Question

The primary advantage of accelerated depreciation over straight-line depreciation is that, while the total amount of depreciation and thus tax savings is unchanged, charges are taken sooner. This means that the firm gets the benefits of the tax savings sooner, which increases their present value.

Select one:

a. True

b. False

When considering two mutually exclusive projects, the firm should always select that project whose internal rate of return is the highest provided the projects have the same initial cost.

Select one:

a. True

b. false

Which of the following variances will always be unfavorable when actual sales units exceeds budgeted sales units?

Select one:

a. variable cost

b. fixed cost

c. sales revenue

d. operating profit

e. contribution margin

Answer 1

Q1) True

Explanation: In case of accelerated depreciation, the amount depreciated in earlier years is higher than in case of straight line depreciation, which helps to save more tax in earlier years and increase the present value.

Q2) False

Explanation: In case of mutually exclusive projects, decision should be based on Net present value and not IRR.

Q3) A) Variable cost

Explanation: An unfavourable variance indicates that the actual amount decreased operating income relative to budgeted amount. So, it is variable cost which changes with sales unit and can decrease operating profit more when actual sales unit is more than budgeted. So, variable cost is an unfavourable variance.