Business Accounting
Practice Questions
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental principles and practices of financial accounting within a business context. The course covers topics such as the accounting cycle, preparation and analysis of financial statements, recording and reporting of business transactions, and understanding key accounting concepts like assets, liabilities, and equity. Students will also explore the roles of ethics and regulatory frameworks in accounting, learn the basics of managerial accounting for internal decision-making, and gain proficiency in using accounting tools and software. This foundational knowledge equips students to interpret financial information critically, supporting sound business decisions in a variety of organizational settings.
Recommended Textbook
Financial And Managerial Accounting Principles International Edition 9th Edition by Crosson
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29 Chapters
4463 Verified Questions
4463 Flashcards
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Which of the following is the most appropriate and modern definition of accounting?
A) Electronic collection, organization, and communication of vast amounts of information
B) The interconnected network of subsystems necessary to operate a business
C) A means of recording transactions and keeping records
D) The measurement, processing, and communication of financial information about an identifiable economic entity
Answer: D
Q2) Why would it be less risky for a wealthy individual to incorporate his or her business rather than to operate it as a sole proprietorship or partnership?
Answer: With a sole proprietorship or partnership,the owner or owners have unlimited liability.That is,they may be required to use personal assets to satisfy business debts.The liability of a corporate shareholder,however,is limited to his or her investment in the business.
Q3) The Federal Reserve Board is an example of an economic planner.
A)True
B)False
Answer: True
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Wages payable is a type of expense.
A)True
B)False
Answer: False
Q2) A purchase is recognized in the accounting records when
A) payment is made for the item purchased.
B) the purchase requisition is sent to the purchasing department.
C) title transfers from the seller to the buyer.
D) the buyer receives the seller's bill.
Answer: C
Q3) When a service has been performed,but no cash has been received,which of the following statements is true?
A) The entry would include a debit to Accounts Receivable.
B) No journal entry would be made.
C) The entry would include a debit to Accounts Payable.
D) The entry would include a credit to Unearned Revenue.
Answer: A
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) Why will the Income Summary account never appear on any financial statement?
Answer: The Income Summary account begins the closing process at a zero balance and ends the process at a zero balance.Therefore,there is no balance to transfer onto a financial statement.
Q2) An adjusting entry cannot include a debit to a(n)
A) expense and a credit to an asset.
B) asset and a credit to a revenue.
C) liability and a credit to a revenue.
D) asset and a credit to a liability.
Answer: D
Q3) Financial statement time periods should be of equal length
A) and should end during the peak season.
B) to make comparison easier.
C) and should correspond to the calendar year.
D) to comply with income tax regulations.
Answer: B
Q4) Depreciation Expense-Equipment is a permanent account.
A)True
B)False
Answer: False
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Chapter 3: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) Closing entries may be prepared by referring solely to the Income Statement columns of the work sheet.
A)True
B)False
Q2) The process of crossfooting on the work sheet results in the
A) Adjusted Trial Balance columns.
B) Trial Balance columns.
C) Income Statement columns.
D) Adjustments columns.
Q3) In a manual system which uses a work sheet,the preparation of adjusting entries
A) typically precedes the preparation of the financial statements.
B) typically precedes preparation of the work sheet.
C) is easy because they are simply copied from the work sheet.
D) is difficult, and therefore they must first be entered into the general journal in pencil.
Q4) Working papers provide a written record of the work performed by the accountant.
A)True
B)False
Q5) Why would a large company probably benefit more from a work sheet than would a very small company?
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Chapter 4: Financial Reporting and Analysis
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Sample Questions
Q1) Which of the following accounts is most likely to appear on the balance sheet as a current liability?
A) Accumulated Depreciation
B) Bonds Payable
C) Mortgage Payable
D) Wages Payable
Q2) The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.
A)True
B)False
Q3) Which accounting term does not mean the same as the others?
A) Retained earnings
B) Net worth
C) Capital
D) Owner's equity
Q4) Distinguish between cost of goods sold and operating expenses,describing the nature of these two items and their placement on the income statement.
Q5) Why is it important for a company to maintain the same accounting methods and practices from period to period?
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Chapter 5: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) It is unlikely that a company would want to bond its employees who handle cash or inventory.
A)True B)False
Q2) The use of major credit cards requires sellers to establish the customer's credit.
A)True
B)False
Q3) The amount of goods available for sale during the year depends on the amounts of A) beginning merchandise inventory, net cost of purchases, and ending merchandise inventory.
B) beginning merchandise inventory and cost of goods sold.
C) beginning merchandise inventory, cost of goods sold, and ending merchandise inventory.
D) beginning merchandise inventory and net cost of purchases.
Q4) Computerization has led to a large increase in the use of the perpetual inventory system.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) In periods of falling prices,LIFO will result in a higher ending inventory valuation than FIFO.
A)True
B)False
Q2) An understatement of ending inventory in a period will result in an understatement of gross margin in the next period.
A)True
B)False
Q3) In a period of rising prices,the liquidation of base-layer inventory will result in an unusually high income tax liability under which of the following methods?
A) Specific identification
B) Average-cost
C) LIFO
D) FIFO
Q4) The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.
A)True
B)False
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) Securitization delays the receipt of cash from sales made on credit.
A)True
B)False
Q2) How is the account Allowance for Uncollectible Accounts presented in the financial statements,and what purpose does this presentation serve?
Q3) Cash equivalents are defined as investments that carry a term of less than one year.
A)True
B)False
Q4) Which of the following statements is false regarding promissory notes?
A) They are sometimes used to extend past-due accounts.
B) They can be resold to banks.
C) They must be held by the maker until maturity.
D) They are often received upon the sale of machinery and automobiles.
Q5) Companies that experience seasonal cycles of business activity need not manage their cash as carefully as companies whose business is not cyclical.
A)True
B)False
Q6) What is a compensating balance? By whom is it required?
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Chapter 8: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) The annual interest earned on an amount deposited into a bank account will be the same each year when compound interest is used.
A)True
B)False
Q2) Calculate answers to the following questions:
a. To what amount will an $800 deposit grow, assuming 9 percent annual interest, five years, and simple interest?
b. To what amount will a $500 deposit grow, assuming 10 percent annual interest paid semiannually, three years, and simple interest?
Q3) Only the unused portion of a line of credit is recognized as a liability.
A)True
B)False
Q4) A contingent liability eventually becomes either a true liability or no liability at all. A)True
B)False
Q5) Gross earnings minus deductions equals take-home pay.
A)True B)False
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Chapter 9: Long Term Assets
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Sample Questions
Q1) Depreciation for tax purposes is identical to depreciation for financial reporting purposes.
A)True
B)False
Q2) Prior to the disposal of an asset,depreciation should be updated and recorded.
A)True
B)False
Q3) Small expenditures for what ordinarily are considered revenue expenditures frequently are treated as capital expenditures.
A)True
B)False
Q4) The cost of a natural resource is expensed in the year during which the resource is A) purchased.
B) extracted.
C) paid for.
D) sold.
Q5) Rebuilding the engine of a company vehicle is an example of an ordinary repair. A)True
B)False
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) Secured bonds are also known as debentures.
A)True
B)False
Q2) It is the bondholder rather than the issuer who may exercise the call feature of a callable bond.
A)True
B)False
Q3) If a bond with a face value of $1,000 and a face interest rate of 7 percent is issued for $970,the market interest rate at the date of issuance must have been greater than 7 percent.
A)True
B)False
Q4) The par value of a bond is equal to its face value.
A)True
B)False
Q5) Most bonds issued today are coupon bonds rather than registered bonds.
A)True
B)False
Q6) When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?
Page 13
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Chapter 11: Contributed Capital
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Sample Questions
Q1) The entry required to record start-up and organization costs will cause a decrease in net income for the period.
A)True
B)False
Q2) Callable preferred stock is preferred stock that may be redeemed or retired at the option of the stockholder.
A)True
B)False
Q3) Which of the following would not be an account in the general ledger of a corporation?
A) Dividends Payable
B) Retained Earnings
C) Additional Paid-in Capital
D) Dividends in Arrears
Q4) Financing a business with common stock is less risky than financing it with bonds. A)True
B)False
Q5) How is it possible for a corporation to have more shares issued than it has outstanding?
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Chapter 12: Investments
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Sample Questions
Q1) Elimination entries are recorded in the consolidated journal and posted to the consolidated ledger.
A)True
B)False
Q2) When a subsidiary has borrowed cash from the parent company,the related receivable and payable are eliminated in preparing a consolidated balance sheet so that
A) stockholders' equity will not be understated.
B) stockholders' equity will not be overstated.
C) assets and liabilities will not be understated.
D) assets and liabilities will not be overstated.
Q3) U.S.Treasury bills are considered equity securities.
A)True
B)False
Q4) For available-for-sale equity securities,the Unrealized Loss on Long-Term Investments account should be reported as a(n)
A) "other loss" item on the income statement.
B) prior period adjustment.
C) separate item in the stockholders' equity section of the balance sheet.
D) extraordinary item on the income statement.
Page 15
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Chapter 13: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) The quality of a company's earnings may be affected by the A) industry in which the company operates.
B) choice of independent auditors.
C) accounting methods the company uses.
D) countries in which the company operates.
Q2) A company with stock options is considered to have a simple capital structure.
A)True
B)False
Q3) A synonymous phrase for retained earnings is accumulated earnings.
A)True
B)False
Q4) A company with a high quality of earnings is one that has earned a substantial profit for the period.
A)True
B)False
Q5) The quality of a company's earnings is affected by the accounting estimates chosen by the company's management.
A)True B)False
Q6) Distinguish between cash and retained earnings. Page 16
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Page 17
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Accrued Liabilities-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A) Add to net income to arrive at net cash flows from operating activities
B) Subtract from net income to arrive at net cash flows from operating activities
C) Not used to adjust net income to calculate net cash flows from operating activities
Q2) The indirect method of preparing a statement of cash flows
A) eliminates the need for a schedule of noncash investing and financing transactions.
B) provides a different result than the direct method.
C) adjusts net income for changes in current accounts.
D) shows collections from customers rather than the change in Accounts Receivable.
Q3) The purchase of trading securities with cash is considered an investing activity. A)True B)False
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18
Chapter 15: The Changing Business Environment - a Managers Perspective
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Sample Questions
Q1) Management accounting activities
A) are synonymous with financial accounting activities.
B) substitute for the management cycle.
C) complement the management cycle.
D) have nothing to do with the management cycle.
Q2) Although the purpose of the confidentiality standard is to encourage management accountants to remain loyal to their company,failure to disclose knowledge of internal illegal acts to outside authorities can result in the accountants being charged as an accessory to the crime.
A)True
B)False
Q3) In a JIT system,workers are trained to specialize in one specific task.
A)True
B)False
Q4) What would a company using an activity-based management approach attempt to do in regard to activities that add value to the product and those that do not?
Q5) Performance measures are limited to financial data.
A)True
B)False
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Chapter 16: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Which of the following represents the overhead applied to a product?
A) Actual Overhead Rate\(\times\) Estimated Cost Driver Level
B) Predetermined Overhead Rate\(\times\)Actual Cost Driver Level
C) Predetermined Overhead Rate\(\times\)Estimated Cost Driver Level
D) Actual Overhead Rate\(\times\)Actual Cost Driver Level
Q2) Which of the following financial statements is unique to a production-oriented company?
A) Balance sheet
B) Statement of cash flows
C) Income statement
D) Statement of cost of goods manufactured
Q3) In a manufacturing environment,costs of materials initially flow
A) into the Work in Process Inventory account.
B) into the Materials Inventory account.
C) directly to Cost of Goods Sold.
D) into the Finished Goods Inventory account.
Q4) Product costs could be reported as assets.
A)True
B)False
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Chapter 17: Costing Systems- Job Order Costing
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Sample Questions
Q1) When direct materials are issued from inventory to production under a job order costing system,an increase is recorded in A) Overhead.
B) Work in Process Inventory.
C) Materials Inventory.
D) Finished Goods Inventory.
Q2) The basic document for keeping track of costs in a job order costing system is a A) job order cost card.
B) labor time card.
C) process cost report.
D) materials requisition form.
Q3) Unlike a job order costing system,a process costing system is not restricted to one Work in Process Inventory account.
A)True
B)False
Q4) A basic part of a job order costing system is the set of procedures and entries used to record the costs incurred for materials,labor,and overhead.
A)True B)False
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Chapter 18: Costing Systems- Process Costing
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Sample Questions
Q1) The total costs that will be transferred into the Finished Goods Inventory account during the current period are
A) $144,768.
B) $180,050.
C) $164,736.
D) $160,080.
Q2) During March,Department A started 300,000 units of product in a particular production process.The beginning work in process inventory was 50,000 units,and the ending inventory was 40,000 units.Direct materials are introduced at the start of processing,and beginning and ending inventories are considered to be 40 percent complete with respect to conversion costs.Department A uses the FIFO costing method. The number of units started and completed during March was
A) 300,000.
B) 260,000.
C) 324,000.
D) 276,000.
Q3) In many instances,direct materials are added at the beginning of the process.
A)True
B)False
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Page 22
Chapter 19: Value-Based Systems- Abm and Lean
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Sample Questions
Q1) Backflush costing eliminates the need for a Cost of Goods Sold account.
A)True
B)False
Q2) A cost hierarchy and a bill of activities are tools for the implementation of activity-based costing.
A)True
B)False
Q3) For a bank,a credit check of a loan applicant is an example of a batch-level activity.
A)True
B)False
Q4) The Yeva Company produces children's automobile car seats.The company recently changed from a traditional production environment to just-in-time work cells.The company's car seats are widely distributed in popular retail stores.Would you recommend the use of backflush costing or ABM/ABC for tracking product costs? Explain your choice of system.
Q5) A value chain involves a sequence of value-creating activities within an organization.
A)True
B)False
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Chapter 20: Cost Behavior Analysis
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Sample Questions
Q1) Breakeven sales in dollars can be obtained without knowing the contribution margin per unit.
A)True
B)False
Q2) Lakeside has gathered the following data in order to calculate the weighted-average contribution margin: \[\begin{array} {l r r r }
& \text { Unit Sales Price } & \text { Unit Variable Costs } & \text { Unit Sale: } \\
\text { Product A } & \$ 150 & \$ 100 & 8,000 \\
\text { Product B } & 100 & 60 & 2,000
\end{array}\]
Fixed costs are $480,000.
The weighted-average breakeven point is
A) 11,429 units.
B) 10,000 units.
C) 5,333 units.
D) 10,667 units.
Q3) Cost-volume-profit analysis assumes a constant sales mix.
A)True
B)False
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Chapter 21: The Budgeting Process
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Sample Questions
Q1) Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2010 are as follows: \[\begin{array} { l l }
\text { January } & 40,000 \\
\text { February } & 50,000 \\
\text { March } & 60,000
\end{array}\]
Finished goods inventory at the end of 2009 was 12,000 units.On average,25 percent of the futons are produced during the month before they are sold,which normally accounts for the ending balance in finished goods inventory.The planned selling price is $150 per unit.
How many futons are budgeted to be produced in January?
A) 44,500
B) 28,000
C) 40,500
D) 52,500
Q2) The budgeting function begins with the preparation of the direct materials purchases budget.
A)True
B)False
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Chapter 22: Performance Management and Evaluation
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Sample Questions
Q1) Managers at all levels are evaluated in terms of their ability to manage their areas of responsibility in keeping with organizational goals.
A)True
B)False
Q2) A responsibility center in which the relationship between resources and products or services produced is not well defined is known as a(n)
A) investment center.
B) profit center.
C) cost center.
D) discretionary cost center.
Q3) Standard costing would most often require which type of performance evaluation?
A) Flexible budgeting
B) Zero-based budgeting
C) Variable costing
D) Any of these choices
Q4) Why are managers more likely to achieve their objectives in both the short term and the long term when they utilize a tool such as the balanced scorecard?
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26
Chapter 23: Standard Costing and Variance Analysis
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Sample Questions
Q1) Comparing "what did happen" with "what should have happened" aids in the performance evaluation of a company.
A)True
B)False
Q2) The effective evaluation of managers' performance depends on both human factors and company policies.Using variances from standard costs in a manager's performance report adds accuracy to the evaluation process.To ensure effectiveness and fairness when setting up a performance evaluation process,what actions should be taken?
Q3) The overhead variance is equal to the difference between A) fixed overhead costs and flexible overhead costs.
B) estimated overhead rate and applied overhead rate.
C) actual overhead costs and variable overhead costs.
D) actual overhead costs and standard overhead costs.
Q4) Direct labor time standards express the hourly labor cost per function or job classification that exists during the current accounting period.
A)True
B)False
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Chapter 24: Short Run Decision Analysis
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Sample Questions
Q1) Opportunity costs are irrelevant costs.
A)True
B)False
Q2) Fixed costs are irrelevant in make-or-buy decisions.
A)True
B)False
Q3) All of the following are relevant in a sell or process-further decision except
A) sales value at the split-off point.
B) sales value after further processing.
C) additional processing costs.
D) joint costs.
Q4) "Variable costs are relevant and fixed costs are irrelevant." Explain why you agree or disagree with this statement.
Q5) Which of the following could not be a relevant cost in deciding whether or not to eliminate a producing department?
A) The current residual value of the department's equipment
B) The salary of a supervisor who would be laid off
C) The carrying value of the department's equipment
D) Revenue that could be generated by renting out the department's space
Q6) What are the two steps in the analysis for a sales mix decision?
Page 28
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Chapter 25: Capital Investment Analysis
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Sample Questions
Q1) Depreciation is a unique expense because it
A) does not require a cash outlay.
B) does not affect income taxes.
C) is the same amount every accounting period.
D) has to be calculated.
Q2) To use an annuity table,the cash flows for each interest period must be equal.
A)True
B)False
Q3) Which of the following could not be the appropriate method used in evaluating proposed capital investments
A) Net present value method
B) Payback period method
C) The carrying value of the department's equipment
D) Accounting rate of return method
Q4) The minimum rate of return is also known as
A) hurdle rate
B) payback period
C) net present value
D) cost of debt
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Chapter 26: Pricing Decisions, incltarget Costing and Transfer Pricing
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Sample Questions
Q1) When using a cost-based approach,once the cost of a good or service has been determined,additional factors need not be considered in establishing a selling price.
A)True
B)False
Q2) Overall company profits will not be enhanced if a buying division acquires products from outside suppliers at an annual cost that is less than the incremental cost to the supplying division within the company.
A)True
B)False
Q3) The economic approach to pricing is based on microeconomic theory.
A)True
B)False
Q4) A target cost is an anticipated cost that should be achieved at a midpoint in the product's life cycle.
A)True
B)False
Q5) Each product or service has a target market that determines its demand.
A)True B)False
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Chapter 27: Quality Management and Measurement
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Sample Questions
Q1) Many traditional management information systems do not produce meaningful results for today's business environment.
A)True
B)False
Q2) All-aboard Travel Agency incurred the following activity costs related to the quality of service.Identify those costs that are costs of conformance (CC)and those costs that are costs of nonconformance (CN).
a. Reservation processing improvements _____
b. Customer complaint processing
c. Personnel training
d. Computer downtime
e. Proofreading tickets and confirmations
Q3) Identify and describe three traits that differentiate management information systems (MIS)from traditional management accounting techniques.
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Chapter 28: Financial Analysis of Performance
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Sample Questions
Q1) The following information pertains to Flintridge Corporation: \[\begin{array} { l r }
\text { Profit margin for } 2010 & 10.0 \% \\
\text { Total assets, } 12 / 31 / 2009 & \$ 430,000 \\
\text { Total assets, } 12 / 31 / 2010 & \$ 470,000 \\
\text { Net income, 2010 } & \$ 53,000 \end{array}\]
Calculate the asset turnover ratio for 2010.Round your answer to two decimal places.
Q2) A common measure of long-term solvency is the
A) receivable turnover.
B) asset turnover.
C) debt to equity ratio.
D) current ratio.
Q3) The sale of plant assets and the payment of dividends will reduce free cash flow. A)True
B)False
Q4) What is horizontal analysis,and why is it useful in performing financial performance measurement?
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