#1
Which of the following is a fixed cost?
Rent for factory building
ExplanationCost that remains constant regardless of production levels.
#2
What is the purpose of cost-volume-profit (CVP) analysis?
To determine the relationship between cost, volume, and profit
ExplanationExamines how changes in sales volume, costs, and prices affect profit.
#3
Which of the following is an example of a variable cost?
Cost of raw materials
ExplanationCost that varies with the level of production or sales.
#4
What is the main limitation of using the payback period method in capital budgeting?
It does not consider the time value of money
ExplanationDoesn't account for the reduced value of future cash flows.
#5
Which of the following statements accurately describes relevant costs in decision making?
They are future costs that differ between alternatives
ExplanationCosts that change between options and influence decision outcomes.
#6
What is the formula to calculate contribution margin?
Total Revenue - Variable Costs
ExplanationMeasure of profitability, indicating revenue left after covering variable costs.
#7
What does the break-even point represent?
The point where total revenue equals total costs
ExplanationLevel of sales at which a business covers all costs and makes no profit or loss.
#8
What is the formula for calculating contribution margin ratio?
(Total Revenue - Variable Costs) / Total Revenue
ExplanationIndicates the proportion of revenue that contributes to covering fixed costs and profit.
#9
In decision making, what does the term 'sunk cost' refer to?
Costs that have been incurred and cannot be recovered
ExplanationExpenses already spent that should not influence future decisions.
#10
What is the formula for calculating the net present value (NPV) of a project?
NPV = ∑ [Cash Flows / (1 + Discount Rate)^t] - Initial Investment
ExplanationMeasures the present value of future cash inflows minus initial investment.
#11
What is the Net Present Value (NPV) method primarily used for?
To evaluate long-term investments
ExplanationAssesses the profitability of an investment by discounting future cash flows to present value.
#12
Which of the following statements is true about opportunity costs?
They are the benefits foregone by choosing one alternative over another
ExplanationValue of the next best alternative forgone when a decision is made.
#13
What is the goal of incremental analysis in decision making?
To focus on the differences in costs and revenues between alternatives
ExplanationEvaluates the incremental costs and benefits of different options.
#14
What is the main advantage of using the internal rate of return (IRR) method in capital budgeting?
It considers the time value of money
ExplanationReflects the profitability of an investment by factoring in the time value of cash flows.
#15
What is the main drawback of using the payback period method in capital budgeting?
It does not account for the time value of money
ExplanationDoesn't consider the timing or value of cash flows beyond the payback period.