Which is true of price-setters?

A. Their pricing approach emphasizes target costing.

B. Their pricing approach emphasizes cost-plus pricing.
C. Their products lack uniqueness.
D. They are in highly competitive markets.

Which of the following should be considered for special order decisions?

A. Whether the special price will be high enough to cover incremental costs of filling the order
B. Whether the special order will affect regular sales in the long run
C. Whether excess capacity exists
D. All of the listed choices should be considered in special order decisions.

Which of the following is not relevant when deciding whether or not to discontinue a product?
A. The effect of discontinuation on the sales of the company's other products.
B. Unavoidable fixed costs related to the product
C. Avoidable fixed costs related to the product
D. The product's contribution margin

Which of the following is false?

A. Outsourcing refers to having work performed overseas.
B. Outsourcing decisions are often referred to as "make-or-buy" decisions.
C. Outsourcing decisions should take into consideration the intended use of freed capacity.
D. Contract manufacturers are manufacturers that make products for other companies.

Which of the following best describes a "sunk cost"?

A. Costs that were incurred in the past and cannot be changed
B. Expected future data that differ among alternatives
C. Benefits foregone by choosing a particular alternative course of action
D. A factor that restricts the production or sale of a product

Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing
43,000 parts is $140,000, which includes fixed costs of $68,000 and variable costs of $72,000. The
company can buy the part from an outside supplier for $3.80 per unit, and avoid 30% of the fixed costs.
If Blue Ridge Bicycles makes the part, how much will its operating income be?
A. $71,000 greater than if the company bought the part
B. $71,000 less than if the company bought the part
C. $88,400 less than if the company bought the part
D. $88,400 greater than if the company bought the part

Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on
the company's $47,000,000 of assets. The company primarily incurs fixed costs to groom the greens and
fairways. Fixed costs are projected to be $20,000,000 for the golfing season. About 440,000 golfers are
expected each year. Variable costs are about $17 per golfer. Mountaintop golf course has a favorable
reputation in the area and therefore, has some control over the price of a round of golf. Using a
costminus−plus approach, what price should Mountaintop charge for a round of golf?
A. $62.45 B. $17 C. $75.27 D. $119.64

Lie Around Furniture manufactures two products: Couches and Beds. The following data are available:
Couches Beds Sales price $500 $730 Variable costs $380 $405

The company can manufacture 4 couches per machine hour and 2 bed per machine hour. The company's
production capacity is 13,900 machine hours per month. To maximize profits, what product and how many
units should the company produce in a month?
A. 55,600 couches and 27,800 beds B. 27,800 beds C. 27,800 couches and 55,600 beds D. 55,600
couches

Which of the following hotels would be a price setter?

A. Motel 6 B. Super 8 C. Econo Lodge D. Ritz Carlton
Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on
the company's $47,000,000 of assets. The company primarily incurs fixed costs to groom the greens and
fairways. Fixed costs are projected to be $22,000,000 for the golfing season. About 420,000 golfers are
expected each year. Variable costs are about $17 per golfer. The Mountaintop golf course is a
priceminus−taker and won't be able to charge more than its competitors who charge $79 per round of golf.
What profit will it earn in terms of dollars?
A.$4,040,000 B.$(22,000,000) C.$(4,040,000) D.$18,320,000

Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for
the most recent year follow: Total Luxury Sporty
Sales revenue $530,000 $400,000 $130,000
Variable expenses 365,000 $245,000 120,000
Contribution margin 165,000 155,000 10,000
Fixed expenses 80,000 40,000 40,000
Operating income (loss) $85,000 $115,000 $(30,000)
Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used
to produce the line is rented for $30,000 per year, how will operating income be affected?
A. Decrease $20,000 B. Increase $230,000 C. Increase $105,000 D. Increase $20,000

Widget Inc. manufactures widgets. The company has the capacity to produce 100,000 widgets per year,
but it currently produces and sells 75,000 widgets per year. The following information relates to current
production: If a special sales order is accepted for 5,800 widgets at a price of $40 per unit, fixed costs
remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how
would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
A. Increase by $75,400 B. Decrease by $75,400 C. Increase by $232,000
Which term describes the situation in which a manager intentionally over budgets expenses or
underbudgets revenue?
A. Participative budgeting B. Benchmarking C. Budgetary slack

Benefits of budgeting include

A. benchmarking. B. planning. C. coordination and communication. D. all of the above

Which of the following budgets must be prepared first, as it serves as a basis for most other budgets?
A. Sales budget B. Cash budget C. Operating expenses budget

Which of the following are noncash expenses that will always result in differences between the budgeted
operating expenses for a given period and the budgeted cash payments for the same period?
A. Depreciation expense and rent expense B. Depreciation expense and bad debt expense
C. Advertising expense and bad debt expense D. Advertising expense and rent expense

The Porch Cushion Company manufactures foam cushions. The number of cushions to be produced in the
upcoming three months follows: Number of foam cushions to be produced in July 13,000
Number of foam cushions to be produced in August 19,000 and be produced in September 12,000

Each cushion requires 2 pounds of the foam used as stuffing. The company has a policy that the ending
inventory of foam each month must be equal to 30% of the following month's expected production needs.
How many pounds of foam does The Porch Cushion Company need to purchase in August?
A. 45,200 B. 33,800 C. 26,600 D. 49,400

Distribution Corporation collects 35% of a month's sales in the month of sale, 45% in the month following
sale, and 20% in the second month following sale. Budgeted sales for the upcoming four months are:
April budgeted sales $120,000 May budgeted sales $150,000
June budgeted sales $230,000 July budgeted sales $170,000
The amount of cash that will be collected in July is budgeted to be
A. $59,500 B. $193,000 C. $190,000 D. $133,500

"The Surplus" episode of this TV show is a good example of the "spend it or lose it" mentality that
sometimes occurs within companies.
A. Mad Men B.30 Rock C. Parks & Recreation D. The Office
Bookworm Publishers publishes books and they have gathered the following data for the month of October:
Data Cash on 8/1 $7,000 Expected Cash Collections $350,000
Direct Materials Cash Disbursements $62,000 Direct Labor Cash Disbursements $45,000
MOH Cash Disbursements $43,000 Operating Expenses Cash Disbursements $85,000
Capital Expenditures Cash Disbursements $125,000

Bookworm Publishers requires an ending cash balance of at least $5,000 and can borrow from a line of
credit in $1,000 increments. What is the excess or deficiency of cash for October?
A. $8,000 cash excess B. $5,000 cash excess
C. $3,000 cash deficiency D. $11,000 cash deficiency

Speedy Runner makes running shoes and they are anticipating the incurrence of the following
manufacturing overhead costs during the upcoming year: Cost Indirect materials $4,000
Indirect Labor $70,000 Utilities $42,000 Insurance $7,000 Taxes $8,000
Depreciation on equipment $20,000
What will Speedy Runner budget for cash disbursements related to manufacturing overhead?
A. $131,000 B. $151,000 C. $74,000 D. $111,000

Roman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash
balance is expected to be $37,000. Budgeted cash receipts are $101,000, while budgeted cash
disbursements are $129,000. Roman Company wants to have an ending cash balance of $40,000. How
much would Roman Company need to borrow to achieve its desired ending cash balance?
A. $31,000 B. $12,000 C. $9,000 D. $49,000

Whistle Works manufacturers safety whistle keychains. They have the following information available to
prepare their master budget:
Units to be produced October 4,500 November 4,750 December 5,200
Whistle Works sells each whistle for $12. It takes .25 direct labor hours to produce each whistle at a cost of
$15 per hour. How much will direct labor costs be in December?
A. $5,200 B. $1,300 C. $19,500 D. $16,875

June sales were $1,000 while projected sales for July and August were $6,400 and $5,000, respectively.
Sales are 40% cash and 60% credit. All credit sales are collected in the month following the sale. What are
the total expected collections for July?
A. $5,560 B. $5,160 C. $4,240 D. $3,160

Jolly Company produces hula hoops. Jolly Company has the following sales projections for the upcoming
year: First quarter budgeted hula hoop sales in units 23,900
Second quarter budgeted hula hoop sales in units 90,000
Third quarter budgeted hula hoop sales in units 23,000
Fourth quarter budgeted hula hoop sales in units 25,000
Jolly Company wants to have 10% of the next quarter's sales in units on hand at the end of each quarter.
Inventory at the beginning of the year was 3,800 hula hoops. How many hula hoops should Jolly Company
produce during the first quarter?
A. 20,100 B. 36,700 C. 23,900 D. 29,100

Speedy Runner makes running shoes and they are anticipating the incurrence of the following operating
expenses during the upcoming year:
Cost Sales commission $2 per pair of shoes sold Salaries $520,000
Shipping expenses $3.50 per pair of shoes sold Bad debt expense 1.5% of sales revenue
Depreciation on sales vehicles $23,000 Advertising $20,000
Speedy Runner plans to sell 120,000 pairs of shoes at $100 per pair. What will Speedy Runner budget for
cash disbursements related to operating expenses?
A. $1,200,000 B. $1,403,000 C. $520,000 D. $1,223,000
Which of the following is not an advantage of decentralization?
A. Frees top management's time B. Achieving goal congruence
C. Use of expert knowledge D. Improved customer relations

Which of the following is true?

A. Unfavorable variances should always be interpreted as "bad news" for the company.
B. Favorable variances should always be interpreted as "good news" for the company.
C. Favorable variances are variances that cause operating income to be higher than budgeted.
D. Management by exception means that managers investigate all unfavorable variances but not all
favorable variances.

A segment margin is the operating income generated by subtracting

A. only direct fixed expenses from a segment's contribution margin.
B. all expenses from a segment's sales revenue.
C. only common fixed expenses from a segment's contribution margin.
D. all fixed expenses from a segment's contribution margin.

Return on investment (ROI) can be restated as which of the following?

A. Residual income / sales margin B. Sales margin x capital turnover
C. Residual income x sales margin D. Sales margin / capital turnover

"Hours of employee training" would be a key performance indicator (KPI) for which of the four balanced
scorecard perspectives?
A. Customer B. Financial C. Learning and growth D. Internal business

Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in
thousands). Management's target rate of return is 15% and the weighted average cost of capital is 10%. Its
effective tax rate is 25%.
Sales $14,000,000 Operating income 5,600,000 Ttl assets 4,000,000 Current liab. 750,000
What is the division's sales margin?
A. 18.75% B. 40.00% C. 140.00% D. 350.00%

The number of onminus−time deliveries may be an example of measuring which perspective of the
balanced scorecard?
A. Financial B. Internal business C. Learning and growth D. Customer

Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in
thousands). Management's target rate of return is 15% and the weighted average cost of capital is 10%. Its
effective tax rate is 30%.
Sales $7,000,000 Operating inc. 1,400,000 Ttl assets 3,500,000 Current liab. 800,000
What is the division's capital turnover?
A.2.00 B.5.00 C.4.38 D. 2.50

An unfavorable flexible budget variance for variable expenses would indicate that:
A. actual variable expenses were higher than the flexible budget variable expenses.
B. more units were actually sold than the company had originally budgeted to sell.
C. the expenses of the company were less than what they had planned.
D. fewer units were actually sold than the company had anticipated.

The maintenance department that focuses on efficiency at Continental Airlines may be classified as a(n)
A. cost center. B. investment center. C. profit center. D. revenue center.

Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in
thousands). Management's target rate of return is 30% and the weighted average cost of capital is 15%. Its
effective tax rate is 40%.
Sales $6,000,000 Operating income 1,800,000
Total assets 1,000,000 Current liabilities 810,000
What is the division's Return on Investment (ROI)?
A. 81.00% B.180.00% C. 600.00% D. 30.00%

Davis Corporation manufactures and sells portable radios. The radio sells for $60 per unit and its variable
costs per unit are $20. Fixed costs are $52,000 per month for sales volumes up to 30,000 radios. If more
than 30,000 radios are sold, the fixed costs will be $40,000. The flexible budget would reflect what monthly
operating income for a sales volume of 37,000 radios?
A.$1,480,000 B. $1,440,000 C.$2,220,000 D. $40,000

Belle Auto Detailing reported the following results for the past week:
Actual number of cars detailed 170 Budgeted number of cars to be detailed 280
Actual direct labor hours used 510 Standard direct labor cost per hour $5.25
Actual total direct labor cost $6,100 Standard direct labor per car 1.5

What is Belle's direct labor rate variance? (Round intermediary calculations to two decimal places.)
A. $16,011 favorable B. $3,422 unfavorable C. $16,011 unfav D. $3,422 favorable

Baskets Inc. gathered the following actual results for the current month:
Actual amounts: Units produced 5,200
Direct materials purchased and used (7,300 lbs.) $29,200
Budgeted production and standard costs were:
Budgeted production 4,800 units Direct materials 1.5 lbs/unit at $3/lb.
What is the direct materials price variance?
A. $7,300 unfavorabe B. $5,200 favorable C. $5,200 unfavorable D. $7,300 favorable

What type of variance results when the actual fixed overhead costs incurred are greater than the budgeted
fixed overhead costs?
A. Favorable fixed overhead budget variance B. Unfavorable fixed overhead budget variance
C. Favorable fixed overhead volume variance D. Unfavorable fixed overhead volume variance

The actual cost of direct materials is $13.00 per pound. The standard cost per pound is $8.75. During the
current period, 9,900 pounds of direct materials were used in production and 18,500 pounds were
purchased. The standard quantity of direct materials for actual units produced is 16,200 pounds. How much
is the direct materials quantity variance?
A. $81,900 unfav B. $55,125 unfav C. $81,900 fav D. $55,125 favorable

Piper Corporation, which manufactures dog toys, is developing direct labor standards. The basic direct
labor rate is $16.79 per hour. Payroll taxes are 15% of the basic direct labor rate, while fringe benefits such
as vacation and health care insurance, are $6.41 per hour. What is the standard rate per direct labor hour?
A. $19.31 B. $25.72 C. $23.20 D. $16.79

Culinary Kitchen Supply produces bamboo cutting boards. The standard material cost for the bamboo used
in each lamp is $18 per square foot. Each board requires 2 square feet of bamboo. In August, the company
produced 700 cutting boards. There were 1,100 square feet of bamboo used during the month. The
bamboo used had an actual cost $26 per square foot. What was the materials quantity variance in August
for bamboo?
A. $7,800 favorable B. $7,800 unfavorable C. $5,400 unfav. D. $5,400 favorable

Riverside Manufacturing designs and manufactures bathtubs for home and commercial applications.
Riverside recorded the following data for its commercial bathtub production line during the month of March:
Standard DL hours per tub 2 Standard variable overhead rate per DL hour $6.50
Standard variable overhead cost per unit $13.00 Actual variable overhead costs $17,200 Actual DL
hours 2,150 Actual variable overhead cost per machine hour $8.00
Actual tubs produced 1,100
What is the variable manufacturing overhead rate variance in March?
A. $3,225 unfavorable B. $325 unfavorable C. $325 favorable D. $3,225 favorable

Which variance is directly impacted if a worker drops the raw material during production and the raw
material must be discarded?
A. Direct labor efficiency variance
B. Direct materials price variance
C. Direct materials quantity variance
D. Direct labor rate variance

When auto manufacturer BMW purchased the Rollsminus−Royce brand name, BMW had to hire and train a
new staff of assembly workers. The new workers were paid $20 per hour, worked a total of 7,600 hours,
and produced 1,700 cars. BMW budgeted for a standard labor rate of $26 per hour and 2.25 direct labor
hours per car. What is the direct labor efficiency variance for the Rollsminus−Royce division?
A. $75,500 favorable
B. $98,150 unfavorable
C. $98,150 favorable
D. $75,500 unfavorable

True 1. In the example with the twins in the Introduction to Investing Lecture, Brooke, the twin who
invested three times as much as her sister, ended up with less money in her retirement account
than her sister Abbey.
True 2. If you leave a company, you do not lose the amount you contributed to your 401(k) plan.
True 3. According to experts, the stock market's historical average rate of return is somewhere between
7% and 10%.
True 4. An advantage of investing in mutual funds is that you have purchased a mix of stocks and bonds
which is therefore less risky than investing all of your money in one company's stock.
False 5. Susan's employer offers a 401(k) plan with a 4% employer match, and Susan earns $80,000.
Therefore, the most Susan can contribute to her 401(k) plan during the year is $3,200.
False 6. Investors are able to earn 7% to 10% annual interest by putting their money into a bank savings
account.
True 7. Calculating interest on the principal and on all the interest earned to date is called compound
interest.
False 8. According to a 2016 study by the Economic Policy Institute, 90% of American families have
retirement savings of at least $100,000.
True 9. A good rule of thumb to avoid investment scams is that if something sounds too good to be true,
it probably is.
True 10. the 1970s, the percentage of Americans covered by defined benefit plans has been decreasing
while the percentage of Americans covered by defined contribution plans has been increasing.
False 11. All favorable variances are investigated when using management by exception.
True 12. It is possible to encounter a situation where the direct labor rate variance is favorable and the
direct labor efficiency variance is unfavorable.
False 13. The local Burger King restaurant is likely classified as a revenue center.
False 14. The volume variance is the difference between actual results and the flexible budget.
True 15. Management uses budgets to express its plans and to assess how well the organization meets
or exceeds its goals.
True 16. When making product mix decisions, companies are most profitable when they maximize
production of the product with the highest contribution margin per unit of constraint.
False 17. Offshoring and outsourcing mean the same thing.