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ACCOUNTING FOR MANAGERIAL DECISIONS
- __________ is not suitable where selling price is determined on the basis of cost-plus method.
- Absorption costing
- Marginal costing
- Both a and b
- None of the above
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- The problems associated with marginal costing are
- Difficulties in divisions of costs
- Problem of valuation of stocks
- Ignores time elements
- All of the above
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- Managers utilizes marginal costing for
- Make or buy decision
- Utilization of additional capacity
- Determination of dumping price
- All of the above
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- Which of the following are advantages of marginal costing?
- Makes the process of cost accounting more simple
- Helps in proper valuation of closing stock
- Useful for standard and budgetary control
- All of the above
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- Under absorption costing, managerial decisions are based on
- Profit
- Contribution
- Profit volume ratio
- None of the above
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- Which of the following statements are true about absorption & marginal costing?
- In absorption costing, cost is divided into three major parts while in marginal costing, cost is divided into two main parts
- In absorption costing period is important and in marginal costing product is important
- Both a and b
- None of the above
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- Given production is 1,00,000 units, fixed costs is Rs 2,00,000 Selling price is Rs 10 per unit and variable cost is Rs 6 per unit. Determine profit using technique of marginal costing.
- Rs 2,00,000
- Rs 8,00,000
- Rs 6,00,000
- None of the above
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- While computing profit in marginal costing
- Total marginal cost is deducted from total sales revenues
- Total marginal cost is added to total sales revenues
- Fixed cost is added to contribution
- None of the above
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- Marginal costing is also known as
- Direct costing
- Variable costing
- Both a and b
- None of the above
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- When contribution is negative but less than fixed cost,
- There is loss equal to fixed costs
- There is loss more than fixed costs
- There will be loss less than fixed costs
- All of above are false
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- Which of the following is the correct description of the break-even point?
- Where total revenue equals total variable costs
- Where total revenue equals total fixed and variable costs
- Where total revenue equals total fixed costs
- Where total revenue equals total contribution
- In a profit-volume chart, what does the point at which the contribution line touches the vertical axis represent?
- Total fixed costs
- The break-even point
- Total contribution
- Total variable costs
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- Which one of the following best describes the margin of safety?
- The extent to which the total sales revenue exceeds the total variable costs
- The extent to which the total sales revenue exceeds the total fixed costs
- Fixed costs/ (Sales revenue per unit – variable costs per unit)
- The extent to which the total sales revenue exceeds the total fixed and variable costs
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- If the activity level increases 10%, total variable costs will
- remain the same
- increase by more than 10%
- decrease by less than 10%
- increase by 10%
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- CVP analysis does not consider
- level of activity
- fixed cost per unit
- variable cost per unit
- sales mix
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- Which of the following is not an underlying assumption of CVP analysis?
- Changes in activity are the only factors that affect costs
- Cost classifications are reasonably accurate
- Beginning inventory is larger than ending inventory
- Sales mix is constant
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- Which of the following would not be an acceptable way to express contribution margin?
- Sales minus variable costs
- Sales minus unit costs
- Unit selling price minus unit variable costs
- Contribution margin per unit divided by unit selling price
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- The level of activity at which total revenues equal total costs is the
- variable point
- fixed point
- semi-variable point
- break-even point
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- The break-even point in units is computed by dividing fixed costs by the
- contribution margin ratio.
- contribution margin per unit.
- total contribution margin.
- unit selling price.
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- In a CVP graph, the break-even point is at the intersection of the sales line and the
- fixed cost line
- variable cost line
- total cost line
- mixed cost line
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- In evaluating the margin of safety, the
- break-even point is not relevant
- higher the ratio, the greater the margin of safety
- higher the dollar amount, the lower the margin of safety
- higher the ratio, the lower the fixed costs
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- If Cost of goods sold = Rs. 40,000GP Margin = 20% of salesCalculate the Gross profit margin.
- Rs. 32,000
- Rs. 48,000
- Rs. 8,000
- Rs. 10,000
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- The cost of equity capital is all of the following EXCEPT:
- the minimum rate that a firm should earn on the equity-financed part of an investment.
- a return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged.
- by far the most difficult component cost to estimate.
- generally lower than the before-tax cost of debt.
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- To compute the required rate of return for equity in a company using the CAPM, it is necessary to know all of the following EXCEPT:
- the risk-free rate.
- the beta for the firm.
- the earnings for the next time period.
- the market return expected for the time period.
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- In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
- common stock.
- debt.
- preferred stock.
- none of the above.
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- Market values are often used in computing the weighted average cost of capital because
- this is the simplest way to do the calculation.
- this is consistent with the goal of maximizing shareholder value.
- this is required in the U.S. by the Securities and Exchange Commission.
- this is a very common mistake.
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- For an all-equity financed firm, a project whose expected rate of return plots should be rejected.
- above the characteristic line
- above the security market line
- below the security market line
- below the characteristic line
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- In weighted average cost of capital, company can affect its capital cost through
- Policy of capital structure
- Policy of dividends
- Policy of investment
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- If return on investment is a measure used on the balanced scorecard, under which perspective would it be listed?
- Financial perspective
- Customer perspective
- Learning and growth perspective
- Internal business perspective
- None of the above.
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- What approach is used to compare organisation operations with those of other companies?
- PERT analysis
- SWOT analysis
- Competitor performance assessment
- Benchmarking
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- What is 'strategy mapping' in the balanced scorecard?
- Identifying causal links between the four perspectives
- Mapping the business' processes
- Setting the mission
- Agreeing the strategy with the director of the business
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- The overall (weighted average) cost of capital is composed of a weighted average of
- the cost of common equity and the cost of debt
- the cost of common equity and the cost of preferred stock
- the cost of preferred stock and the cost of debt
- the cost of common equity, the cost of preferred stock, and the cost of debt
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- Which of the following is not a recognized approach for determining the cost of equity?
- Dividend discount model approach.
- Before-tax cost of preferred stock plus risk premium approach.
- Capital-asset pricing model approach.
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- How is economic value added (EVA) calculated?
- It is the difference between the market value of the firm and the book value of equity.
- It is the firm's net operating profit after tax (NOPAT) less a dollar cost of capital charge.
- It is the net income of the firm less a dollar cost that equals the weighted average cost of capital multiplied by the book value of liabilities and equities.
- None of the above are
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- what is the main objective of Activity Based Costing
- improve product costing
- identify non-value adding activities in the production process which might be a suitable focus for attention or elimination
- provide required information for decision making
- All of the above
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- Cooper and Kaplan recommend using which of the following as the basis, or denominator, when developing activity cost pool rates for activity based costing.
- the maximum capacity for each activity.
- the practical capacity for each activity.
- the planned or budgeted for each activity.
- the normal capacity for each activity.
- none of the alternatives given.
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- Activity based cost systems would probably provide the greatest benefits for organizations that use
- job order costing.
- process costing.
- historical costing
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- In 2 years you are to receive Rs.10, 000. If the interest rate were to suddenly decrease, the present value of that future amount to you would ___________.
- fall.
- rise.
- remain unchanged.
- cannot be determined
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- The risk arising due to uncertainty about the time element and the price concession in selling a security is called ___________.
- price risk.
- market risk.
- trading risk.
- liquidity risk.
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- The term __________ refers to the period in which the project will generate the necessary cash flow to recoup the initial investment.
- internal return.
- payback period.
- discounting return.
- accounting return.
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- The project can be selected if its profitability index is more than ___________.
- 1%.
- 3%.
- 5%.
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- X ltd issues rupees 50,000 8% debentures at a discount of 5%. The tax rate is 50% the cost of debt capital is ___________.
- 4%.
- 4.2%.
- 4.6%.
- 5%
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- __________ of debt capital is a factor in favor of using more debt capital.
- Tax advantage.
- Debt equity norms.
- Leverage effect.
- Security of assets.
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- Which of the following statements are true about responsibility accounting?
- Responsibility accounting results in inter-departmental conflicts
- In responsibility center more focus is paid on products, processes or jobs
- No focus is paid on controlling costs
- None of the above
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- In profit center revenue represents a monetary measure of output emanating from a profit center in a given period irrespective whether
- The revenue is realized or not
- The output is sold or not
- Both a and b
- None of the above
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- Contribution margin center is also known as
- Expense center
- Profit center
- Investment center
- All of the above
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- Which of the following is responsibility center?
- Expense center
- Profit center
- Investment center
- All of the above
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- In responsibility accounting, responsibilities of various groups or individuals are identified in terms of
- Work
- Revenue
- Cost
- All of the above
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- Responsibility Accounting is also known as
- Profitability accounting
- Activity accounting
- Both a and b
- None of the above
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- Economic value added, or residual income is a measurement mainly used to evaluate
- revenue centre.
- cost centre
- profit centre.
- investment centre.
- responsibility centre.
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- Residual income is
- income based on compound or annuity depreciation.
- income after subtracting interest on long term debt.
- income after subtracting depreciation.
- income after adjusting assets to current value.
- income after subtracting a minimum desired amount of income.
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- Which type of responsibility center has the greatest amount of autonomy?
- a revenue center.
- a cost center.
- a profit center.
- an investment center.
- none of these.
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- Which of the following is the best description of zero-base budgeting?
- Zero-base budgeting is a technique applied in government budgeting in order to have a neutral effect on policy issues
- Zero-base budgeting requires a completely clean sheet of paper every year, on which each part of the organization must justify the budget it requires
- Zero-base budgeting starts with the figures of the previous period and assumes a zero rate of change
- Zero based budgeting is an alternative name of flexible budget
- A benefit of using activity-based costing in a government is:
- Understanding and controlling the allocation of indirect costs to programs.
- Finding lower cost alternatives.
- Better measures of the cost of service outcomes.
- All of the above.
- A company has a capital employed of Rs.200,000. It has a cost of capital of 12% per year. Its residual income is Rs.36,000.What is the company's return on investment?
- 30%
- 12%
- 18%
- 22%
- P/V ratio is an indicator of----------
- the rate at which goods are sold.
- the volume of sales
- the volume of profit
- the rate of profit
- An increase in variable costs ___________.
- reduces contribution
- increases the profit
- increases p/v ratio
- increase margin of safety
- Sales Rs. 25,000; Variable cost Rs. 8,000; Fixed cost Rs. 5,000; Break Even sales in value---------------
- Rs.7936
- Rs.7353
- Rs.8333
- Rs.9090
- Sales Rs. 25,000; variable cost Rs. 15,000; Fixed cost Rs. 4,000; P/Vratio is ___________.
- 40%
- 80%
- 15%
- 30%
- Under marginal costing stock are valued at___________.
- fixed cost
- semi variable cost
- variable cost
- market price
- In 'make or buy' decision, it is profitable to buy from outside only when the supplier's price is below the firm's own ___________.
- Fixed Cost
- Variable Cost
- Total Cost
- Prime Cost
- Decisions are made by company which products to manufacture and sell and in what quantities out of many product lines are considered as
- Incremental decisions
- Outsource decisions
- Product mix decisions
- In-source decisions
- Which one of the following responsibility centres has independent control of its sales income and its fixed assets?
- Profit centre
- Cost centre
- Revenue centre
- Investment centre
- Which one of the following is the formula for Residual Income (RI)?
- Net cash flow for year + notional interest charge
- Net cash flow for year – notional interest charge
- Profit before tax + notional interest charge
- Profit before tax – notional interest charge
- The term 'EVA' is used for:
- Extra Value Analysis
- Economic Value Added
- Expected Value Analysis
- Engineering Value Analysis.
- Return on Investment may be improved by:
- Increasing Turnover
- Reducing Expenses
- Increasing Capital Utilization
- All of the above.
- Which of the following has Net profit as basis for calculation
- Net present value
- Average rate of return
- Internal rate of return
- Payback period
- Which of the performance evaluation methods takes into consideration tax effects?
- Economic value added
- Return on sales
- Residual income
- Return on investment
- Which of the following statements is correct?
- If the NPV of a project is greater than 0, its PI will equal 0.
- If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0.
- If the PI of a project is less than 1, its NPV should be less than 0.
- If the IRR of a project is greater than the discount rate, k, its PI will be less than 1 and its NPV will be greater than 0.
- The method provides correct rankings of mutually exclusive projects, when the firm is not subject to capital rationing.
- net present value
- internal rate of return
- payback period
- profitability index
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