CPA Business Environment and Concepts (BEC) : Operations Management: Budgeting
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #1 : Make Or Buy Analysis
The cash receipts budget includes:
Extinguishment of debt
Loan proceeds
Interest expense
Funded depreciation
Loan proceeds
The cash receipts budget includes loan proceeds.
Example Question #2 : Make Or Buy Analysis
Which of the following factors would assist in a make or buy analysis?
Neither
Cash inflows
Cash outflows
Both
Both
In assessing how much a decision will cost, as well as how much cash that decision will bring in, a firm can accurately deduce which option is in their best interest.
Example Question #1 : Cost Volume Profit Analysis
An increase in production levels within a relevant range most likely would result in:
Decreasing the variable cost per unit
Increasing the total cost
Increasing the variable cost per unit
Decreasing the total fixed cost
Increasing the total cost
As production levels increase, the total cost would increase as costs are incurred to produce additional output.
Example Question #1 : Cost Volume Profit Analysis
ABC company is using cost volume profit analysis to determine service rates for the upcoming year. Projected costs are: Contribution margin per service performed $1,800, Variable expenses per service performed 1,000, and Total fixed expenses 360,000. Based on these estimates, what is the approximate breakeven point in the number of services performed?
360
450
129
200
200
The formula for breakeven point in number is computed by dividing fixed vests by the contribution margin per unit. This would be 360,000/1,800 = 200.
Example Question #11 : Operations Management: Budgeting
Several surveys point out that most managers use full product costs, including unit fixed costs and unit variable costs in developing cost-based pricing. Which of the following is least associated with cost-based pricing?
Price justification
Price stability
Target pricing
Fixed cost recovery
Target pricing
Target pricing is least associated with cost-based pricing. Target pricing takes the perspective of sales rather than looking internally to costs in order to determine a sales price.
Example Question #142 : Cpa Business Environment And Concepts (Bec)
One approach to measuring divisional performance is return on assets. Return on assets is expressed as income:
Divided by average current assets
Divided by average fixed assets
Divided by average total assets
Divided by the current year's capital expenditures plus cost of capital
Divided by average total assets
On a divisional level, return on assets is operating income divided by average total assets.
Example Question #143 : Cpa Business Environment And Concepts (Bec)
Which of the following ratios would be used to evaluate a company's profitability?
Current ratio
Inventory turnover ratio
Gross margin ratio
Debt to total assets ratio
Gross margin ratio
The gross margin ratio describes the ratio of gross margin to sales and serves to evaluate a company's profitability.
Example Question #2 : Cost Volume Profit Analysis
Which of the following is not an assumption of CVP analysis?
Costs show greater variability over time
All costs behave in a linear fashion in relation to production volume
Cost behaviors are expected to change over time
Volume is the only relevant factor affecting the cost
Cost behaviors are expected to change over time
The correct assumption instead of this would be "Cost behaviors are expected to stay constant over the relevant range of production volume".
Example Question #1 : Breakeven Formula
Breakeven analysis assumes that over the relevant range:
Total costs are unchanged
Unit revenues are nonlinear
Unit variable costs are unchanged
Total fixed costs are nonlinear
Unit variable costs are unchanged
Breakeven analysis assumes that all variable costs and revenues are constant on a per-unit basis and are linear over a relevant range. Fixed costs in total are constant.
Example Question #2 : Breakeven Formula
ABC company's breakeven point was $780,000. Variable expenses averaged 60% of sales, and the margin of safety was $130,000. What was ABC's contribution margin?
$1,300,000
$910,000
$364,000
$546,000
$364,000
The margin of safety is the excess of sales over break-even sales. Assuming variable costs are 60% of selling price, contribution margin may be computed at 40% of selling price as 40% * $780,000 + 40% * $130,000.
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