Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Practice Questions and Exam Preparation

Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Questions & Answers

• Question 411:

  Cyclical unemployment results from:

  A. Skills of workers not corresponding to jobs available.
  B. The time it takes to match qualified workers with available jobs.
  C. Seasonal decreases in demand for labor.
  D. A recession in the economy.
  D. A recession in the economy.

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  Choice "d" is correct. Cyclical Unemployment is caused by the business cycle. It tends to rise during a recession and fall during an expansion.

  Choice "a" is incorrect. This is an example of structural unemployment.

  Choice "b" is incorrect. This is an example of frictional unemployment.

  Choice "c" is incorrect. This is an example of seasonal unemployment.

• Question 412:

  During 1994, Deet Corp. experienced the following power outages:

  

  Each power outage results in out-of-pocket costs of $400. For $500 per month, Deet can lease an auxiliary generator to provide power during outages. If Deet leases an auxiliary generator in 1995, the estimated savings (or additional expenditures) for 1995 would be:

  A. ($3,600)
  B. ($1,200)
  C. $1,600
  D. $1,900
  C. $1,600

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  Choice "c" is correct.

  

  Choice "a" is incorrect. The estimated savings is dependent on the number of outages and on the number of months, since there are two costs involved. Choice "b" is incorrect. The estimated savings is not the difference between the out-ofpocket costs and cost of generator, times 12 months.

  Choice "d" is incorrect. The cost of the generator is a monthly cost, not dependent on the number of power outages.

• Question 413:

  The segment margin of an investment center after deducting the imputed interest on the assets used by the investment center is known as:

  A. Return on investment.
  B. Residual income.
  C. Operating income.
  D. Return on assets.
  B. Residual income.

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  Choice "b" is correct. Residual income is the segment margin of an investment center after deducting the imputed interest (hurdle rate) on the assets used by the investment center.

  Choice "a" is incorrect. Return on investment is the ratio of income earned to the investment.

  Choice "c" is incorrect. Operating income is not well defined, but is generally the income from operations for the entire organization, not a segment.

  Choice "d" is incorrect. Return on assets is the ratio of income produced to assets employed (not the amount invested).

• Question 414:

  Clauson Inc. grants credit terms of 1/15, net 30 and projects gross sales for next year of $2,000,000. The credit manager estimates that 40 percent of their customers pay on the discount date, 40 percent on the net due date, and 20 percent pay 15 days after the net due date. Assuming uniform sales and a 360-day year, what is the projected days sales outstanding (rounded to the nearest whole day)?

  A. 20 days.
  B. 24 days.
  C. 27 days.
  D. 30 days.
  C. 27 days.

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  Choice "c" is correct. 27 days projected days sales outstanding.

  

• Question 415:

  A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of bad debts, and a decrease in the investment in accounts receivable. Based upon this information, the company's:

  A. Average collection period has decreased.
  B. Percentage discount offered has decreased.
  C. Accounts receivable turnover has decreased.
  D. Working capital has increased.
  A. Average collection period has decreased.

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  Choice "a" is correct. Average collection period has decreased due to a change in credit policy that has caused:

  1.

  Increase in sales,

  2.

  Increase in discounts taken,

  3.

  Decrease in the amount of bad debt; and

  4.

  Decrease in the investment in accounts receivable

  Choice "b" is incorrect. Percentage discount offered has probably increased, as discounts taken has increased.

  Choice "c" is incorrect. Accounts receivable turnover has increased, as sales are up and accounts receivable are down.

  Choice "d" is incorrect. Change in gross profit and working capital is not determinable from these facts.

• Question 416:

  Which of the following statements is correct regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners?

  Profits are to be divided:

  A. Based on the partners' ratio of contribution to the partnership.
  B. Based on the partners' participation in day-to-day management.
  C. Equally among the partners.
  D. Proportionately among the partners.
  C. Equally among the partners.

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  Choice "c" is correct.

  Rule: When the partnership agreement is silent as to how profits are to be divided, they are divided equally. Note also that when the agreement is silent, losses are treated similar to profits, there is no reverse rule that profits are treated like

  losses.

  Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 417:

  McLean Inc. is considering the purchase of a new machine that will cost $150,000. The machine has an estimated useful life of three years. Assume for simplicity that the equipment will be fully depreciated 30, 40, and 30 percent in each of the three years, respectively. The new machine will have a $10,000 resale value at the end of its estimated useful life. The machine is expected to save the company $85,000 per year in operating expenses. McLean uses a 40 percent estimated income tax rate and a 16 percent hurdle rate to evaluate capital projects.

  Discount rates for a 16 percent rate are as follows.

  

  What is the net present value of this project?

  A. $15,842
  B. $13,278
  C. $9,432
  D. $(35,454)
  B. $13,278

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  Choice "b" is correct. $13,278 net present value.

  

• Question 418:

  Strategic planning, as practiced by most modern organizations, includes all of the following, except:

  A. Top-level management participation.
  B. Strategies that will help in achieving long-range goals.
  C. Analysis of the current month's actual variances from budget.
  D. Identification of long-term key variables including external influences.
  C. Analysis of the current month's actual variances from budget.

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  Choice "c" is correct. Analysis of the current month's actual variances from budget is not a part of strategic planning. It is too short-term and looks at the past. Strategic planning has a long-term focus and is forward-looking. Strategic planning includes:

  A. Top-level management participation.

  B. Strategies that will help in achieving long-range goals.

  D. Identification of long-term key variables including external influences.

• Question 419:

  In competitive markets, an increase in demand for a product causes a(n):

  A. Increase in product supply.
  B. Reduction in purchases by consumers.
  C. Reduction in the number of buyers of the product.
  D. Increase in the price of the product.
  D. Increase in the price of the product.

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  Rule of economic reasoning: "Draw the graph!"

  

  Choice "d" is correct. When demand increases and supply has not increased (as implied by the question), suppliers will raise the price of the product and more product will be bought (but the supply curve does not change). Because

  consumers are demanding more product than is available, they are "willing" to pay a higher price.

  Choice "a" is incorrect. Although buyers would pay higher prices and purchase more products, the supply "curve" has not changed. Therefore, the quantity supplied remains the same.

  Choice "b" is incorrect. Because consumer demand has increased (not decreased).

  Choice "c" is incorrect. An increase in demand has an indeterminate (and irrelevant) impact on the number of buyers. For example, there could be the same number of buyers in the market, but that each demands a higher quality.

• Question 420:

  The level of safety stock in inventory management depends on all of the following, except the:

  A. Level of uncertainty of the sales forecast.
  B. Level of customer dissatisfaction for back orders.
  C. Level of uncertainty in lead-time for stock shipments.
  D. Cost to reorder stock.
  D. Cost to reorder stock.

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  Choice "d" is correct. Reorder costs do not impact the level of safety stock. Choices "a", "b", and "c" are incorrect. Safety stock levels are affected by:

  1.

  Uncertain sales forecasts - greater uncertainty means a higher level of safety stock should be carried.

  2.

  Dissatisfaction of customers - if customers are dissatisfied with back orders (which occur when there are stock outs), then more safety stock should be carried to prevent stock outs.

  3.

  Uncertain lead times - greater uncertainty means a higher level of safety stock is needed.