Study Guide

11880 Words Dec 21st, 2012 48 Pages
1. When a firm maximizes profits it will simultaneously minimize opportunity costs. Answer: True Terms to Learn: opportunity cost

2. The usual starting point in budgeting is to forecast net income. Answer: False Terms to Learn: operating budget The usual starting point in budgeting is to forecast sales demand and revenues.

3. If the $17,000 spent to purchase inventory could be invested and earn interest of $1,000, then the opportunity cost of holding inventory is $17,000. Answer: False Terms to Learn: opportunity cost The opportunity cost of holding inventory is $1,000.

4. The revenues budget should be based on the production budget. Answer: False Terms to Learn:
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Answer: True Terms to Learn: relevant costs

19. When replacing an old machine with a new machine, the book value of the old machine is a relevant cost. Answer: False Terms to Learn: relevant costs The original price of the old machine is a past cost and therefore an irrelevant cost.

20. A four-quarter rolling budget encourages management to be thinking about the next 12 months. Answer: True Terms to Learn: rolling budget

21. Since fixed manufacturing overhead is fixed, it is not normally included in the operating budget. Answer: False Terms to Learn: operating budget Fixed manufacturing is normally included in the operating budget.

22. The manufacturing labor budget depends on wage rates, production methods, and hiring plans. Answer: True Terms to Learn: operating budget

23. Variances between actual and budgeted amounts inform management about performance relative to the budget. Answer: True Terms to Learn: responsibility accounting

24. Discounted cash flow methods measure all the expected future cash inflows and outflows of a project as if they occurred at equal intervals over the life of the project. Answer: False Terms to Learn: discounted cash flow (DCF) methods As if they occurred at a single point in time.

25. Discounted cash flow methods focus on operating income. Answer: False Terms to Learn: discounted cash flow

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