Which technique would be most precise in determining the variable cost component of manufacturing overhead costs?Delphi methodHigh-low methodRegression analysisScatter-graph analysisQuestion 5Which of the following budgets provides information for preparation of the owner’s equity section of a budgeted balance sheet?Sales budgetCash budgetCapital expenditures budgetBudgeted income statementQuestion 6Net present value as used in investment decision-making is stated in terms of which of the following options?Net incomeEarnings before interest, taxes, and depreciationEarnings before interest and taxesCash flowQuestion 7Which of the following statements is correct regarding financial decision making?Opportunity cost is recorded as a normal business expense.The accounting rate of return considers the time value of money.A strength of the payback method is that it is based on profitability.Capital budgeting is based on predictions of an uncertain future.Question 8The management of a company would do which of the following to compare and contrast its financial information to published information reflecting optimal amounts?BudgetForecastBenchmarkUtilize best practicesQuestion 9To measure inventory management performance, a company monitors its inventory turnover ratio. Listed below are selected data from the company’s accounting records:Current yearPrior yearAnnual sales$2,525,000$2,125,000Gross profit percent40%35%Beginning finished goods inventory for the current year was 15% of the prior-year’s annual sales, and ending finished goods inventory was 22% of the current-year’s annual sales. What was the company’s inventory turnover at the end of the current period?1.822.312.733.47Question 10Which of the following statements is correct regarding the payback method as a capital budgeting technique?The payback method considers the time value of money.An advantage of the payback method is that it indicates if an investment will be profitable.The payback method provides the years needed to recoup the investment in a project.Payback is calculated by dividing the annual cash inflows by the net investment..Question 11In order to perform a financial statement audit, the external auditorsMust be independent in fact onlyMust be independent in appearance onlyMust have their independence certified by a state agencyMust be independent in fact and in appearance.The Sarbanes-Oxley Act generally does not apply toLarge U.S. S corporations that have registered debt with the SECLarge U.S. partnerships that have registered equity securities with the SECU.S. limited liability companies that are exempt from SEC registrationNon U.S. corporations that have registered debt with the SEC.Question 13The certifications on the accuracy of the financial statements and the reliability of internal controls under Section 302 of the Sarbanes-Oxley Act do not include thatThe signing officers have reviewed the financial reports.Based on the signing officers’ knowledge, the reports are materially accurate, with no false statements or misleading omissions.Based on the signing officers’ knowledge, the financial information is presented fairly, including the financial statements, footnotes, and management’s discussion and analysis.The audit committee is responsible for the appointment and oversight of the external auditor..Question 14Under Section 404 of the Sarbanes-Oxley Act, who is required to attest to, and report on, management’s assessment of internal control over financial reporting?The board of directorsThe audit committeeThe chief executive officer and chief financial officerThe external auditor.Question 15Which of the following is the least important factor in determining the size of a sample for testing internal control over financial reporting?The nature of the controlThe frequency of the controlThe physical location where the control is testedThe prior experience with the controlQuestion 16Which of the following is a true statement regarding materiality as it relates to corporate governance?There is no concept of materiality relevant to corporate governance.It is a fundamental concept that helps distinguish the important from the trivial.Users of financial statements are not relevant to determining materiality.It does not permit decision-makers to omit issues from consideration..Question 17Which of the following factors would most likely be considered an inherent limitation to an entity’s internal control?The complexity of the information processing systemHuman judgment in the decision-making processThe ineffectiveness of the board of directorsThe lack of management incentives to improve the control environment.2 pointsQuestion 18The Enterprise Risk Management – Integrated Framework is similar to the Internal Control—Integrated Framework in the following way:Both include consideration of an entity’s strategic objectives.Both focus on categorizing specific responses to risk.Both use the concepts of risk appetite and risk tolerance.Both employ the foundational control environment as the basis for the rest of the framework.Question 19The SEC assigns responsibility for the evaluation of the effectiveness of internal controls over financial reporting toManagementExternal auditorsThe audit committeeThe board of directors.Question 20Which of the following is not one of the five key components that make up the Committee Of Sponsoring Organizations’ (COSO) internal control integrated framework?Risk assessmentFinancial statement preparationInformation and communicationMonitoring.2 pointsQuestion 21During the Year 1 ski season, Sunglow Ski Resort had its three access roads blocked by snow.Sunglow estimates that each blocked road results in lost revenue of $4,500 per day, unless all three roads are blocked. When all three roads are blocked, estimated lost revenue is $35,000 for that day. Sunglow estimates that weather will be similar in Year 2. It can retain a snowplow service for $50,000 annually to clear blocked roads. The variable cost of operating the snowplow is $500 per day per blocked road. If Sunglow uses a snowplow service in Year 2, the estimated benefit would beNumber of blockedroads per day0123Number of days12016101$267.000$127,500$125,500$106,000.Question 22Yarrow Co. is considering the purchase of a new machine that costs $450,000. The new machine will generate net cash flow of $150,000 per year and net income of $100,000 per year for five years. Yarrow’s desired rate of return is 6%. The present value factor for a five-year annuity of $1, discounted at 6%, is 4.212. The present value factor of $1, at compound interest of 6% due in five years, is 0.7473. What is the new machine’s net present value?$450,000$373,650$181,800$110,475.2 pointsQuestion 23Which of the following is necessary to be an audit committee financial expert criteria specified in the Sarbanes-Oxley Act of 2002?A limited understanding of generally accepted auditing standardsEducation and experience as a certified financial plannerExperience with internal accounting controlsExperience in the preparation of tax returns.2 pointsQuestion 24Each of the following is a limitation of enterprise risk management (ERM), exceptERM deals with risk, which relates to the future and is inherently uncertain.ERM operates at different levels with respect to different objectives.ERM can provide absolute assurance with respect to objective categories.ERM is as effective as the people responsible for its functioning..2 pointsQuestion 25Which of the following is one of the four perspectives of a balanced scorecard?Just in timeInnovationBenchmarkingActivity-based costing.2 pointsQuestion 26An unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made is referred to as:IndependenceObjectivityProficiencyDue Professional Care.2 pointsQuestion 27Which of the following are not assumptions of classical economic theory?Flexible interest rates allow self-correcting equilibrium of savings and investing.Flexible prices allow self-correcting of shortages and surpluses in product markets.Full employment is not necessarily an attribute of equilibrium.An increase in money leads to an increase in aggregate demand..2 pointsQuestion 28Two different companies of approximately similar financial strength and with similar management teams both have 30-year bonds that trade in active secondary markets. Nile Company is located in a country with relatively small increases in overall price levels; its bonds have a 4% return. Amazon Company is located in a country with relatively large increases in overall price levels each year; its bonds have a 14% return. What is the difference in the interest rate between Nile Company’s bonds and Amazon Company’s bonds called?Default risk premiumInflation premiumLiquidity premiumMaturity risk premiumQuestion 29Weighted average and first in, first out (FIFO) equivalent units would be the same in a period when which of the following occurs?No beginning inventory exists.No ending inventory exists.Beginning inventory units equal ending inventory units.Both a beginning and an ending inventory exist but are not necessarily equal.Question 30Assume the following information regarding the production potential of one unit of resources:ArgentinaTaiwanBeef15 tons6 tonsChips1,800 units1,500 unitsIn trade between Argentina and Taiwan, Taiwan hasAn absolute advantage in producing beefAn absolute advantage in producing chipsA comparative advantage in producing beefA comparative advantage in producing chipsQuestion 31Written Communication:You are a member of a team auditing Crafted Furniture, LLC. The new purchasing manager has a retail background and is curious as to what the auditors mean by the classifications of manufacturing costs. Your supervisor assigns you to prepare a memo explaining the classifications of direct materials, direct labor, and overhead costs.Type your communication in the response area below.Question 32Written Communication:You are a member of a team auditing Cameron Hardware. The owner, a sole proprietor with a strong operations background, is curious as to why the audit team considers the life cycle of products. Your supervisor assigns you to prepare a memo explaining the purpose of an auditor’s consideration of the product life cycle and provide a description of stages in that cycle.Type your communication in the response area below.A-questionYou are on the audit team that audits Redwood Furniture Company, a new family owned business which manufactures wooden furniture such as tables and chairs. The owner, who takes care of the company’s accounting, has a fair amount of knowledge concerning cost accounting for direct labor, direct material and overhead. However, he does not know the proper way of accounting for spoilage that occurs in this type of manufacturing. You are asked to prepare a brief memo explaining the nature of spoilage and how it is properly accounted for.