True/False
Indicate whether the
statement is true or false.
|
|
|
1.
|
A formal written statement of management's plans for the future, expressed
in financial terms, is called a budget.
|
|
|
2.
|
Budgets are normally used by both profit-making businesses and nonprofit
organizations.
|
|
|
3.
|
When budget goals are set too tight, the budget becomes less effective for
planning and controlling operations.
|
|
|
4.
|
A budget procedure that provides for the maintenance at all times of a 12-month
projection into the future is called
continuous budgeting.
|
|
|
5.
|
Flexible budgeting builds the effect of changes in level of activity into the
budget system.
|
|
|
6.
|
The process of measuring and reporting operating data by areas of responsibility
is termed responsibility accounting.
|
|
|
7.
|
The underlying principle of allocating operating expenses to departments is to
assign each department an amount of expense proportional to the revenues of that department.
|
|
|
8.
|
The service department will determine its service department charge rate and
charge the company's divisions or departments based on the usage of the service by each
department.
|
|
|
9.
|
The profit center income statement should include only controllable revenues
and expenses.
|
|
|
10.
|
The process by which management plans, evaluates, and controls long-term
investment decisions involving fixed assets is called capital investment analysis.
|
|
|
11.
|
The process by which management plans, evaluates, and controls long-term
investment decisions involving fixed assets is called cost-volume-profit analysis.
|
|
|
12.
|
Care must be taken while making capital investment decisions since it involves a
long-term commitment of funds and affects operations for several years.
|
Multiple Choice
Identify the
choice that best completes the statement or answers the question.
|
|
|
13.
|
Which of the following is true of the balanced scorecard?
a. | It ignores the financial performance of the company. | c. | It aims to improve the
nonfinancial performance of the business. | b. | It has the ability to reveal the underlying
nonfinancial drivers of financial performance | d. | It focuses primarily on the short term
performance of the business. |
|
|
|
14.
|
The management of London Corporation is considering the purchase of a new
machine costing $750,000. The
company's desired rate of return is 6%. The present value
factors for $1 at compound interest of 6% for one through five
years are 0.943, 0.890, 0.840,
0.792, and 0.747, respectively. In addition to this information, use the following data
in
determining the acceptability in this situation:
Year Income from Operations Net Cash
Flow
1 $37,500 $187,500
2 37,500 187,500
3 37,500 187,500
4 37,500 187,500
5 37,500
187,500
The present value index for this investment is _____.
|
|
|
15.
|
Which of the following is an advantage of the internal rate of return
method?
a. | It takes into account cash flows occurring only until the time the initial
investment is completely paid back | c. | It ranks proposals based upon the cash flows over their complete
useful life, even if the project lives are not
the same. | b. | It does not use
present value concepts in valuing cash flows occurring in different periods because this
concept
can give incorrect results. | d. | It ranks proposals based upon the cash flows over their complete useful life, even
if the project lives are not
the same. |
|