1. Which one of the following is possible if Blockbuster Video cuts its DVD rental rates by 20%?
A) Its fixed costs will decrease.
B) It profit will decrease by 20%.
C) Total costs increase.
D) A profit can be earned by increasing the number of videos rented.
2. Quaker Corporation sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units?
A) It will remain unchanged.
B) It will decrease.
C) It will increase.
D) It cannot be determined from the information provided.
3. Which of the following is correct regarding the manufacturing overhead budget?
A) The manufacturing overhead budget should include all costs of marketing and advertising.
B) The budget should show only indirect materials and indirect labor.
C) Manufacturing overhead costs should be broken down by cost behavior.
D) Total budgeted manufacturing overhead should be calculated using a predetermined overhead rate.
4. A department has budgeted monthly manufacturing overhead cost of $40,000 plus $5 per direct labor hour. The flexible budget report reflects $120,000 for total budgeted manufacturing cost for the month. What is the actual level of activity achieved during the month?
A) 32,000 direct labor hours
B) 24,000 direct labor hours
C) 16,000 direct labor hours
D) Cannot be determined
5. What budgeted amounts appear on the flexible budget?
A) Original budgeted amounts at the static budget activity level
B) Actual costs for the budgeted activity level
C) Budgeted amounts for the actual activity level achieved
D) Actual costs for the estimated activity level
6. For what purpose do companies calculate residual income?
A) To determine whether decentralization is possible or not
B) To motivate managers through possible termination
C) To evaluate management performance
D) To measure company profits
7. In what standard might a company include an allowance for spoilage?
A) Labor price standard
B) Materials quantity standard
C) Labor quantity standard
D) Materials price standard
8. What should be the focus when management is investigating variances?
A) Focus on only unfavorable variances
B) Focus on quantity variances
C) Focus on all actual amounts that differ from budgeted amounts
D) A management by exception approach
9. If the price a company paid for factory rent decreased during the year, what variance would the company report?
A) A favorable controllable variance
B) A favorable volume variance
C) An unfavorable volume variance
D) A favorable material price variance
10. Who prepares relevant revenue and cost data for the decision making process?
A) Department heads
B) The controller
C) Management accountants
D) Factory supervisors
11. What is capital budgeting?
A) The process of determining how much capital stock to issue
B) The process of deciding which long-term asset projects are viable
C) The process of eliminating unprofitable product lines
D) The process used in make or buy decisions
12. Project A has a higher rate of return than Project B. Which statement is true about Project A?
A) It is more attractive than Project B.
B) It is less attractive than Project B.
C) It is less than the cost of capital.
D) It is higher than the hurdle rate.
13. Which of the following is a capital budgeting technique which ignores time value of money?
A) Annual rate of return approach
B) Make or buy approach
C) Internal rate of return approach
D) Net present value method
14. An investment was analyzed and determined that NPV was ($1,000). The company's expected rate of return was 12%. Which one of the following statements best describes the results of this analysis?
A) Accept the proposal since the rate of return expected is less than the rate used for the analysis.
B) Accept the proposal since the rate of return expected exceeds the rate used for the analysis.
C) Do not accept the proposal since the rate of return expected is greater than the profit to be generated by the project.
D) Do not accept the proposal since the rate of return expected exceeds the rate used for the analysis.
The solution answers the multiple choice questions with explanations for the responses.