devry busn278 full course

MIDTERM

(TCO 1) Why are budgets useful in the planning process?

They provide management with information about the company's past performance.

They help communicate goals throughout the organization.

They guarantee the company will be profitable if it meets its objectives.

They enable the budget committee members to earn their paychecks

Question 2. Question : (TCO 2) The quantitative forecasting method that uses actual sales from recent time periods to predict future sales, assuming each period has equal influence on the prediction of future sales, is the _____.

: moving average model

weighted moving average model

exponential smoothing model

equal average model

Points Received: 5 of 5

Comments:

Question 3. Question : (TCO 3) The regression statistic that measures how many standard errors the coefficient is from zero is the _____.

: correlation coefficient

coefficient of determination

standard error of the estimate

t-statistic

Points Received: 0 of 5

Comments:

Question 4. Question : (TCO 4) Capital expenditures are incurred for all of the following reasons except _____.

: as preventive maintenance

to counteract competition

decreased production

improvement in product quality

Points Received: 0 of 5

Comments:

Question 5. Question : (TCO 5) Which of the following is not true when ranking proposals using zero-base budgeting?

Due to changing circumstances, a low-priority item may later become a high-priority item.

Decision packages are ranked in order of increasing benefit.

Divisional and departmental managers submit initial recommendations, with top management making the final ranking.

Nonfunded packages should also be ranked.

Points Received: 0 of 5

Comments:

Question 6. Question : (TCO 6) Which of the following ignores the time value of money?

Internal rate of return

Profitability index

Net present value

Payback period

Points Received: 5 of 5

Comments:

Question 7. Question : (TCO 1) Budgeting is a planning and control system. Discuss how budgeting contributes to these two functions of management.

Question 8. Question : (TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the four main qualitatative approaches, including their advantages and disadvantages.

Question 9. Question : (TCO 2) Use the table Television Sales Time Series to answer the questions below.

Television Sales Time Series

(in thousands)

Day Sales Day Sales

1 24.0 9 26.0

2 25.0 10 27.0

3 26.0 11 27.0

4 27.0 12 26.5

5 28.5 13 28.0

6 28.0 14 27.0

7 27.0 15 29.0

8 27.5

Part (a): What is the project sales for Day 16 using a 3-day moving average?

Part (b): What is the project sales for Day 16 using a 6-day moving average?

Part (c): Use the mean absolute deviation (MAD) and mean square error (MSE) to determine which average provides the better forecast.

Comments:

Question 10. Question : (TCO 3) Use the table “Food and Beverage Sales for Luigi’s Italian Restaurant” to answer the questions below.

Food and Beverage Sales for Luigi’s Italian Restaurant

($000s)

Month First Year Second Year

January 218 237

February 212 215

March 209 223

April 251 174

May 256 174

June 216 135

July 131 142

August 137 145

September 99 110

October 117 117

November 137 151

December 213 208

Part (a): Calculate the regression line and forecast sales for February of Year 3.

Part (b): Calculate the seasonal forecast of sales for February of Year 3.

Part (c): Which forecast do you think is most accurate and why?

Question 11. Question : (TCO 6) Davis Company is considering two capital investment proposals. Estimates regarding each project are provided below.

Project A Project B

Initial Investment $800,000 $650,000

Annual Net Income $50,000 45,000

Annual Cash Inflow $220,000 $200,000

Salvage Value $0 $0

Estimated Useful Life 5 years 4 years

The company requires a 10% rate of return on all new investments.

Part (a): Calculate the payback period for each project.

Part (b): Calculate the net present value for each project.

Part (c): Which project should Jackson Company accept and why?

Question 12. Question : (TCO 6) Mimi Company is considering a capital investment of $250,000 in new equipment. The equipment is expected to have a 5-year useful life 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 $75,000, respectively. Mimi's minimum required rate of return is 10%.

Part (a): Calculate the payback period.

Part (b): Calculate the net present value.

Part (c): Calculate the accounting rate of return.

final

1. (TCO 1) Which one of the following is not a benefit of budgeting? (Points : 5)

It facilitates the coordination of activities.
It provides definite objectives for evaluating performance.
It provides assurance that the company will achieve its objectives.
It provides early warning signs of potential threats.

2. (TCO 2) Which of the following is not a qualitative forecasting method? (Points : 5)

Executive opinions
Sales force polling
Delphi method
Classical decomposition

3. (TCO 3) Which of the following statements regarding the t-statistic is true? (Points : 5)

The t-statistic cannot be negative.
The t-statistic measures how many standard errors the coefficient is away from the independent variable.
The higher the t-value, the more confidence we have in the coefficient.
Low t-values indicate high reliability.

4. (TCO 4) Which of the following statements regarding the risk associated with R&D activities is incorrect? (Points : 5)

The amount of time between the R&D activity and the cash flows from the project does not affect risk.
Greater risk is associated with creating new products than improving existing products.
Risk increases as the time between the R&D activity and the cash flows from the project increases.
Assessing risk is a vital part of research and development.

5. (TCO 5) Program budgeting does not include: (Points : 5)

Controlling
Programming
Budgeting
Planning

6. (TCO 6) The payback period technique ___________ (Points : 5)

should be used as a final screening tool.
can be the only basis for the capital budgeting decision.
is relatively easy to compute and understand.
considers the expected profitability of a project.

7. (TCO 6) The profitability index is computed by dividing the ___________ (Points : 5)

total cash flows by the initial investment.
present value of cash inflows by the present value of each outflow.
initial investment by the total cash flows.
initial investment by the present value of cash flows.

8. (TCO 6) A company projects annual cash inflows of $85,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of

$75,000. What is the accounting rate of return on this investment? (Points : 5)

28.3%
13.3%
15%
43.3%

9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $30,000 each year, the payback period is _____.

(Points : 5)

5 years
6 years
7 years
8 years

10. (TCO 6) Hyde Inc. is comparing several alternative capital budgeting projects as shown below:

Projects A B C

Initial Investment $110,000 $90,000 $50,000

Present value of cash inflows $100,000 $100,000 $60,000

Using the profitability index, rank the projects, starting with the most attractive. (Points : 5)

A, C, B.
A, B, C.
C, A, B.
C, B, A.

11. (TCO 6) Cleaners, Inc. is considering purchasing equipment costing $30,000 with a six-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? (Points : 5)

$13,800
$1,794
$886
$2,748

12. (TCO 7) Which of the following would not appear as a fixed expense on a selling and administrative expense budget? (Points : 5)

Freight-out
Office salaries
Property taxes
Depreciation

13. (TCO 7) A company budgeted unit sales of 102,000 units for January, 2008 and 120,000 units for February, 2008. The company has a policy of having an inventory of units on hand at the end of each

month equal to 30% of next month’s budgeted unit sales. If there were 30,600 units of inventory on hand on December 31, 2007, how many units should be produced in January, 2008 in order for the company

to meet its goals? (Points : 5)

107,400 units
102,000 units
96,600 units
138,000 units

14. (TCO 8) Standards that are based on efficient activity with allowances for unavoidable losses are called _______ (Points : 5)

basic standards.
maximum efficiency standards.
currently attainable standards.
expected standards.

15. (TCO 9) A static budget is appropriate for __________ (Points : 5)

variable overhead costs.
direct materials costs.
fixed overhead costs.
none of these.

16. (TCO 9) If the activity level increases 10%, total variable costs will ___________. (Points : 5)

remain the same
increase by more than 10%
decrease by less than 10%
increase 10%

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? (Points : 5)

$12,000
$6,000
$3,600
$8,400

18. (TCO 10) Which of the following statements regarding budget reports is incorrect? (Points : 5)

The cost of budget reports should not outweigh the benefits.
Budget reports are used for planning, control, and information.
Reports prepared for upper management typically have fewer details than reports prepared for lower-level managers.
Reports are prepared more frequently for upper management than for lower-level managers.

Page 2

1. (TCO 7) The first step in creating the master budget is the sales budget. Describe this budget and the information it includes. Why is the accuracy of the sales budget important? (Points : 20)

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.

Part (b) As a manager, which cost behavior would you prefer and why? (Points : 20)

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.

Part (a) Compute each of the following:
1: Payback period.
2: Net present value.
3: Profitability index.
4: Internal rate of return.
5: Accounting rate of return.

(b) Indicate whether the investment should be accepted or rejected. (Points : 30)

4. (TCO 7) Roswell Company has budgeted sales revenue as follows for the next 4 months as follows:

February

$150,000

March

$120,000

April

$105,000

May

$165,000

Past experience indicates that 80% of sales each month are on credit and that collection of credit sales occurs as follows: 60% in the month of sale, 35% in the month following the sale, and 3% in the second month following the sale. The other 2% is uncollectible.

Prepare a schedule which shows expected cash receipts from sales for the month of May.

5. (TCO 8) Eastern Company’s budgeted and actual sales for 2009 were:

Product

Budgeted Sales

Actual Sales

A

35,300 units at $2.00 per unit

32,700 units at $2.60 per unit

B

27,900 units at $5.00 per unit

29,200 units at $4.70 per unit

Part (a) Calculate the sales volume variance.
Part (b) Calculate the sales price variance.
Part (c) Calculate the total sales variance.

6. (TCO 9) The Mays Clinic has the following monthly telephone records and costs:
Calls

Costs

2,000

$2,400

1,500

2,000

2,200

2,600

2,500

2,900

2,300

2,700

1,700

2,200

Identify the fixed and variable cost elements using the high-low method.