Accounting for Business Decision Making: Strategy Assessment and Control Quiz Answers

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Week 1: Accounting for Business Decision Making: Strategy Assessment and Control

Quiz 1: Orientation Quiz

Q1. This course includes _ modules.

• two
• three
• four
• five

Q2. I am required to purchase a textbook for this course.

• True
• False

Q3. Which of the following activities is NOT required in each module?

• Watching the lecture videos
• Completing the practice quizzes
• Completing the module quizzes
• Completing the peer reviewed assignments

Q4. The following tool(s) will help me use the discussion forums:

• Upvoting posts
• Reporting inappropriate posts
• Following a thread
• All of the other options are correct.

Q5. If I have a problem in the course I should:

• Email the instructor.
• Call the instructor.
• Drop the class.
• Report it to the Learner Help Center (if the problem is technical) or to the Content Issues forum (if the problem is an error in the course materials).

Quiz 2: Practice Quiz

Q1. Which of the following best describes the concept of capacity?

• Square footage of a manufacturing factory
• Total fixed costs
• Volume of production an organization is capable of

Q2. Theoretical and practical capacity are what types of capacity measures?

• Supply
• Demand

Q3. There is one main measure of capacity used by most firms.

• True
• False

Quiz 3: Practice Quiz

Q1. Which of the following bests describes a constraint?

• Limitation on ability to achieve goals
• Specific to the long-term perspective
• Usually supply-based

Q2. When addressing a constraint in the short-term or the intermediate-term, a useful accounting measure designed to maximize efficient use of the most constrained resource is “contribution margin per unit of constrained resource.”

• True
• False

Q3. Ryan Incorporated can produce a total of 100,000 units of its two main products per month. Total demand for these products is greater than 150,000 units per month.

Given this scenario, which of the following statements is true?

• When adopting a short-run perspective, Ryan Inc. managers will likely invest in more capacity to meet the anticipated demand for its products.
• Ryan, Inc. likely faces a demand-based constraint.
• When adopting a long-run perspective, Ryan Inc. managers will likely invest in more capacity to meet the anticipated demand for its products.

Quiz 4: Quantitative Analysis Quiz

Q1. Galena Corporation produces automobile tires. They have a single factory and own the machinery and equipment used to produce the tires. The total capacity cost is $100,000 per year.

Galena’s managers estimate that the factory, if run 24 hours per day, every day, could produce 100,000 tires per year. However, given the machinery and equipment need regular maintenance, and employees require holidays, vacation time, and sick time, a more realistic estimate is 80,000 tires per year. Over the past five years, the average demand is 50,000 tires per year. This year, managers anticipate demand of 75,000 tires.

What is the capacity cost per tire if managers use normal capacity as the basis?

• $1.00 per tire
• $1.25 per tire
• $1.33 per tire
• $2.00 per tire

Q2. Rochelle Company is an Internet service provider. They own a large number of servers and other equipment, which costs $200,000 per year.

Capacity costs estimates are reported on a per service hour basis.

Managers estimate that, on average, the cost per hour demanded is $2.50 per hour. This year, managers estimate that the cost per hour demanded is $2.67 per hour. When managers take into account normal server downtime, the cost per hour supplied is $2.22. Ignoring this normal server downtime, the cost per hour supplied is $2.00.

Based on this information, what is Rochelle Company’s budgeted capacity?

• 100,000 hours
• 90,000 hours
• 80,000 hours
• 75,000 hours

Q3. Rockford Incorporated produces two products, Product A and
Product B.

Product A’s selling price and variable costs are $20 and $12
per unit, respectively.

Product B’s selling price and variable costs are $18 and $11
per unit, respectively.

Machine time used to produce both products is constrained. Product A uses 2 hours per unit to produce one unit. Product B uses 1.7 hours per unit to produce one unit.

Given this information, which of the following statements are
correct? (Check all that apply.)

• Managers will prefer to sell Product A because its contribution margin per machine hour is higher.
• Product A earns $8 per machine hour.
• Managers will prefer to sell Product B because it uses less machine time.
• Product B earns $7 per machine hour.
• Product A earns $4.00 per machine hour.
• Product B earns $4.12 per machine hour.

Q4. Mendota Company produces two products, Product X and Product
Y.

The selling price and variable costs for Product X are $45
and $24, respectively.

The selling price and variable costs for Product Y are $52
and $27, respectively.

Both products use two types of labor, from two separate
pools of employees: specialized labor
employees and general labor employees.

For the coming quarter, the specialized labor pool has
17,000 hours available and the general labor pool has 19,000 hours available.

Each unit of Product X uses 0.75 hour of specialized labor
and 2 hours of general labor, per unit.

Each unit of Product Y uses 1 hour of specialized labor and
1.75 hours of general labor, per unit.

Which of the following statements are true?

• Mendota’s most constrained labor type is specialized labor because it has fewer hours available.
• Mendota’s most constrained labor type is the general labor because both products use up general labor before they use up the specialized labor.
• Mendota’s most constrained labor type is the specialized labor because both products use up specialized labor before they use up the general labor.

Q5. El Paso Industries produces two products: the Deluxe model
and the Ultimate model.

Information about the Deluxe model is as follows:

Selling price – $14

Direct materials – $5

Direct labor – $7

Labor time required – 1
hour

Machine time required – 2
hours

Information about the Ultimate model is as follows:

Selling price – $25

Direct materials – $8

Direct labor – $14

Labor time required – 2
hours

Machine time required – 3
hours

El Paso has 2,000 labor hours available during the next
period, and 3,000 machine hours.

Which of the following statements are true? (Check all that
apply.)

• Labor is the most constrained resource.
• Managers will prefer the Ultimate model because
  it earns more per unit of the most constrained resource.
• Machine time is the most constrained resource.
• Managers will prefer the Deluxe model because it
  earns more per unit of the most constrained resource.
• Managers are indifferent between the two products because
  both earn the same contribution margin per unit.

Quiz 5: Conceptual Quiz

Q1. Which of the following best describes the concept of capacity?

• Volume of production an organization is capable of
• Square footage of a manufacturing factory
• Volume of products demanded
• Total fixed costs

Q2. Which of the following describes theoretical capacity?

• Maximum capacity that can be supplied
• Less than or equal to practical capacity
• Period-specific demand for organization’s product
• Includes adjustments for normal logistics and operations

Q3. Which of the following describes normal capacity?

• Period-specific demand for an organization’s product
• Supply-based measure of capacity
• Average demand for an organization’s product over multiple time periods
• Includes adjustments for normal logistics and operations

Q4. Gina Corporation has the following quantitative measures of capacity:

• 1,000 units
• 950 units
• 1,200 units
• 800 units

Which of the following statements must be true regarding these measures?

• Theoretical capacity is 1,000 units.
• Normal capacity is 950 units and budgeted capacity is 800 units.
• Demand-based measures are greater than 1,000 units.
• Practical capacity is less than 1,200 units.

Q5. Which of the following best describes a constraint?

• Usually demand-based
• A limitation
• Usually supply-based
• Specific to the long-term perspective

Q6. Jocelyn Corporation produces components for flat-screen televisions, which they sell to major television manufacturers.

Jocelyn Corp. relies on the following resources to achieve its goals: specialized labor responsible for designing components, high-quality electrical conductors, and the ultimate demand for flat-screen televisions, driven by the state of the market in which Jocelyn’s customers sell their products.

Which of the following resources represent demand-based constraints? (Check all that apply.)

• Number of design engineers that Jocelyn currently employs
• Projected sales for flat-screen televisions
• Market availability for electrical conductors
• Number of flat-screen manufacturers currently in the market

Q7. When addressing a constraint in the short-term or the intermediate-term, a useful accounting measure designed to maximize efficient use of the most constrained resource is “contribution margin per unit of constrained resource.”

• True
• False

Q8. Ryan Incorporated can produce a total of 100,000 units of its two main products per month. Total demand for these products is greater than 150,000 units per month.

Given this scenario, which of the following statements are true? (Check all that apply.)

• Ryan, Inc. likely faces a demand-based constraint.
• Ryan, Inc. likely faces a supply-based constraint.
• When adopting a long-run perspective, Ryan Inc. managers will rely on a measure that captures the contribution margin per unit of scarce resource to decide which product to focus on.

Week 2: Accounting for Business Decision Making: Strategy Assessment and Control

Quiz 1: Practice Quiz

Q1. Costs is one category of factors that potentially influences products’ prices?

• True
• False

Q2. Which of the following is an advantage of the cost-based approach to product pricing?

• It provides a rigid view of prices.
• It allows the pricing decision to be subject to the approach to accounting for fixed costs.
• It provides a clear understanding of profitability.

Q3. A product’s price influences revenues via two inter-related mechanisms: (1) the price is the amount earned per unit sold and (2) the price influences the market demand for the product, and thus the number of units sold.

• True
• False

Quiz 2: Practice Quiz

Q1. Which of the following best describes decentralization?

• Extent to which decision-making rights are distributed to managers and employees
• A static (i.e., unchanging) feature of the organization
• A poor choice when local knowledge is important

Q2. Which of the following is a disadvantage of decentralization?

• Increases responsiveness
• Potentially creates inefficiencies
• Overly focuses on learning and development

Q3. Which of the following statements best describes a transfer price within an organization?

• Price applied to an internal transfer of goods or services
• Fails to allocate profits to the selling and buying division
• Always negotiated by the selling and buying division

Quiz 3: Conceptual Quiz

Q1. A product’s price influences revenues via two inter-related mechanisms: (1) the price is the amount earned per unit sold and (2) the price influences the market demand for the product, and thus the number of units sold.

• True
• False

Q2. Customers is one category of factors that potentially influences products’ prices?

• True
• False

Q3. Daniel Corporation is determining the pricing for its portfolio of products.

Which of the following statements are true regarding this decision? (Check all that apply.)

• In the short-term, Daniel Corporation is able to charge a price lower than its costs to entice customers.
• In the long-run, managers at Daniel Corporation must consider product profitability, and the level of profits that makes investment worthwhile.
• In the short-run, managers at Daniel Corporation may consider some costs as irrelevant to the pricing decision.

Q4. Which of the following is an advantage of the cost-based approach to product pricing?

• It provides a rigid view of prices.
• It provides a clear understanding of profitability.
• It allows the pricing decision to be subject to the approach to accounting for fixed costs.

Q5. Which of the following best describes decentralization?

• Extent to which decision-making rights are distributed to managers and employees
• How wide the organizational hierarchy is
• A poor choice when local knowledge is important
• A static (i.e., unchanging) feature of the organization

Q6. Which of the following statements best describes a transfer price within an organization?

• Fails to allocate profits to the selling and buying division
• Price applied to an internal transfer of goods or services
• Captures only cash transfers
• Always negotiated by the selling and buying division

Q7. Which of the following are approaches to transfer pricing within organizations? (Check all that apply.)

• Market-price
• Negotiated
• Full-cost
• Variable-cost

Q8. All else equal, and from an economic perspective, when the supplier division has excess capacity to produce units required by the buying division, the supplying division will accept a price equal to or greater than the variable costs required to produce the transferred units, plus the contribution margin earned on normal sales of the product.

• True
• False

Quiz 4: Quantitative Analysis Quiz

Q1. GoGo Company is currently pricing its main product, a flash drive for data storage.

Per unit information is as follows:

Direct materials – $8

Direct labor – $2

Variable overhead – $3

Fixed overhead (estimated) – $2

GoGo managers usually markup their products by 10%.

What will the price be if GoGo managers use variable costs as the basis for the pricing decision?

• $15
• $14.30
• $11
• $16.50

Q2. BeBops Group sells lawn furniture. They are part of a very competitive market in which customers have a number of different options for lawn furniture. Thus, BeBops managers usually adhere to market prices.

The market price for one of BeBops main products is $25.

Per unit cost information is as follows:

Direct materials – $10

Direct labor – $3

Variable overhead – $4

Fixed overhead (estimated) – $2

BeBops target a profit margin of 20% on products of this type.

Which of the following statements are true? (Check all that apply.)

• Costs could be increased by $1 and the desired profit is still feasible.
• Target costing is not useful in this scenario, as BeBops must adhere to the market price.
• The current market price, cost estimates, and desired profit margin suggest that this product is feasible.
• Managers will likely look for ways to cut costs before selling this product.

Q3. Aggregate Industries is comprised of many individual, wholly-owned subsidiaries, many of which engage in transactions with each other involving the transfer of goods and services. Aggregate adopts a heavily decentralized approach, allowing subsidiary managers to decide whether to engage in internal transactions and decide the price on a case-by-case basis.

One such transfer involves Standard Division and Bubble Division. Standard produces electrical components, some of which Bubble uses in the production of its circuit boards. Both Standard and Bubble have the opportunities to transact with other entities, outside of Aggregate.

Currently, Standard can produce 10,000 components per month. The normal selling price is $10 per component. Variable costs amount to $6 per unit, and fixed costs per unit (estimated) amount to $1 per unit.

Bubble can purchase the component from an outside supplier at $9 per component. Its monthly needs are 2,000 components per month, all from the same supplier.

Assume that Standard currently has orders for 10,000 components.

Given this information, which of the following statements are true? (Check all that apply.)

• The internal transfer will take place, and save Bubble $1 per component.
• The internal transfer will take place at a price of $10.
• If Standard can save $2 in costs per unit as a result of selling internally (vs. externally), the internal transfer will take place.
• The internal transfer will not take place, as Bubble will not cover Standard’s opportunity cost to sell internally.
• The internal transfer will take place at a price of $9.

Q4. Total Corporation is comprised of many individual, wholly-owned subsidiaries, many of which engage in transactions with each other involving the transfer of goods and services.

Total adopts a heavily decentralized approach, allowing subsidiary managers to decide whether to engage in internal transactions and decide the price on a case-by-case basis.

One such transfer involves Super Division and Byer Division.

Super Division produces plastics, some of which Byer uses in its various products, which are then sold to customers outside of Total Corp.

Both Super and Byer have opportunities to transact with other entities, outside of Total.

Currently, Super can produce 1,000 kilograms of plastics per month. The normal selling price is $5 per kilogram. Variable costs amount to $2 per unit, and fixed costs per unit (estimated) amount to $1 per unit.

Byer can purchase similar plastics from an outside supplier at $4 per kilogram. Its monthly needs are 300 kilograms per month, all from the same supplier.

Assume that Super currently has orders for 700 kilograms.

Given this information, which of the following statements are true? (Check all that apply.)

• The internal transfer will take place at a price of at least $5 per kilogram.
• The internal transfer will take place at a price of no more than $4 per kilogram.
• The minimum price the internal transfer will take place at is $3 per kilogram.
• The minimum price the internal transfer will take place at is $2 per kilogram.

Week 3: Accounting for Business Decision Making: Strategy Assessment and Control

Quiz 1: Practice Quiz

Q1. Which of the following best describes a budget?

• Only used for influencing/guiding decisions
• Aggregated, without much detail
• Qualitative
• Time-specific

Q2. Budgets fulfill the decision-facilitating and decision-influencing roles of managerial accounting.

• True
• False

Q3. Which of the following is true about the sales budget?

• Long-term focused
• Driven by planned production
• Can be separated into product-line specific budgets

Quiz 2: Practice Quiz

Q1. Which of the following best describes a standard?

• Determined at the end of an accounting period
• Reported on a per-unit basis
• Broader than a master budget

Q2. Favorable variances are good news, and unfavorable variances are bad news.

• True
• False

Q3. Which of the following best describes variance analysis?

• Used only on an annual basis
• Provides a comparison of actual and expected performance
• Performed at the aggregate level

Quiz 3: Conceptual Quiz

Q1. Which of the following best describes a budget?

• Aggregated, without much detail
• Only used for facilitating or influencing decisions, but not both
• Time-specific
• Qualitative

Q2. When creating the master budget, managers usually start with the sales budget.

• True
• False

Q3. Which of the following is true about the sales budget?

• Must be separated into product-line specific budgets
• Determined by planned production
• Focused on the long-term
• Is specific to a particular time period

Q4. Which of the following best describes a standard?

• Reported on a per-unit basis
• More aggregated than a master budget
• Determined at the end of an accounting period
• Reported only in financial terms

Q5. Variance analysis provides a comparison of actual and expected outcomes.

• True
• False

Q6. A static cost budget presents how much a company should have spent given the actual level of production.

• True
• False

Q7. Which of the following is true regarding an unfavorable variance?

• It is more important than favorable variances.
• All else equal, actual net income is less than budgeted net income.
• All else equal, actual net income is greater than budgeted net income.
• It reflects an undesirable scenario.

Q8. Fixed cost variances include efficiency variances.

• True
• False

Quiz 4: Quantitative Analysis Quiz

Q1. Kaplan Inc. had 100,000 in unit sales during the last quarter of last year. Managers expect the sales to increase by 10% each quarter over the next four quarters.

The selling price is expected to remain the same for the next four quarters at $2 per unit.

What is the quarter-specific budgeted sales revenue for the 4th quarter of the coming year?

• 280,000
• $266,200
• $292,820
• $260,000

Q2. Waunakee Metals expects sales for the year to be 100,000 units, with quarterly sales of 20%, 25%, 30%, and 25%, respectively. The sales price is expected to be $40.

Management desires an ending finished goods inventory each quarter of 20% of the next quarter’s sales volume.

Each unit requires 3 kilograms of materials at a cost of $5 per kilogram. Management desires an ending raw materials inventory each quarter of 10% of the next quarter’s production needs.

What is the budgeted production (in units) in Q2?

• 21,000
• 25,000
• 31,000
• 26,000

Q3. Waunakee Metals expects sales for the year to be 100,000 units, with quarterly sales of 20%, 25%, 30%, and 25%, respectively. The sales price is expected to be $40.

Management desires an ending finished goods inventory each quarter of 20% of the next quarter’s sales volume.

Each unit requires 3 kilograms of materials at a cost of $5 per kilogram. Management desires an ending raw materials inventory each quarter of 10% of the next quarter’s production needs.

What is the materials to be purchased (in kilograms) in Q3?

• 84,300
• 86,700
• 87,000
• 29,000

Q4. Marbles Company has the following information available regarding its materials:

Managers expected to pay $5 per kilogram, but ended up paying $6 per kilogram. Each unit produced should take 2 kilograms; actual total usage was 2,100 kilograms. Finally, the company planned to produce 1,000 units, but only produced 950.

Calculate the materials spending variance.

• $2,100 (favorable)
• $2,000 (favorable)
• $2,100 (unfavorable)
• $2,000 (unfavorable)

Q5. Marbles Company has the following information available regarding its labor:

Managers expected to pay $11 per direct labor hour, but ended up paying $10 per labor hour. Each unit produced should take 1 direct labor hour; actual total usage was 990 direct labor hours. Finally, the company planned to produce 1,000 units, but only produced 950.

Calculate the labor efficiency variance.

• $550 (unfavorable)
• $550 (favorable)
• $440 (favorable)
• $440 (unfavorable)

Q6. Marbles Company has the following information available regarding its materials:

Managers expected to pay $5 per kilogram, but ended up paying $6 per kilogram. Each unit produced should take 2 kilograms; actual total usage was 2,100 kilograms. Finally, the company planned to produce 1,000 units, but only produced 950.

Calculate the materials activity variance.

• $2,500 (unfavorable)
• $550 (favorable)
• $2,500 (favorable)
• $550 (unfavorable)

Week 4: Accounting for Business Decision Making: Strategy Assessment and Control

Quiz 1: Practice Quiz

Q1. Return on investment can be manipulated due to the number of choices to use as profit and/or investment measures.

• True
• False

Q2. Which of the following performance measurement issues stems from the potential for employees to free-ride?

• Interdependence
• Controllability
• Alignment

Q3. Profit is more informative than return on investment because profit is the bottom-line of the income statement.

• True
• False

Quiz 2: Practice Quiz

Q1. Which of the following is a key purpose of strategic performance measurement systems?

• Communicate strategy
• Inform strategy evolution
• Evaluate strategy
• All of the above

Q2. Developing and implementing a performance measurement, evaluation, and compensation system is relatively straightforward.

• True
• False

Q3. Which of the following is a perspective in the Balanced Scorecard?

• Customer perspective
• Internal perspective
• Financial perspective
• All of the above

Quiz 3: Conceptual Quiz

Q1. Which of the following best describes the concept of a strategy?

• How an organization develops and uses its competitive advantage
• Whether an organization achieves its goals and objectives
• Collection of financial and non-financial performance measures
• Ensuring everything is controllable

Q2. The differentiation strategy relates to how an organization can be different from competition.

• True
• False

Q3. Which of the following performance measurement issues best reflects the following scenario:

A division employee does not expend a lot of effort in his job because other employees are not expending effort.

• Interdependence
• Controllability
• Alignment

Q4. Which of the following best describes return on investment?

• Focuses on a particular accounting period
• Automatically comparable across divisions
• Fails to consider whether assets are being used effectively
• Involves the use of standardized measures of profit and investment

Q5. Relative to other financial measures, the financial measure of “profit” has the advantage of being more informative.

• True
• False

Q6. Courage Incorporated has the following reported information for the last quarter.

Sales – $1,200,000

Total assets – $1,000,000

Profit – $100,000

Courage’s return on sales is , while its return on investment is .

• 8.3%; 10.0%
• 10.0%; 8.3%
• 8.3%; 83.3%
• 83.3%; 10.0%

Q7. Which of the following are disadvantages of financial performance measures? (Check all that apply.)

• Backward-looking
• Incomplete
• Context-specific
• Overly subjective

Q8. Which of the following is a quality of non-financial performance measures that is an advantage?

• Outcome-based
• Objective
• Subjective
• Forward-looking

Q9. Which of the following are purposes of strategic performance measurement systems? (Check all that apply.)

• Communicate strategy
• Evaluate strategy
• Make strategy more forward-looking
• Focus on financial outcomes

Q10. The Balanced Scorecard establishes multiple alternative perspectives of the firm with the financial perspective, and establishes the connections between the goals, objectives, and measures within each of these perspectives.

• True
• False

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