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```					  ACCY 122 – Spring 2010                Exam #1 – Practice Exam
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 1 THROUGH 3:
A Cash Budgeting Problem:
The following information pertains to the January operating budget for Casey Corporation.
    Budgeted sales for January \$100,000 and February \$200,000.
    Collections for sales are 60% in the month of sale and 40% the next month.
    Gross margin is 30% of sales.
    Administrative costs are \$10,000 each month.
    Beginning accounts receivable is \$20,000.
    Beginning inventory is \$14,000.
    Beginning accounts payable is \$60,000. (All from inventory purchases.)
    Purchases are paid in full the following month.
    Desired ending inventory is 20% of next month’s cost of goods sold (COGS).
Here is some room for calculations:

1. For January, budgeted cash collections are:
a. \$20,000
b.\$60,000
c. \$80,000
d.None of these answers are correct.

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ACCY 122 – Spring 2010                 Exam #1 – Practice Exam
2. At the end of January, budgeted accounts receivable is:
a. \$20,000
b.\$40,000
c. \$60,000
d.None of these answers are correct.

3. For January, budgeted cash payments for purchases are:
a. \$14,000
b.\$70,000
c. \$60,000
d.None of these answers are correct.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 4 THROUGH 6:
An Excel Solver Problem for managing constraints:
 A furniture store produces beds (B) and desks (D) for college students. The production process requires
assembly (A) and painting (P).
 Each bed requires 6 hours of assembly and 4 hours of painting.
 Each desk requires 4 hours of assembly and 8 hours of painting.
 There are 40 hours of assembly time and 45 hours of painting time available each week. Each bed
generates \$35 of profit and each desk generates \$45 of profit. As a result of a labor strike, the furniture
store is limited to producing at most 8 beds each week. Determine how many beds and desks should be
produced each week to maximize weekly profits.

4. The decision variable(s) for this problem is (are):
a. the profit for each desk and bed
b. the assembly and painting hours for each desk and bed
c. the number of desks and beds to build
d. to total profit from the desks and beds made
e. none of the above

5. The objective function for this problem is:
a. the profit for each desk and bed
b. the assembly and painting hours for each desk and bed
c. the number of desks and bed to build
d. to total profit from the desks and beds made
e. none of the above

6. One of the constraints for this problem is:
a. 6B x 4D = 40
b. 6B + 4D = 40
c. 6B + 4D ≤ 40
d. 6B + 4D ≥ 40
e. none of the above

7. Conceptually, what does the days' sales in receivables ratio measure for a firm?
a. The number of days it takes to generate dollar sales equal to the outstanding accounts receivable
balance.
b. The number of days it would take to collect outstanding receivables if no new ones are created.
c. The number of days it takes for a firm to pay its bills assuming no new payables are created.
d. The number of times during the year a firm collects and reloans its receivables.
e. The number of days it takes before the firm's working capital becomes negative.

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ACCY 122 – Spring 2010                 Exam #1 – Practice Exam
8. What would your best interpretation be for the days' sales in inventory ratio?
a. The number of days it takes before the current ratio falls to zero.
b. The number of days needed to make a profit from selling off inventory.
c. How long it takes, on average, to entirely deplete the firm's inventory account.
d. The time it takes to completely replace total current assets.
e. The rate at which inventory is replaced.

9. If a firm's sales have decreased recently while inventory has increased, you would expect that:
a. Inventory turnover has increased and the days' sales in inventory has decreased.
b. Inventory turnover has decreased and the days' sales in inventory has decreased.
c. Inventory turnover has decreased and the days' sales in inventory has increased.
d. Inventory turnover has increased and the days' sales in inventory has increased.
e. Inventory turnover has not changed.

10. 1Last year, ABC and XYZ both had the same level of cost of goods sold, but ABC turned its inventory over
8 times during the year while XYZ turned its inventory over every 55 days. If the objective is to keep
inventory as low as possible on average, which of the following is true?
a. ABC did a better job since its inventory turnover was higher.
b. XYZ did a better job since its days sales in inventory was lower.
c. ABC did a better job since its days sales in inventory was higher.
d. XYZ did a better job since its inventory turnover was lower.
e. ABC did a better job since its level of inventory was higher.

11. Your company had net sales of \$70,000 over the past year. During that time, average receivables were
\$10,000. What was the average collection period?
a. 7 days
b. 12 days
c. 30 days
d. 43 days
e. 52 days

In The Goal the focus on cost was to look at variable costs that can be controlled. Here are some
questions that address variable costing as discussed in The Goal as well as some other matters from the
book.

12. Under variable costing as applied in the story, fixed manufacturing overhead is:
a. carried in a liability account.
b. carried in an asset account.
c. ignored.
d. immediately expensed as a period cost.

13. Which of the following is true of a company that uses absorption costing?
a. Net operating income fluctuates directly with changes in sales volume.
b. Fixed production and fixed selling costs are considered to be product costs.
c. Unit product costs can change as a result of changes in the number of units manufactured.
d. Variable selling expenses are included in product costs.

14. Under absorption costing, fixed manufacturing overhead costs:
a. are deferred in inventory when production exceeds sales.
b. are always treated as period costs.
c. are released from inventory when production exceeds sales.
d. none of these.

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ACCY 122 – Spring 2010                   Exam #1 – Practice Exam

15. At the start of The Goal, Alex’s boss’ name was:
a. Mr. Harrison
b.Christine
c. Peach
d.Lou

16. When Alex first tried to apply his “Herbie” model to the plant:
a. They made the production goal, but not as much as they wanted
b.They did not make the production goal.
c. It did not work at all, but they did find the reason why
d.It was just a simulation

17. At the end of the novel, they were dealing with an:
a. internal constraint
b.a manufacturing constraint
c. a market constraint
d.they did not have any constraints at the end of the novel.

18. In the calculation of FCF:
a. we include the sales of bonds
b.we exclude dividend payments
c. we include changes in inventory
d.both a. and b. are correct
e. both b. and c. are correct

19. A spontaneous liabilities:
a. is an unexpected liability
b.would be one that occurs from a new business venture
c. would be something like an accounts payable
d.both a. and c. are correct
e. a. and b. and c. are all correct

20. In accounting analysis, the idea of a “turnover” is:
a. the same as sales or revenue
b.the time in days it takes to complete a transaction
c. how many times an account balance is liquidated and restored per year
d.all the above are correct

21. The sustainable growth rate is:
a. the same as the target growth rate
b.the same as the market growth rate
c. the growth rate when AFN is equal to zero
d.none of the above are correct

22. Slack occurs with:
a. a binding constraint
b.a non-binding constraint
c. neither, slack is not related to constraints

23. An example of an operating current asset would be:
a. inventory

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ACCY 122 – Spring 2010                 Exam #1 – Practice Exam
b.accounts receivable
c. marketable securities with maturities less than one year.
d. both a. and b.
e. a. and b. and c. are all correct

24. From the text, variable costing includes:
a. Direct labor
b.Direct materials
c. Sales commissions on units sold.
d.a. and b. are both correct
e. a. and b. and c. are all correct

25. MECE allows us to:
a. apply primarily linear programming to get a solution
b.use fair value accounting and not historical costs
c. breakdown the problem to its basic components
d.a. and b. are both correct
e. a. and b. and c. are all correct

Part II – Fill-In Questions - 10 at two points each. Complete each of the following with what you think is
the best answer. Try to be legible in your answer. There are more than ten questions so you can miss a
few and still get full credit. If you get more than ten questions correct you will just get the 20 points – no
extra points
1. The idea of "the goal" from the theory of constraints found in The Goal was to

________________________________________________________________________ .

2. In The Goal, the drum changes during the story. At the start of the book the drum was

__________________________________ .

3. At the end of The Goal the drum was _________________________________________________ .

4. The colored tape in The Goal was used to identify ______________________________________ .

5. In the work we did with Excel’s Solver, a binding constraint is _______________________
___________________________________________________ (What is in general, not a specific one).

6. From the Theory of Constraints: Only by increasing ____________________________ at the bottleneck

process can overall _______________________________ be increased- it is the same word.

7. If we apply Excel’s Solver to a problem where we want to find our constraints, we generally minimize or

maximize the ________________________________ in setting up the solution – which part of the

solution?

8. The purpose for which we use EVA is to _____________________________________________________

______________________________________________________________________________________

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ACCY 122 – Spring 2010                 Exam #1 – Practice Exam

9. In AFN, there is a basic assumption about cost behavior. And that is that cost _______________________

______________________________________________________________________________________.

10. Two of the four p’s are ___________________________ and __________________________________

11. Two of the strategy tools we discussed in class are _____________________________________ and

___________________________________ - there are more than two possible answers.

12. The CCC includes three components. They are: ____________________________ and

____________________________ and ____________________________

13. Full absorption costing for inventory includes four components. They are:

___________________________                                 _________________________

___________________________                                 _________________________

Part III - Other

#1. Diagram the cash-collection cycle:

#2. Show the formulas for the free-cash flow – think about it intuitively about what you are calculating.

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