BUSN 278 Final Exam

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BUSN 278 Final Exam
1. (TCO 1) A common starting point in the budgeting process is _____.
2. (TCO 2) Groupthink is a primary disadvantage of which qualitative forecasting
method?
3. (TCO 3) Which of the following is not an example of a seasonal variation?
4. (TCO 4) Which of the following statements regarding the risk associated with R &
D activities is incorrect?
5. (TCO 5) Program budgeting does not include _____.
6. (TCO 6) The payback period technique _____.
7. (TCO 6) The profitability index is computed by dividing the _____.
8. (TCO 6) A company projects annual cash inflows of $90,000 each year for the next
5 years if it invests $450,000 in new equipment. The equipment has a 5-year life and
an estimated salvage value of $150,000. What is the accounting rate of return on this
investment?

9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value
at the end of its 10-year life, and generates annual net cash inflows of $30,000 each
year, the payback period is _____.
10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as
shown below.
11. (TCO 6) Cleaners, Inc. is considering purchasing equipment costing $30,000 with
a 6-year useful life. The equipment will provide cost savings of $7,300 and will be
depreciated straight-line over its useful life with no salvage value. Cleaners requires a
10% rate of return. What is the approximate net present value of this investment?
12. (TCO 7) Which of the following is not an operating budget?
13. (TCO 7) If the required materials to be purchased are 18,000 pounds, the
production needs are three times the direct materials purchases, and the beginning
direct materials are three and a half times the direct materials purchases, what are the
desired ending direct materials in pounds?
14. (TCO 8) Which of the following is not a cause of profit variance?
15. (TCO 9) A static budget is appropriate in evaluating a manager's performance
if _____.
16. (TCO 9) If costs are not responsive to changes in activity level, how are they best
described?
17. (TCO 9) At the high level of activity in November, 7,000 machine hours were run
and power costs were $12,000. In April, a month of low activity, 2,000 machine hours
were run and power costs amounted to $6,000. Using the high-low method, what is
the estimated fixed cost element of power costs?
18. (TCO 10) What is the method used to determine whether the budgeting process is
operating effectively?
1. (TCO 7) At Lakeside Manufacturing, budgets are the responsibility of everyone.
Each department collaborates in determining its expected needs, and sales personnel
determine the likely sales volume. Al Talbott, one of the production managers,
believes in building plenty of slack into everything, including his estimates of ending
inventory of work in process. As the accounting manager, write a memo to Mr.
Talbott, explaining why the ending inventory figure should be extremely accurate,
with as little slack as possible.

2. (TCO 9) Understanding how costs behave can help managers plan operations and
choose between various courses of action.
Part (a): Identify and describe the three types of cost behavior, including examples of
each.
Part (b): As a manager, which cost behavior would you prefer and why?
3. (TCO 6) Yappy Company is considering a capital investment of $320,000 in
additional equipment. The new equipment is expected to have a useful life of 8 years
with no salvage value. Depreciation is computed by the straight-line method. During
the life of the investment, annual net income and cash inflows are expected to be
$25,000 and $65,000, respectively. Yappy requires a 10% return on all new
investments.
4. (TCO 7) Farris Co.s projected sales are as follows.
Farris estimates that it will collect 30% in the month of sale, 50% in the month after
the sale, and 18% in the second month following the sale. Two percent of all sales are
estimated to be bad debts. How much are Farris Co.'s budgeted cash receipts for
October?
6. (TCO 9) Herbart Company gathered the following information on power costs and
factory machine usage for the last 6 months.