Question

True or false

1. Capital budget decisions are usually short term in nature.
2. The procedure used to compute the present value of a series a cash flows is called discounting.
3. The internal rate of return is the discount rate that causes the net present of a project to equal zero.
4. When using the net present value method, changing the rate will change the net present value.
5. One of the keys of activity based costing is selecting the appropriate cost driver.
6. Activity base costing involves analyzing the make up of overhead costs.
7. Activity based costing also attempts to increase the amount of non-value added activities.
8. One of the advantages of responsibility accounting is that it increases awareness relative to each department’s contribution to the company profit.
9. An example of a cost center would be the kitchen in a restaurant.
10. An example of an internal failure cost would be the rework of a defectively manufactured part.
11. An example of a preventive quality cost would be training for employees.
12. Goal congruence is an important part of responsibility accounting.
13. An appropriate allocation base for Human Resources Department costs would be headcount.
14. Selecting an appropriate cost driver helps ensure the accuracy of overhead costs.
15. An annuity represents equal amounts over a period of time.
16. The time value of money is an important concept relative to capital budgeting.
17. Activity based costing can be used to identify non value-added activities.
18. Activity based costing is used to allocate direct material costs accurately to products.
19. Responsibility accounting can be used in conjunction with incentive pay.
20. Responsibility accounting uses information to assign blame to managers.

Answer 1

1) Capital budget decisions are usually short term in nature - FALSE

Capital budgeting decisions are the long term decisions which involves analysis of long term assets whether the proposed investment is profitable or non-profitable.

2) The procedure used to compute the present value of a series a cash flows is called discounting - TRUE

Discounting is the procedure which used to estimate the present value of future cash flows. In this procedure a discount rate is used to calculate present value.

3) The internal rate of return is the discount rate that causes the net present of a project to equal zero – TRUE

Internal rate of return is the discounting rate at which present value of future cash inflows equal to present value of cash outflow. In other words, at Internal rate of return the Net Present Value equals to ZERO. Hence the statement is true.

4) When using the net present value method, changing the rate will change the net present value – TRUE

Changing the rate will change the net present value because of using different rate. Different rate will result in the difference present value interest factor. Hence the statement is TRUE.

5) One of the keys of activity based costing is selecting the appropriate cost driver – TRUE

Activity based costing is a technique to allocate the overheads using a suitable cost driver. Cost driver plays very important role is allocating the overhead costs to the product or activity involve. Hence the statement is TRUE.

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