Open questions

Question 1 

Select the correct statement:

1. Budgets support performance evaluation and reward.
2. Budgets indicate with great accuracy and precision what will happen within the next year of operations.
3. Budgets provide reliable estimates.
4. Budgets provide with a comprehensive overview of future performance

Question 2

Describe the budgeting process. More specifically, which outputs are prepared during this process, and in which order are they prepared?

1. pro-forma financial statements, inventory and purchase budget, sales budget, inventory and production budget, administrative budget.
2. sales budget, inventory and production budget, inventory and purchase budget, administrative budget, pro-forma financial statements.
3. administrative budget, pro-forma financial statements, sales budget, inventory and production budget, inventory and purchase budget.
4. pro-forma financial statements, administrative budget, inventory and production budget, inventory and purchase budget, sales budget

Question 3

The management accountant of Cost-Eau inc. has estimated the following sales volumes for next year:
 

The company typically sells each unit for a price of C53,500.00. Moreover, 80.00% of the revenues earned any given month are collected during the following month. The other 20.00% are collected in the month of the sale itself. What is the total amount of cash receipts in November? 

1.  €139,635,000.00
2. €147,125,000.00
3. €117,165,000.00
4. €29,425,000.00

Question 4

One of the components used by SafeGuardian to make security vaults is bought from a supplier for a stable price of C1,450.50 per unit. Credit terms allow the company to pay 75.00% of its purchases the month following the purchase (the rest is paid in the month of the purchase).

Andrei, the management accountant, also estimated that the company will start the next period with C1,348,965.00 worth of this component in the inventory and consume 8,742 units during the period. In addition, the ending inventory should contain exactly 1,488 units. How many units of the component should the company purchase?

1. 8,835 units.
2. 7,254 units.
3. 13,489,650 units.
4. 9,300 units.

Question 5

Sean Eliasoph is the management accountant of CoffeeDrop. He is currently working on the Selling, General, and Administrative (SG&A) budget for next year. Sales volumes are expected to be 5,930 bags of coffee in February 2020 and 6,430 bags in March 2020. The unit price should be C14.00 and advertising expenses should amount to C260.00 each month.
 

In addition to the unit production costs, each unit sold costs an additional C0.30 paid to a service provider for delivery, and an additional C0.70 of commission for the sales people. The other monthly administrative cost are the following:

• depreciation on administrative offices, C780.00;
•  maintenance of administrative offices, C520.00;
• wages of administrative personnel, C1,300.00.

Personnel expenses (i.e. wages and commissions) are typically paid the month in which they are incurred. For all the other expenses, 40.00% are paid in the month in which they are incurred, and the rest is paid one month later. What is the amount recorded in accounts payable at the end of February for SG&A expenses?

1. €2,003.40
2. €1,847.40
3. €1,535.40
4. €6,884.60

Question 6

Quentin Eliasoph works as management accountant for the company All4Music which produces and sells music instruments. He communicated the following table showing the variances explaning an actual profit of C41,428.80, against C34,514.35 budgeted:

How should you interpret the variances displayed in this table?

1. The actual profit is higher than budget. This might mainly be caused by a decrease in employees’ pay.
2. The actual profit is higher than budget. This might be due mainly to an increase in selling prices.
3. The actual profit is higher than budget. This might be due mainly to a decrease in selling prices.
4. The actual profit is lower than budget. This might be essentially due to the purchase of raw materials for a better price.

Question 7

Fwatch buys watches from foreign suppliers and sells them on the local market. Last year, the sales people of the company budgeted a volume of 2,600 watches sold for the month of May. They also expected to sell these watches for a unit price of C66.00. The actual volume was 2,420 and the actual selling price was C70.30

The purchasers of the company bought each watch for C50.00, instead of the C46.20 initially budgeted. Finally, Selling, General and Administrative expenses (all fixed costs) amounted to C40,680.00, below the C46,580.00 recorded in the budget What is the total volume variance? \

1. €4,338.00 (F)
2. €3,564.00 (F)
3. €3,564.00 (U)
4. €4,338.00 (U)

Question 8

Demeter buys bouquets of flowers from foreign suppliers and sells them on the local market. Last year, the sales people of the company budgeted a volume of 6,200 bouquets sold for the month of May. They also expected to sell these bouquets for a unit price of C129.00. The actual volume was 5,950 and the actual selling price was C127.00.

The purchasers of the company bought each bouquet for C45.50, instead of the C38.70 initially budgeted. Finally, Selling, General and Administrative expenses (all fixed costs) amounted to C481,660.00, below the C554,060.00 recorded in the budget.

What is the flexible budget variance? 

1. €124,760.00 (F)
2. €124,760.00 (U)
3. €20,040.00 (F)
4. €17,840.00 (U)

Question 9

Julia Solo works as management accountant for the company SolarBucks which produces and sells cups of coffee. She gathered the following information about budgeted and actual volumes, usages, and prices:

What is the material usage variance? (1 point)

1. €200.25 (U)
2. €200.25 (F)
3. €198.00 (U)
4. €192.24 (F)

Question 10

Sean Clawson works as management accountant for the company Tropical Sunset which produces and sells cocktails. He gathered the following information about budgeted and actual volumes, usages, and prices

What is the labor price variance? (1 point)

1. €16,920.00 (U)
2. €19,426.67 (F)
3. €21,576.00 (U)
4. €21,576.00 (F)

Question 11

When a production manager considers replacing an old equipment with a new one, what kind of cost is the book value of the old equipment, from a decision making perspective? 

1. A direct cost.
2. A sunk cost.
3. An avoidable cost.
4. A variable cost.

Question 12

1. Select the correct statement:
2. Relevant costs are only those that are based on past experience.
3. A cost that is relevant in one decision context may not be relevant in another decision context.
4. Unavoidable costs are always relevant to decision makingelevant costs or revenues must not differ between the alternatives being considered.

Question 13

SafeGuardian has a contribution margin ratio of 43.00%. The Chief Marketing Officer has to decide whether the company should invest in an advertising campaign. This campaign would cost C2,062.71 and bring the total fixed cost of the company to C24,199.11. Now, this campaign would also boost revenues, which would reach C70,200.00 instead of the C64,350.00 initially planned. What would be the net economic impact of this advertising campaign?

1. Operating income would decrease by €5,986.89
2. Operating income would increase by €2,515.50
3. Operating income would increase by €452.79
4. Operating income would decrease by €1,271.79

Question 14

A foreign customer recently approached George Eliasoph, the Chief Marketing Officer of SweetPic, a company producing and selling large bags of candies. This customer wants to buy 1,120 units of an improved version of ChocoPic, one of the main products of the company. ChocoPic is usually sold for C17.50 per unit and has a unit variable cost of C12.25.

The modifications requested by this potential customer would increase the unit variable cost by C1.72 and require some specific equipment, increasing the current fixed costs of C22,050.00 by an amount of C1,323.00. In addition, the customer is willing to pay a maximum price of C16.45 per bag.

Assuming that this special order would not impact normal sales and prices, what would be the net economic impact of accepting it? 

1. The profit would increase by €2,777.60
2. The profit would increase by €1,454.60
3. The profit would decrease by €1,454.60
4. The profit would decrease by €4,557.00

Question 15

All4Music produces and sells three different kinds of music instruments: violin for a unit price of C2,760.00, cello for C4,130.00, and double bass for C5,170.00. The unit variable costs of these products are respectively C1,705.16, C2,488.76, and C2,169.33. As for the consumption of resources per unit, they are given by the following table:

If the capacity of production is constrained by the the number of kilograms of wood, what should be the order of priority in production? 

1. The company should first satisfy the demand of cello, then the demand of double bass, and finally the demand of violin.
2. The company should first satisfy the demand of double bass, then the demand of violin, and finally the demand of cello.
3. The company should first satisfy the demand of violin, then the demand of cello, and finally the demand of double bass.
4. The company should first satisfy the demand of double bass, then the demand of cello, and finally the demand of violin.

Question 16

A machine purchased 3 years ago for C206,131.00 has a current book value using straight-line depreciation of C126,850.00. Its operating expenses are C900,900.00 per year.
The current market value of this old machine is estimated at C88,795.00. If it is kept 4 more years, its salvage value would be C21,142.00.

The machine which might replace this old machine would cost C221,991.00, has a useful life of 4 years, and requires C885,300.00 per year in operating expenses. It has an expected salvage value of C95,139.00 after 4 years.

What would be the total net economic impact over the next 4 years of replacing the machine? (2 points)

1. The wealth of the company would decrease by €10,314.00
2. The wealth of the company would decrease by €70,796.00
3. The wealth of the company would increase by €70,796.00
4. The wealth of the company would increase by €3,201.00
    

Question 17

Problem Devyani Solo is the management accountant of VegLover, a company producing and selling smoothies. In 2018, she collected the following information:
 

Fixed cost of production are essentially wages of production workers and rent of the productive equipment. All these contracts can be terminated.
These results were obtained for 71,000 smoothies, which is the normal and stable volume of activity. A supplier recently contacted the company with a proposition. Instead of making the smoothies, VegLover could buy them from this supplier for a unit purchasing price of C3.00. The company could then save on all the production costs and concentrate on selling the products.
What would be the net economic impact of buying smoothies instead of making them? 

1. The profit would increase by €59,506.40
2. The profit would increase by €20,831.40
3. The profit would decrease by €20,831.40
4. The profit would decrease by €23,146.00

Question 18

May-Lin Kahlan, the Chief Operating Officer (COO) of UrCall Inc., a medium-sized company producing cell phones, considers re-engineering the production process to make it more efficient. She has found a supplier able to make some of the components of one product at the same level of quality and for the same total cost. At the current volume of activity, the higher cost per unit paid by the company would thus be compensated by equal savings on fixed costs. Under which circumstances should May-Lin outsource the production of the component? (1 point)

1. The company should outsource in any circumstances because it would save on fixed costs.
2. It does not matter since producing and outsourcing are strictly equivalent here.
3. The company should outsource only if the demand for the product decreases.
4. The company should outsource only if the demand for the product increases.

Question 19

Benedict Pfeffer is the manager in charge of the production of Padawan for Yoda Corp., a company selling light sabers. He is considering outsourcing the production of a component. Which of the following pieces of information is irrelevant for this decision? (1 point)

1. The future depreciation of the equipment used in production.
2. The liquidity and solvability of the supplier.
3. The reliability of the supplier.
4. The need to enforce high quality standards

Question 20

May-Lin Pfeffer is the Chief Executive Officer of CoffeeDrop, a company which produces and sells bags of coffee. The division in charge of producing and selling the product Arabica is currently suffering a loss displayed in the 2018 financial income statement (for a total volume of 9,200 units):

1. The lease on the productive equipment can be terminated any time without penalty.
2. Division administrative costs include the rent of administrative offices and the wages of administrative personnel dedicated to the division. Both the lease and the employment contracts can be terminated without notice.
3. Headquarters’ management fee is the share of headquaters’ costs allocated to the division.

What would be the net economic impact of dropping the division producing and selling the product Arabica? 

1. The profit would increase by €124,200.00
2. The profit would increase by €91,850.30
3. The profit would decrease by €8,029.75
4. The profit would increase by €2,888.40

Question 21

Which of the following issues is likely to result from a violation of the accountability principle? 

1. Managers will feel powerless, because they do not understand how they can improve their performance.
2. Managers will have the feeling that they have little influence over their performance.
3. Managers will quit the organization because they think they pay for other managers’ mistakes.
4. Managers will not care about some of the consequences of the de decisions they make.

Question 22

Following the principles of responsibility accounting, what kind of responsibility center would typically be evaluated based on operating income? 

1. An investment center.
2. A profit center.
3. A standard cost center.
4. A revenue center.

Question 23

1. €106,460.00 for Olivier and C95,608.40 for George.
2. €57,710.00 for Olivier and C56,608.40 for George.
3. €90,210.00 for Olivier and C82,608.40 for George.
4. €138,960.00 for Olivier and C121,608.40 for George.

Question 24

Select the correct statement: 

1. Residual Income is used to measure the performance of investment centers.
2. Rewards based on Residual Income may give managers an incentive to reject investments which would create value.
3. Seeking to maximize Residual Income can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
4. When you add the Return On Investment of all the divisions of a company, you get the Return On Investment of the whole company.

Question 25

Andrei Gavin manages an investment center. He has total authority in operation management and can make investment decisions. However, He does not make financing decision, and his division has currently more cash than it requires for operations to run smoothly. The balance sheet of his division at the end of the previous year, 2018, is displayed in the following table:
 

What asset base would you recommend using to evaluate the operating performance of Andrei’s division? 

1. €486,090.00
2. €705,290.00
3. €479,006.00
4. €757,020.00
    

Question 26

Leia Solo manages an investment center. Accordingly, she has total authority over operation management and can make investment decisions. In addition, her division has just the amount of cash necessary for operations to run smoothly. The income statement of last year, 2018, is the following:

The balance sheet of her division at the end of the same year is displayed in the following table:

Knowing that the desired rate of return of the company is 15.00%, what is the residual income of Leia’s division? (1 point)

1. €41,056.60
2. €-81,292.60
3. €229,643.40
4. €66,460.90
    

Question 27

Select the incorrect statement: 

1. Rewards based on Return on Investment may give managers an incentive to reject investments which would create value.
2. When you add the Return On Investment of all the divisions of a company, you get the Return On Investment of the whole company.
3. Under specific circumstances, projects with a positive Residual Income may decrease Return On Investment.
4. The Residual Income is always positive when the Return On Investment is greater than the Desired Rate of Return.

Question 28

Sales people explain the merits of the product to customer to convince them to buy. However, they do not negotiate prices, they do not negotiate credit terms, and they are not allowed to engage expenses. How would you evaluate the financial performance of these sales people?

In the following equations, Q is the sales volume, P is the price, COGS refers to the cost of goods sold, and SELLEXP to the Selling expenses. AR refers to Accounts Receivable, and DRR is the desired rate of return on operating assets. The indice A means “actual value” and the indice B means “budgeted value”.

1. Financial Performance = QA × PA − COGSA
2. Financial Performance = QB × PA − SELLEXPA
3. Financial Performance = QA × PA
4. Financial Performance = QA × PB

Question 29

Which of the following is a purpose for transfer pricing? 

1. Value the revenues of the internal buyer.
2. Transform standard cost centers and revenue centers in (pseudo-) profit centers.
3. Value the inventory of the internal seller.
4. Estimate the cost of production of the products transferred internally.

Question 30

SafeGuardian is composed of two business units (BU) organized as profit centers. The first BU produces and sells security vaults for a unit price of C8,500.00. Its unit variable cost of production is C3,740.00 and an additional C2,805.00 of fixed cost is allocated to each unit produced to compute the unit cost of production of C6,545.00. Shipping vaults to external customers costs an additional C374.00 per unit shipped. The monthly maximum capacity of production is 14 vaults, and the monthly demand in typically 11 vaults.

The second BU would like to diversify its product portfolio and would need every month 3 custom made vaults. An external supplier could deliver them of a unit price of C5,535.20. However, the first BU could produce them for a unit variable cost of C4,114.00. Each unit would consume the same amount of capacity as a normal vault. The selling price of this new product on the market would be C8,500.00 and shipping the product to external customers would also cost C374.00. However, there would be no shipping cost for the internal transfers since the divisions are located near each other.
What is the range of acceptable transfer prices? 

1. The range of acceptable transfer prices is from a minimum of 4,114.00 to a maximum of 5,535.20.
2. No transfer price would be acceptable to both business units.
3. There is a unique acceptable price of 4,114.00.
4. There is a unique acceptable price of 5,535.20.

Answers

Question 1 

A

Question 2

B

Question 3

C

Question 4

D

Question 5

C

Question 6

A

Question 7

C

Question 8

C

Question 9

D

Question 10

D

Question 11

B

Question 12

C

Question 13

C

Question 14

B

Question 15

B

Question 16

D

Question 17

D

Question 18

C

Question 19

A

Question 20

D

Question 21

D

Question 22

B

Question 23

D

Question 24

A

Question 25

C

Question 26

A

Question 27

B

Question 28

D

Question 29

B

Question 30

A