Question 1. To guide cost allocation decisions, the cause-and-effect criterion

• may allocate corporate salaries to divisions based on profits
• is used less frequently than the other criteria
• is the primary criterion used inactivity-based costing
• is a difficult criterion on which to obtain agreement

Question 2. Which cost-allocation criterion is superior when making an economic decision?

• Fairness-or-equity criterion
• Ability-to-bear criterion
• Cause-and-effect criterion
• All of the above

Question 3. The MOST likely reason for NOT allocating corporate costs to divisions include that

• divisions receive no benefits from corporate costs
• these costs are not controllable by division managers
• these costs are incurred to support division activities, not corporate activities
• division resources are already used to attain corporate goals

Question 4. Identifying homogeneous cost pools

• requires judgment and should be reevaluated on a regular basis
• should include the input of management
• should include a cost-benefit analysis
• All of the above

Question 5. The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000for expansion. Interest costs on the bond totaled $1,500,000 for the year. Which corporate costs should be allocated to divisions?

• Variable costs
• Fixed costs
• Neither fixed nor variable costs
• Both fixed and variable costs

Question 6. The stage of the capital budgeting process in which a firm obtains funding for the project is the

• obtain-information stage.
• implement the decision, evaluate performance, and learn stage.
• make-decisions-by-choosing-among-alternatives stage.
• make-predictions stage.

Question 7. Assume your goal in life is to retire with $1 million. How much would you need to save at the end of each year if investment rates average 9% and you have a 15-year work life?

• $41,286
• $37,853
• $25,554
• $34,059

Question 8. If the net present value for a project is zero or positive, this means that the

• project should be accepted
• project should not be accepted
• expected rate of return is below the required rate of return
• Both 1 and 3are correct

Question 9.An important advantage of the net-present-value method of capital budgeting over the internal rate-of-return method is

• the net present value method is expressed as a percentage
• the net present values of individual projects can be added to determine the effects of accepting a combination of projects
• there is no advantage
• Both 1and 2 are correct

Question 10. Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $150,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a five-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project?

• $1,632
• $150,000
• $14,060
• $12,418