. true

b. false

Q9. The relevant range is useful for analyzing cost behavior for management decision-making purposes.

a. true

b. false

Q10. Direct materials and direct labor costs are examples of variable costs of production.

a. true

b. false

Q11. If sales are $200,000, variable costs are 56% of sales, and operating income is $30,000, what is the contribution margin ratio?

a. 42%

b. 37%

c. 44%

d. 15%

Q12. Variable costs are costs that remain constant in total with changes in the activity level.

a. true

b. false

Q13. A rental cost of $40,000 plus $0.50 per machine hour of use is an example of a mixed cost.

a. true

b. false

Q14. Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs increase

b. Unit selling price increases

c. Unit variable cost decreases

d. Total fixed costs decrease

Q15. If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 7,500 units.

a. true

b. false

Q16. The variable cost per unit remains constant with changes in the level of activity.

a. true

b. false

Q17. With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called

a. 'what if' or sensitivity analysis.

b. vary the data analysis.

c. computer-aided analysis.

d. data gathering.

Q18. If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%.

a. true

b. false

Q19. If fixed costs are $350,000, the unit selling price is $75, and the unit variable costs are $30, what is the break-even sales (in units)?

a. 3,500 units

b. 7,778 units

c. 11,667 units

d. 4,667 units

Q20. If sales are $820,000, variable costs are 68% of sales, and operating income is $260,000, what is the contribution margin ratio?

a. 53%

b. 38%

c. 47%

d. 32%

Q21. If fixed costs are $500,000 and the unit contribution margin is $40, what is the break-even point in units if fixed costs are reduced by $80,000?

a. 25,000

b. 20,000

c. 10,500

d. 12,500

Q22. Cost behavior refers to the manner in which a cost changes as the related activity changes.

a. true

b. false

Q23. Which of the following activity bases would be the most appropriate for food costs of a hospital?

a. Number of cooks scheduled to work

b. Number of x-rays taken

c. Number of patients who stay in the hospital

d. Number of scheduled surgeries

Q24. Which of the following activity bases would be the most appropriate for gasoline costs of a delivery service such as UPS?

a. Number of trucks employed

b. Number of miles driven

c. Number of trucks in service

d. Number of packages delivered

Q25. Total variable costs change as the level of activity changes.

a. true

b. false

Q26. If fixed costs are $850,000 and the unit contribution margin is $90, what amount of units must be sold in order to have a zero profit?

a. 9,445

b. 8,500

c. 7,650

d. 85,000

Q27. Variable costs as a percentage of sales are equal to 100% minus the contribution margin ratio.

a. true

b. false

Q28. Costs that vary in total in direct proportion to changes in an activity level are called

a. fixed costs.

b. sunk costs.

c. variable costs.

d. differential costs.

Q29. If variable costs per unit decreased because of a decrease in utility rates, the break-even point would

a. decrease.

b. increase.

c. remain the same.

d. increase or decrease, depending upon the percentage increase in utility rates.

Q30. If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would

a. decrease.

b. increase.

c. remain the same.

d. increase or decrease, depending upon the percentage increase in wage rates.

Q31. If fixed costs are $250,000, the unit selling price is $105, and the unit variable costs are $65, what is the break-even sales (in units)?

a. 6,250 units

b. 2,381 units

c. 10,000 units

d. 3,846 units

Q32. If direct materials cost per unit decreases, the break-even point will increase.

a. true

b. false

Q33. Which of the following is an example of a cost that varies in total as the number of units produced changes?

a. Electricity per KWH to operate factory equipment

b. Monthly rent on a factory building

c. Straight-line depreciation on factory equipment

d. Salary of a production supervisor

Q34. The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

a. true

b. false

Q35. A capital expenditures budget summarizes the decisions made for the acquisition of fixed assets for several future years.

a. true

b. false

Q36. The primary advantages of the average rate of return method are its ease of computation and the fact that

a. it emphasizes the amount of income earned over the life of the proposal.

b. there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term.

c. it is especially useful to managers whose primary concern is liquidity.

d. rankings of proposals are necessary.

Q37. The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net discounted cash flow.

a. true

b. false

Q38. Leasing assets may be a favorable alternative to purchasing assets if the asset has a high risk of becoming obsolete.

a. true

b. false

Q39. The process by which management plans, evaluates, and controls long- term investment decisions involving fixed assets is called cost-volume-profit analysis.

a. true

b. false

Q40. In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are normally used?

a. Cash payback method and average rate of return method

b. Average rate of return method and net present value method

c. Net present value method and cash payback method

d. Internal rate of return and net present value methods

Q41. Average rate of return equals estimated average annual income divided by average investment.

a. true

b. false

Q42. When evaluating a proposal by use of the net present value method, if there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal exceeds the rate used in the analysis.

a. true

b. false

Q43. The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years. The expected average rate of return on investment is 20%.

a. true

b. false

Q44. When evaluating a proposal by use of the net present value method, if there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted.

a. true

b. false

Q45. Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method that makes the proposals comparable?

a. Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years.

b. Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year six.

c. Ignore the useful lives of six and nine years and find an average (7 1/2 years).

d. Ignore the useful lives of six and nine years and compute the average rate of return.

Q46. The amount of the estimated average income for a proposed investment of $60,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of four years, no residual value, and an expected total income yield of $22,300, is

a. $10,800.

b. $5,575.

c. $5,400.

d. $15,000.

Q47. If a proposed expenditure of $400,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $160,000 and $60,000, respectively, the cash payback period is 2.5 years.

a. true

b. false

Q48. The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $300,000 for the 5 years. The expected average rate of return is 30%.

a. true

b. false

Q49. The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net cash flow.

a. true

b. false

Q50. The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis.

a. true

b. false

Q51. Internal rate of return is often called the payback rate of return.

a. true

b. false

Q52. The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

a. true

b. false

Q53. Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

a. sales mix analysis.

b. variable cost analysis.

c. variable cost analysis.

d. capital investment analysis.

Q54. The average rate of return method of capital investment analysis gives consideration to the present value of future cash flows.

a. true

b. false

Q55. Crane Company is considering the acquisition of a machine that costs $60,000. The machine is expected to have a useful life of 5 years, a negligible residual value, an annual cash flow of $15,000, and annual operating income of $15,000. What is the estimated cash payback period for the machine?

a. 1.7 years

b. 3 years

c. 4 years

d. 5 years

Q56. The process by which management allocates available investment funds among competing investment proposals is called

a. investment capital.

b. investment rationing.

c. cost-volume-profit analysis.

d. capital rationing.

Q57. In general, present value methods of analyzing capital investments are more desirable than methods ignoring present value because

a. the calculations in methods that ignore present value are more complex than those in methods using present value.

b. the present value methods consider that a dollar today is worth more than a dollar in the future due to the potential earning power of that dollar.

c. the calculations in methods that consider present value are less complex than those methods ignoring present value.

d. the present value methods consider that a dollar in the future is worth more than a dollar today due to the potential earning power of that dollar.

Q58. The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.

a. true

b. false

Q59. Care must be taken involving capital investment decisions since normally a long-term commitment of funds is involved and operations could be affected for many years.

a. true

b. false

Q60. The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) average rate of return and (2) cash payback methods.

a. true

b. false

Q61. Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

a. Average rate of return

b. Internal rate of return

c. Cash payback period

d. Accounting rate of return

Q62. Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals?

a. Internal rate of return

b. Cash payback

c. Net present value

d. Average rate of return

Q63. In net present value analysis for a proposed capital investment, the expected future net cash flows are reduced to their present values.

a. true

b. false

Q64. Methods that ignore present value in capital investment analysis include the cash payment method.

a. true

b. false

Q65. Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

a. Price-level index

b. Present value factor

c. Annuity

d. Present value index

Q66. In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of

a. net income.

b. nonfinancial factors.

c. maximum cost.

d. net cash flow.

Q67. If the minimum acceptable rate of return for investments exceeds the average rate of return on an asset, the asset should be purchased.

a. true

b. false

Q68. The comparison of the financial data of a single company for two or more years is called horizontal analysis.

a. true

b. false

Q69. Based on the following data, what is the quick ratio, rounded to one decimal place?

Accounts payable	$ 32,000
Accounts receivable	64,000
Accrued liabilities	7,000
Cash	20,000
Intangible assets	40,000
Inventory	72,000
Long-term investments	100,000
Long-term liabilities	75,000
Marketable securities	35,000
Notes payable (short-term)	25,000
Property, plant, and equipment	625,000
Prepaid expenses	2,000

a. 3.2

b. 2.1

c. 1.9

d. 1.4

Q70. A company with $60,000 in current assets and $40,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

a. both decrease.

b. both increase.

c. increase and remain the same, respectively.

d. remain the same and decrease, respectively.

Q71. In computing the rate earned on total assets, interest expense is added to net income before dividing by average total assets.

a. true

b. false

Q72. Statements in which all items are expressed in relative terms are called common-size statements.

a. true

b. false

Q73. The ratio computed by dividing current assets by current liabilities is the

a. current ratio.

b. earnings ratio.

c. acid-test ratio.

d. quick ratio.

Q74. The balance sheets at the end of each of the first two years of operations indicate the following:

	2011	2010
Total current assets	$600,000	$560,000
Total investments	60,000	40,000
Total property, plant, and equipment	900,000	700,000
Total current liabilities	125,000	80,000
Total long-term liabilities	350,000	250,000
Preferred 9% stock, $100 par	100,000	100,000
Common stock, $10 par	600,000	600,000
Paid-in capital in excess of par--common stock	60,000	60,000
Retained earnings	325,000	210,000

If net income is $130,000 and interest expense is $40,000 for 2011, what are the earnings per share on common stock for 2011 (rounded to two decimal places)?

a. $2.17

b. $2.68

c. $2.02

d. $2.32

Q75. Balance sheet and income statement data indicate the following:

Bonds payable, 12% (issued 1998, due 2022)	$1,000,000
Preferred 5% stock, $100 par (no change during year)	300,000
Common stock, $50 par (no change during year)	2,000,000
Income before income tax for year	300,000
Income tax for year	80,000
Common dividends paid	50,000
Preferred dividends paid	15,000

Based on the data presented above, what is the number of times interest charges were earned (rounded to one decimal place)?

a. 3.5

b. 2.2

c. 4.0

d. The answer cannot be determined.

Q76. Based on the following data, what is the amount of working capital?

Accounts payable	$ 32,000
Accounts receivable	64,000
Accrued liabilities	7,000
Cash	20,000
Intangible assets	40,000
Inventory	72,000
Long-term investments	100,000
Long-term liabilities	75,000
Marketable securities	35,000
Notes payable (short-term)	20,000
Property, plant, and equipment	625,000
Prepaid expenses	2,000

a. $190,000

b. $134,000

c. $118,000

d. $62,000

Q77. Based on the following data, what is the amount of quick assets?

Accounts payable	$ 32,000
Accounts receivable	56,000
Accrued liabilities	7,000
Cash	20,000
Intangible assets	40,000
Inventory	72,000
Long-term investments	100,000
Long-term liabilities	75,000
Marketable securities	40,000
Notes payable (short-term)	20,000
Property, plant, and equipment	625,000
Supplies	2,000

a. $228,000

b. $188,000

c. $116,000

d. $114,000

Q78. The excess of current liabilities over current assets is referred to as working capital.

a. true

b. false

Q79. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

a. true

b. false

Q80. Which of the following is a measure of the liquid position of a corporation?

a. Earnings per share

b. Inventory turnover

c. Current ratio

d. Number of times interest charges earned

Q81. The relationship of 120 to 100 can be expressed as 1.2, 1.2:1, or 120%.

a. true

b. false

Q82. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as vertical analysis.

a. true

b. false

Q83. Profitability refers to the ability of the business to

a. earn a reasonable amount of income.

b. provide owners with dividends.

c. pay its current and noncurrent liabilities.

d. manage its accounts receivable and inventory.

Q84. The following information is available for Morgan Corp.:

	2010
Market price per share of common stock	$25.00
Earnings per share on common stock	1.25

Which of the following statements is correct?

a. The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2010.

b. The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2010.

c. The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2010.

d. The market price per share and the earnings per share are not statistically related to each other.

Q85. If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover of 3 for the current year would be considered normal.

a. true

b. false

Q86. The terms acid-test ratio and quick ratio refer to the same ratio--the instant debt-paying ability of a company.

a. true

b. false

Q87. The rate earned on total assets is one of the measures of profitability.

a. true

b. false

Q88. The percentage of change in long-term liabilities between two balance sheet dates is an example of

a. vertical analysis.

b. solvency analysis.

c. profitability analysis.

d. horizontal analysis.

Q89. The ability of a business to earn a reasonable amount of income is referred to as the factor of

a. leverage.

b. profitability.

c. wealth.

d. solvency.

Q90. The ratio of current assets to current liabilities is referred to as the acid-test ratio.

a. true

b. false

Q91. The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio.

a. true

b. false

Q92. The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as

a. solvency and leverage.

b. solvency and profitability.

c. solvency and liquidity.

d. solvency and equity.

Q93. Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.

a. true

b. false

Q94. The percent of fixed assets to total assets is an example of

a. vertical analysis.

b. solvency analysis.

c. profitability analysis.

d. horizontal analysis.

Q95. Statements in which all items are expressed only in relative terms (percentages of a common base) are

a. horizontal statements.

b. percentage statements.

c. vertical statements.

d. common-size statements.

Q96. Solvency analysis focuses on the ability of a business to make a profit.

a. true

b. false

Q97. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is called the

a. price-earnings ratio.

b. earnings ratio.

c. quick ratio.

d. current ratio.

Q98. An analysis in which all the components of an income statement are expressed as a percentage of net sales is called

a. vertical analysis.

b. horizontal analysis.

c. liquidity analysis.

d. common-size analysis.

Q99. The relationship of each asset item as a percent of total assets is an example of horizontal analysis.

a. true

b. false

Q100. Based on the following data for the current year, what is the inventory turnover?

Net sales on account during year	$ 517,500
Cost of merchandise sold during year	450,000
Accounts receivable, beginning of year	50,000
Accounts receivable, end of year	40,000
Inventory, beginning of year	110,000
Inventory, end of year	140,000

a. 7.2

b. 3.6

c. 3.2

d. 4.2