1. The basic difference between a master budget and a flexible budget is that a master budget is

2. 		Only used before and during the budget period and a flexible budget is only used after the budget period
   		For an entire production facility and a flexible budget is applicable to single departments only
   		Based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range
   		Based on a fixed standard and a flexible budget allows management latitude in meeting goals

2 points

Question 2

1. A project's net present value, ignoring income tax considerations, is normally affected by the

   		Proceeds from the sale of the asset to be replaced
   		Carrying amount of the asset to be replaced by the project
   		Amount of annual depreciation on the asset to be replaced
   		Amount of annual depreciation on fixed assets used directly on the project

2 points

Question 3

1. Which tool would most likely be used to determine the best course of action under conditions of uncertainty?

   		Cost-volume-profit analysis
   		Expected value (EV)
   		Program evaluation and review technique (PERT)
   		Scatter-graph method

2 points

Question 4

1. The price of good X increases, causing the demand for good Y to decrease. Goods X and Y most likely are

   Complements

   Substitutes

   		No, No
   		No, Yes
   		Yes, Yes
   		Yes, No

2 points

Question 5

1. Cook Co.s plant operates at 85% capacity. If inputs increase by one-sixth, additional output increases by one-twelfth. If inputs decrease by one-sixth, additional output decreases by one-twelfth. What best describes the relationship of Cooks average and marginal costs at 85% capacity?

   		Average cost is equal to marginal cost.
   		Average cost is greater than marginal cost.
   		Average cost is less than marginal cost.
   		The relationship is indeterminate with the given information.

2 points

Question 6

1. Kingston Company is considering installing robotic equipment in its factory. What is an irrelevant factor in this decision?

   		The capital-to-labor ratio
   		Economies of scale
   		The factorys original cost
   		Opportunity cost

2 points

Question 7

1. In competitive markets, what generally is the short-term result of a government price ceiling set below the equilibrium market price?

   		Decreased demand
   		No effect
   		Shortage
   		Surplus

2 points

Question 8

1. Which of the following examples illustrates the principle of diminishing returns?

   		Bills Mowing takes 30 minutes to mow and trim a 5,000 square foot lawn and 45 minutes to mow and trim a 10,000 square foot lawn.
   		In the Maher Inns kitchen, three cooks can prepare 150 meals in one evening; four cooks can prepare 180 meals.
   		A single copy of a 5,000-copy printing of a 120-page paperback and a single copy of a 10-copy printing a 30-page presentation have the same unit cost.
   		A small furnace is less efficient than a large one.

2 points

Question 9

1. What is an example of an oligopoly market?

   		The automobile industry
   		The medical transcription service industry
   		The pea market
   		The retail clothing industry

2 points

Question 10

1. Over the past three years, widget manufacturing companies have established Internet sites for routine customer inquires about orders. Consequently, each customer service representative now handles five times as many customers. The costs of site maintenance are substantially less than one representatives wages. What is the most likely result of this change?

   		Lower wages for representatives
   		A widget supply curve shift to the left and increased widget prices
   		A widget supply curve shift to the left and decreased widget prices
   		A widget supply curve shift to the right and decreased widget prices

2 points

Question 11

1. What is economic cost?

   		The opportunity cost less the explicit costs
   		The same as opportunity cost
   		The total of all explicit and implicit costs
   		The total revenue less total costs

2 points

Question 12

1. What is characteristic of a period of rising inflation?

   		Increases the purchasing power of money
   		Increases the price level and decreases the purchasing power of money
   		Increases the price level, which benefits anyone who is owed a specific amount of money
   		Benefits anyone who is owed a specific amount of money and harms anyone who owes a specific amount

2 points

Question 13

1. The net income presented on an income statement prepared in conforming with generally accepted accounting principles generally is

   		Equal to economic profit
   		Greater than economic profits because interest is not considered in calculating economic profits
   		Greater than economic profits because opportunity costs are not considered in calculating net income
   		Less than economic profits because economic profits dont include fixed costs

2 points

Question 14

1. Why is equity capital generally more expensive than debt financing?

   		Dividends fluctuate more than interest rates.
   		Interest on bonds is a legal obligation.
   		Investors expect to be paid more for exposure to higher risk.
   		Investors have a greater demand for equity investments than for debt investments.

2 points

Question 15

1. An appropriate level of working capital is determined by

   		Balancing the probability of insolvency against the profitability of current assets and liabilities.
   		Evaluating the capital structure and dividend policy.
   		Evaluating the capital leases used to finance fixed assets.
   		Minimizing long-term debt because it is more expensive than short-term debt.

2 points

Question 16

1. Which of the following objectives is consistent with an optimal capital structure?

   		Maximize earnings per share
   		Maximize the total value of the entity
   		Minimize the cost of debt
   		Minimize the cost of equity

2 points

Question 17

1. Lemur Companys $10 par value common stock currently sells at $100 per share. Lemur has retained earnings of $100,000; once this is exhausted, Lemur will raise any more necessary equity capital through a stock issue. Lemur can raise cash by selling common stock at a $2 per share discount with a $3 per share floatation cost. Annual cash dividends are $7 per share and are not expected to change. The estimated after-tax cost of funds raised by long-term bonds is 5%. The estimated cost of funds raised by preferred stock is 6%. Lemurs preferred capital structure is 30% long-term debt, 20% preferred stock, and 50% common stock. Not counting the $100,000 of retained earnings, the current capital structure is Lemurs preferred structure. What would be Lemurs cost of funds from a common stock sale?

   		7.00%
   		7.14%
   		7.22%
   		7.37%

2 points

Question 18

1. Aardvark Companys beta coefficient is 1.2. The current rates for U.S. treasury bonds and expected corporate returns are 7% and 12%, respectively. What is Aardvarks approximate expected rate of return using the capital asset pricing model (CAPM)?

   		8.4%
   		10.6%
   		13.0%
   		14.4%

2 points

Question 19

1. Controllable revenues would be included in the performance reports of which of the following types of responsibility centers?

   Cost centers

   Investment centers

   		Yes, No
   		Yes, Yes
   		No, No
   		No, Yes

2 points

Question 20

1. In which of the following situations would there be inelastic demand?

   		A 5 percent price increase results in a 3 percent decrease in the quantity demanded.
   		A 4 percent price increase results in a 6 percent decrease in the quantity demanded.
   		A 4 percent price increase results in a 4 percent decrease in the quantity demanded.
   		A 3 percent price decrease results in a 5 percent increase in the quantity demanded.

2 points

Question 21

1. WrittenCommunication: YouareamemberofaconsultantteamprovidingservicestoDinosaur,LLC.Dinosaurisconsideringusingbenchmarkingasitisinterestedincostreduction.YoursupervisorassignsyoutoprepareabriefmemoexplainingbenchmarkingtoDinosaur'smanagement. Typeyourcommunicationintheresponseareabelow. REMINDER:Yourresponsewillbegradedforbothtechnicalcontentandwritingskills.Technicalcontentwillbeevaluatedforinformationthatishelpfultotheintendedreaderandclearlyrelevanttotheissue.Writingskillswillbeevaluatedfordevelopment,organization,andtheappropriateexpressionofideasinprofessionalcorrespondence.Useastandardbusinessmemoorletterformatwithaclearbeginning,middle,andend.Donotconveyinformationintheformofatable,bulletpointlist,orotherabbreviatedpresentation.