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19 Cards in this Set
- Front
- Back
A production department within the factory, such as assembly, is an example of a profit center.
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FALSE
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Variable costing and absorption costing income statements may differ because of their treatment of fixed selling and administrative costs.
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FALSE
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On a segmented income statement, fixed costs are broken down into direct fixed costs and common fixed costs.
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TRUE
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Return on investment (ROI) is the most common measure of performance for an investment center.
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TRUE
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Turnover is the ratio of operating income to sales.
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FALSE
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The market price is always the best transfer pricing policy.
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FALSE
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The selling division would never agree to a transfer price below its full manufacturing cost.
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FALSE
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A sunk cost is never relevant.
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TRUE
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If cash flows are uneven, the payback period assumes that the inflows during the last fraction of a year occur evenly.
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TRUE
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A disadvantage of the payback period is that it ignores the time value of money.
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TRUE
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Both the payback period and the accounting rate of return do not consider the profitability of a project over its life span.
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TRUE
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A disadvantage of post audits is that they are costly.
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TRUE
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The internal rate of return model does not consistently result in choices that maximize firm wealth.
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TRUE
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The manager of a division is displeased with the ROI of the division. One step that would increase ROI (holding everything else constant) is
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increasing sales.
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Which of the following is a disadvantage of a focus on return on investment?
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It can produce a narrow focus on divisional profitability at the expense of profitability for the overall firm.
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Decentralization is frequently chosen by companies because it:
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allows for training and motivation of local managers.
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Future costs that differ across alternatives are
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relevant costs.
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On which type of income statement does each of the following costs appear? Fixed factory overhead for the period.
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Variable costing income statement
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On which type of income statement does each of the following costs appear? Fixed factory overhead for units sold.
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Absorption costing income statement
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