Certified Public Accountant CPA Questions + Answers Part 12
Posted: Tue Feb 22, 2022 6:15 pm
Choice "a" is correct. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market.
Choice "b" is incorrect. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market, not a disadvantage.
Choice "c" is incorrect. Foreign currency exchange rates impact both sales and possibly cost of goods sold of a competing domestic company. Sales within U.S. markets will deteriorate as the currency of foreign competitors deteriorates and makes the domestic company's goods more expensive. As a foreign competitor's currency appreciates, sales within U.S. markets by a domestic company should also increase as goods manufactured in the U.S. become less expensive. Cost of goods sold may fluctuate if foreign suppliers are used.
Choice "d" is incorrect. It is better for a U.S. company when the value of the U.S. dollar weakens, not strengthens. A weak U.S. dollar makes domestic goods relatively less expensive that imported goods.
Supplemental Questions
QUESTION 224
Compared to firms in a perfectly competitive market, a monopolist tends to:
A. Producesubstantiallylessbutchargeahigherprice. B. Producesubstantiallymoreandchargeahigherprice. C. Produce the same output and charge a higher price. D. Produce substantially less and charge a lower price.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Compared to firms in a perfectly competitive market, a monopolist tends to produce substantially less but charge a higher price. Choices "b", "c", and "d" are incorrect, per above Explanation: .
QUESTION 225
Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of:
A. Marketconcentration. B. Entrybarriers.
C. Exclusionarypractices. D. Collusion.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Patents are an example of entry barriers. Patents prevent other rival firms (without patents) from entering the market and consequently, are a form of entry barriers. Patents can be "process-related" or "product-related."
Choices "a", "c", and "d" are incorrect, per above Explanation: .
QUESTION 226
An oligopolist faces a "kinked" demand curve. This terminology indicates that:
A. Whenanoligopolistlowersitsprice,theotherfirmsintheoligopolywillmatchthepricereduction,butiftheoligopolistraisesitsprice,theotherfirmswillignore the price change.
B. Anoligopolistfacesanon-lineardemandforitsproduct,andpricechangeswillhavelittleeffectondemandforthatproduct.
C. An oligopolist can sell its product at any price, but after the "saturation point," another oligopolist will lower its price and, therefore, shift the demand curve to the left.
D. An oligopolist is similar to a monopolist, and as the quantity demanded for its product increases, the demand curve for that firm shifts to the right.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. In an oligopoly, each firm faces a "kinked" demand curve. Others will match price cuts, but ignore price increases. The "kink" is at the prevailing price. Best real world examples of oligopoly are the airline and auto industries.
Choice "b" is incorrect. An oligopolist's demand curve is linear but "kinked." Above the "kink," demand is highly elastic. Below, very inelastic.
Choice "c" is incorrect. An oligopolist cannot sell at any price. There is no "saturation point." Choice "d" is incorrect. A change in quantity demanded indicates a movement along the demand curve, not a shift in the curve.
QUESTION 227
An increase in the minimum wage:
A. Willmoveemployersdownthelabordemandcurve,causingthequantityoflabordemandedtofall. II. Is likely to increase the supply of labor, as more people will be willing to work for the higher wage.
B. OnlyI.
C. OnlyII.
D. Both I and II.
E. NeitherInorII.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct; neither statement I nor statement II are correct. Statement I is incorrect, as an increase in the minimum wage will move employers up, not down, the labor demand curve, causing the quantity of labor demanded to fall. Statement II is incorrect, as an increase in the minimum wage leads to a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. It does not increase the supply of labor, only the quantity supplied of labor. Choices "a", "b", and "c" are incorrect, per the above.
QUESTION 228
In a competitive market an increase in the minimum wage will likely have the following effects:
A. Thegeneral(oraggregate)demandforlaborwillincrease;however,thequantitydemandedwillremainunchanged. B. Thegeneral(oraggregate)supplyoflaborwillincrease;however,thequantitysuppliedwillremainunchanged.
C. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease. D. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will decrease.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.
Choice "a" is incorrect, per Explanation: for choice "c" above. Choices "b" and "d" are incorrect. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will increase.
QUESTION 229
An increase in the minimum wage will benefit specific economic wage groups as outlined below:
A. Employeesattheminimumwageratewhoremainemployedwillbenefit,sincetheywillreceivemoremoney.
II. Many of the unskilled could lose their jobs. There would be fewer jobs for the currently unemployed such as less educated and untrained personnel (e.g., teenagers) who will have more difficulty finding work as firms reduce their labor force and pursue more efficiency.
B. OnlyI.
C. OnlyII.
D. Both I and II.
E. NeitherInorII.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Only I.
Choices "b", "c", and "d" are incorrect, since II is a disadvantage - not a benefit.
QUESTION 230
The movement along the demand curve from one price-quantity combination to another is called a(n): A. Changeindemand.
B. Shiftinthedemandcurve.
C. Change in the quantity demanded. D. Increase in demand.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. References to the change in quantity demanded refer to a single demand curve, which is downward sloping to the right.
Changes in the quantity demanded result from changes in price. Choices "a", "b", and "d" are incorrect. All refer to changes in the demand curve itself, like an outward shift from curve D - D to D1 - D1.
QUESTION 231
Which one of the following would cause the demand curve for a commodity to shift to the left?
A. Ariseinthepriceofasubstituteproduct.
B. Ariseinaveragehouseholdincome.
C. A rise in the price of a complementary commodity. D. A rise in the population.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. A rise in the price of a complementary commodity would cause a shift to the left in any demand curve (representing decrease in demand, at all price levels, for that product). With respect to complementary goods, the demand for the primary product is directly impacted by the demand (and hence the price changes) for the complementary goods. For instance, if the price of gasoline goes up, the demand for cars will decrease, causing the demand curve for cars to shift left. Choice "a" is incorrect. A rise in the price of a substitute product will make the demand curve shift to the right.
Choice "b" is incorrect. A rise in average household income would make the demand curve shift to the right, representing an increase in demand.
Choice "d" is incorrect. A rise in population, or a change in consumers' tastes in favor of the commodity are also changes that may cause an increase in demand, making the demand curve shift to the right.
QUESTION 232
In any competitive market, an equal increase in both demand and supply can be expected to always:
A. Increasebothpriceandmarket-clearingquantity. B. Increasemarket-clearingquantity.
C. Increase price.
D. Decrease price.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. As illustrated above, a shift outward (increase) in supply increases quantity supplied at equilibrium. As illustrated, this is true even when demand increases. Choice "a" is incorrect. As illustrated, price may stay the same but quantity will increase. Draw the graph!
Choices "c" and "d" are incorrect. Price may remain the same, but quantity will "always" increase.
QUESTION 233
When the federal government imposes health and safety regulations on certain products, one of the most likely results is:
A. Greaterconsumptionoftheproduct. B. Lowerpricesfortheproduct.
C. Higher prices for the product.
D. Increased supply of the product.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. One of the consequences of greater government regulation of certain products is the resulting higher cost to the consumer when the government imposes health and safety regulations on certain products it is likely that expenses will increase and that the added costs will be passed on to consumers in terms of higher prices. The total output for the product may decrease. Choice "a" is incorrect. Since the price goes up, consumption will decrease. Choice "b" is incorrect. The price can be expected to increase (see choice "c" Explanation: above). Choice "d" is incorrect. Since the price goes up, supply goes down.
QUESTION 234
Tennis rackets and tennis balls are:
A. Substitutegoods.
B. Independentgoods.
C. Inferior goods.
D. Complementarygoods.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. Complementary goods are ones whose demand fluctuates together. If Good A and Good B are complements, then if the demand for Good A increases, the demand for Good B will also increase, tennis rackets and tennis balls are complements. Choice "a" is incorrect. For substitutive goods, as the price of one of the goods increases, the other good experiences an increase in demand as it is substituted for the first good. An example of substitute goods is apple and orange juice.
Choice "b" is incorrect. Independent goods have demand functions that are not interrelated. An example would be bread and vacuum cleaners.
Choice "c" is incorrect. Inferior goods experience a decrease in demand when income levels rise. An example is hamburger, which experiences decrease in demand as incomes rise and buyers switch to higher priced meats.
QUESTION 235
All of the following are complementary goods, except:
A. Margarineandbutter.
B. Gasandmotoroil.
C. Cameras and rolls of film. D. VCRs and video cassettes.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Margarine and butter are substitute goods. If the price of one goes up, demand for the substitute increases.
Choices "b", "c", and "d" are incorrect. They are complements. Two goods are complements if they are used together or their demand curves move together (breakfast cereal and milk, e.g., or tennis balls and tennis racquets). Thus, if the price of one complement goes up, demand for the other good goes down.
QUESTION 236
Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand:
A. Isrelativelyelastic. B. Isperfectlyelastic. C. Is relatively inelastic. D. Is perfectly inelastic.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Goods that are important for a comfortable life-style would be relatively price insensitive (i.e., inelastic). For example, demand for electricity
would only decrease if there were an enormous increase in price (people might then use other forms of energy - such as solar). Only goods that are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves. That is, no matter what price is charged, people will still buy the product because they need it to stay alive.
Choices "a", "b", and "d" are incorrect, per Explanation: for choice "c" above.
QUESTION 237
Product demands become more elastic the:
A. Greaterthenumberofsubstituteproductsavailable. B. Greatertheconsumerincome.
C. Greater the elasticity of supply.
D. Shorter the time period considered.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Product demands become more elastic the greater the number of substitutes available. With price increases, consumers will switch to substitute goods. Choice "b" is incorrect. Consumer income will not affect demand elasticity. Choice "c" is incorrect. Elasticity of supply and demand is unrelated. Choice "d" is incorrect. Product demand is more elastic the longer the time period, since more choices become available.
QUESTION 238
If a product's demand is elastic and there is a decrease in price, the effect will be:
A. Adecreaseintotalrevenue.
B. Nochangeintotalrevenue.
C. A decrease in total revenue and the demand curve shifts to the left. D. Anincreaseintotalrevenue.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. If demand is relatively elastic, then the reduction in price will, by definition, produce a proportionately greater increase in quantity demanded.
Hence, total revenue will increase. Choices "a", "b", and "c" are incorrect, per Explanation: above.
QUESTION 239
If a product has a price elasticity of demand of 2.0, the demand is said to be:
A. Perfectlyelastic. B. Perfectlyinelastic. C. Relativelyelastic. D. Relativelyinelastic.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. A price elasticity of demand of 2.0 means demand will change by 2× (as a percentage) for any change in price. This is called elastic. Choice "a" is incorrect. Perfectly elastic demand does not exist. Choice "b" is incorrect. Perfectly inelastic demand means the quantity demanded will not change when price changes.
Choice "d" is incorrect. Inelastic demand responds less than 1× (as a percentage) for a change in price.
QUESTION 240
In the pharmaceutical industry where a diabetic must have insulin no matter what the cost, the diabetic's demand is considered to be:
A. Perfectlyelastic. B. Perfectlyinelastic. C. Relativelyelastic. D. Relativelyinelastic.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. When a good is demanded, no matter the price, demand is described as perfectly inelastic. The demand "curve" is a vertical line at the quantity demand with price making no difference. Choices "a" and "c" are incorrect. There is no such thing as perfect elasticity. However, the more elastic demand is, the greater the change in quantity demand for price changes. Choice "d" is incorrect. Insulin is an example of perfectly inelastic.
QUESTION 241
If, in a competitive market, a price ceiling is imposed establishing a maximum price below the market equilibrium price, this price ceiling would result in:
A. Shortagesbecausethequantitydemandedwouldexceedthequantitysupplied. B. Noeffectonthequantitysuppliedordemanded.
C. Surpluses because the quantity supplied would exceed the quantity demanded. D. Surpluses because the supply curve would shift to the right.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Setting a ceiling price below the price dictated by the market (as established by the equilibrium price) would create excess demand and a shortage. Choices "b", "c", and "d" are incorrect, per above Explanation: .
QUESTION 242
Government price regulations in competitive markets that set maximum or ceiling prices below the equilibrium price will in the short run:
A. Causedemandtoincrease.
B. Causesupplytoincrease.
C. Create shortages of that product. D. Produce a surplus of the product.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Government price regulations in competitive markets that set maximum or ceiling prices below the equilibrium price will create shortages of that product in the short run because quantity supplied will be less than quantity demanded at that price. Choice "a" is incorrect. Quantity demand will increase at the lower price. Choice "b" is incorrect. Quantity supplied will decrease at the lower price. Choice "d" is incorrect. A price set below the market's equilibrium price causes shortages, not surpluses, per the graph above.
QUESTION 243
Which of the following activities is considered a primary activity?
A. Deliveryofproducts.
B. Procurementofmaterials. C. Human resources.
D. Accounting.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Primary activities are those that are involved with the direct manufacture of products, the delivery of products through distribution channels, and the support of the product that exists after the sale is made (e.g., handling the raw materials, the manufacturing process, taking orders for the product, advertising the product, and servicing the product after it is sold). Choices "b", "c", and "d" are incorrect, as these are all considered support activities. Support activities are those activities that are performed by the support staff of an organization (e.g., purchasing of materials and supplies, development of the technology used, management of employees, accounting, finance, strategic planning, etc.).
QUESTION 244
When applying value chain analysis, a firm asks it accounting department to perform an analysis of the sources of profits and costs of activities that exist within the firm. The firm is performing which form of value chain analysis?
A. Internaldifferentiationanalysis.
B. Internalcostsanalysis. C. Vertical linkage analysis. D. None of the above.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Internal costs analysis includes analyzing the internal value-creating ability of a firm, so the sources of profit and costs of the internal activities of the firm must be analyzed. Choices "a", "c", and "d" are incorrect, per the above Explanation: .
QUESTION 245
Which of the following statements regarding competitive advantage is not true?
A. Thetwomajorformsofcompetitiveadvantageareproductdifferentiationandcostleadership.
B. Ifthemanufacturingcostsofafirmarelessthanthoseofcloserivals,thenthefirmhasacompetitivemarketadvantage.
C. Cost leadership advantage may be the best be obtained by a firm when a firm builds market share or matches the price of its rivals. D. Differentiation advantage may best be obtained by a firm when a firm builds market share or increases its price.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is the proper choice, as it is not a true statement. Simply because the manufacturing costs of a firm are less than those of close rivals, this does not necessarily mean that the firm has a competitive market advantage. Only if TOTAL costs to a firm are less than those of close rivals will a firm have a competitive market advantage.
Choices "a", "c", and "d" are incorrect, as they are all true statements.
QUESTION 246
In which stage of supply chain management will the firm's management turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, with a focus on customer service?
A. Cross-functionalteams.
B. Integratedenterprise.
C. Extendedsupplychain.
D. Supplychaincommunities.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. In the cross-functional teams stage of supply chain management, the firm's management will turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, and the focus will be on customer service. Choice "b" is incorrect. In the integrated enterprise stage of supply chain management, the firm's management will move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards the main business issue of the cost of customer service. Choice "c" is incorrect. In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth.
Choice "d" is incorrect. In the supply chain communities stage of supply chain management, the extended supply chain forms a single competitive entity with a synchronized supply chain and a complex system of networks.
QUESTION 247
Strategy is a broad term that usually means the selection of overall objectives. Strategic analysis would generally exclude the:
A. Trendsthatwillaffecttheentity'smarkets.
B. Targetproductmixandproductionscheduletobemaintainedduringtheyear.
C. Forms of organizational structure that would best serve the entity.
D. Best ways to invest in research, design, production, distribution, marketing, and administrative activities.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Target product mix and production scheduling would be operational plans. Strategy is much more general and conceptual.
Choices "a", "c", and "d" are incorrect, which are parts of strategy.
QUESTION 248
Which one of the following management considerations is usually addressed first in strategic planning?
A. Overallgoalsofthefirm. B. Organizationalstructure. C. Recent annual budgets. D. Being an industry leader.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Setting the overall goals of the firm is usually the starting point in strategic planning.
Choice "b" is incorrect. The organizational structure will be partially determined by the goals of the firm.
Choice "c" is incorrect. Recent annual budgets may be reviewed as an aid in planning, but they are not the first consideration in strategic planning. In fact, they often are ignored. Choice "d" is incorrect. Being an industry leader may be or become a goal of the firm, but that would be determined during the strategic planning process.
QUESTION 249
All of the following are characteristics of the strategic planning process, except the:
A. Emphasisonboththeshortandlongrun.
B. Reviewoftheattributesandbehavioroftheorganization'scompetition. C. Analysis and review of departmental budgets.
D. Analysis of consumer demand.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Analysis and review of departmental budgets is not a part of the strategic planning process. Budgets are operational and much more specific than the things that are part of strategic planning.
Choices "a", "b", and "d" are incorrect. All of these are part of the strategic planning process:
A. Emphasis on both the short and long run.
B. A review of competition.
D. Analysis of consumer demand.
QUESTION 250
Strategic planning, as practiced by most modern organizations, includes all of the following, except:
A. T op-level management participation.
B. Strategiesthatwillhelpinachievinglong-rangegoals.
C. Analysis of the current month's actual variances from budget.
D. Identification of long-term key variables including external influences.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
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 251
The key difference between strategic goals and tactical goals is that tactical goals are:
A. Usuallyattainable.
B. Developedbytopmanagement.
C. Concerned with issues other than profit. D. Short-term in nature.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. Tactical goals are the means for attaining strategic goals and are short-term in nature. Strategic goals are overall objectives and relatively long-term. Choice "a" is incorrect. Both strategic and tactical goals are usually attainable. Choice "b" is incorrect. Development of all goals are best accomplished
with the involvement of employees at all levels.
Choice "c" is incorrect. Tactical goals are the means for achieving strategic goals. Both are concerned with profit and other issues.
QUESTION 252
Eugene Entrepreneur developed his waste collections and disposal business from one truck 20 years ago to a fleet of 2,000 trucks serving an entire region today. Gene is looking to retire and knows that he cannot find a suitable buyer for the entire business. Gene has developed a series of short range plans with his senior management group that include generous bonuses, funded in part by deferred repair and maintenance expenses and prior earnings, sales of business segments where possible or transfers of assets to the counties and municipalities that had engaged the waste collection and disposal service. Gene has frozen all new capital investment. The mission that Eugene Entrepreneur has mapped out for his company can best be described as:
A. Build.
B. Hold.
C. Harvest. D. Sunset.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Eugene Entrepreneur has mapped out a harvest mission for his company. As Gene retires and pulls assets and value from the company, he is clearly taking a short-term view toward reaping immediate benefit.
Choice "a" is incorrect. A "build" mission anticipates that the business is positioned to expand markets or market share and is characterized by a long-term view that promotes investment. Choice "b" is incorrect. A "hold" mission contemplates that the business is trying to hold on to current market share and is characterized by appropriate investment and competitive positioning. Choice "d" is incorrect. The term "sunset" mission is a distracter.
QUESTION 253
Anson Industries, a vertically integrated producer and retailer of high end audio visual equipment has mapped out its overall business process as beginning with product development followed by product testing then raw materials purchasing then manufacturing and assembly, and, finally, sales and service. Finance staff at Anson Industries are trying to evaluate the efficiency and the effectiveness of each process and the relationship between each process. This evaluation is often referred to as:
A. Processimprovement.
B. Continuousqualityimprovement. C. Value chain analysis.
D. Benchmarking.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. The process of developing macro level flow charts of business processes that produce products or services and then identifying the value added by each process is referred to as value chain analysis.
Choice "a" is incorrect. Process improvement represents the results of total quality management efforts. Choice "b" is incorrect. Continuous quality improvement represents an unswerving focus on customer satisfaction and quality, not necessarily the specific steps associated with value chain analysis. Choice "d" is incorrect. Benchmarking relates to determining best practices and, often, using those practices as standards.
QUESTION 254
A market with many independent firms, low barriers to entry, and product differentiation is best classified as:
A. Anaturalmonopoly.
B. Monopolisticcompetition. C. An oligopoly.
D. Pure competition.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. A market with many independent firms, low barriers to entry, and product differentiation is best classified as monopolistic competition. There are few barriers to entry and firms exert some influence over price in such a market. Best examples are brand name consumer products. Choice "a" is incorrect. A natural monopoly exists when economic and technical conditions permit only one efficient supplier.
Choice "c" is incorrect. The presence of only one company indicates a monopoly; the presence of a few companies would indicate an oligopoly.
Choice "d" is incorrect. Market conditions characterizing pure competition include homogeneous, not differentiated, products.
Factors Affecting Financial Modeling and Decision Making
QUESTION 255
Which tool would most likely be used to determine the best course of action under conditions of uncertainty?
A. Cost-volume-profitanalysis. B. Expectedvalue(EV).
C. Program evaluation and review technique (PERT). D. Scattergraph method.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Probability and expected value formulate quantitative models to address the issue of appropriate course of action in an environment of uncertainty. The expected value is a weighted average of all values and variables. The course of action with the highest expected monetary value should be selected.
Choice "a" is incorrect. Cost-volume profit analysis is a method used to evaluate operating decisions. Choice "c" is incorrect. PERT is a technique used in project management that focuses on the time required to complete each step in a project. It allows a project manager to monitor a project's progress and identify potential bottlenecks or delays that will postpone the completion date. Choice "d" is incorrect. The scattergraph method is used in statistical analysis toplot relationships between variables to determine a line function that best describes those relationships.
QUESTION 256
In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision?
A. Absorptioncosts. B. Directcosts.
C. Variable costs.
D. Incremental costs.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Absorption costs are not relevant in situations when management must decide on accepting or rejecting one-time-only special orders, and where there is sufficient idle capacity. All of the following costs are relevant in such situations:
B. Direct costs
C. Variable costs
D. Incremental costs
QUESTION 257
Dough Distributors has decided to increase its daily muffin purchases by 100 boxes. A box of muffins costs $2 and sells for $3 through regular stores. Any boxes not sold through regula
Choice "b" is incorrect. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market, not a disadvantage.
Choice "c" is incorrect. Foreign currency exchange rates impact both sales and possibly cost of goods sold of a competing domestic company. Sales within U.S. markets will deteriorate as the currency of foreign competitors deteriorates and makes the domestic company's goods more expensive. As a foreign competitor's currency appreciates, sales within U.S. markets by a domestic company should also increase as goods manufactured in the U.S. become less expensive. Cost of goods sold may fluctuate if foreign suppliers are used.
Choice "d" is incorrect. It is better for a U.S. company when the value of the U.S. dollar weakens, not strengthens. A weak U.S. dollar makes domestic goods relatively less expensive that imported goods.
Supplemental Questions
QUESTION 224
Compared to firms in a perfectly competitive market, a monopolist tends to:
A. Producesubstantiallylessbutchargeahigherprice. B. Producesubstantiallymoreandchargeahigherprice. C. Produce the same output and charge a higher price. D. Produce substantially less and charge a lower price.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Compared to firms in a perfectly competitive market, a monopolist tends to produce substantially less but charge a higher price. Choices "b", "c", and "d" are incorrect, per above Explanation: .
QUESTION 225
Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of:
A. Marketconcentration. B. Entrybarriers.
C. Exclusionarypractices. D. Collusion.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Patents are an example of entry barriers. Patents prevent other rival firms (without patents) from entering the market and consequently, are a form of entry barriers. Patents can be "process-related" or "product-related."
Choices "a", "c", and "d" are incorrect, per above Explanation: .
QUESTION 226
An oligopolist faces a "kinked" demand curve. This terminology indicates that:
A. Whenanoligopolistlowersitsprice,theotherfirmsintheoligopolywillmatchthepricereduction,butiftheoligopolistraisesitsprice,theotherfirmswillignore the price change.
B. Anoligopolistfacesanon-lineardemandforitsproduct,andpricechangeswillhavelittleeffectondemandforthatproduct.
C. An oligopolist can sell its product at any price, but after the "saturation point," another oligopolist will lower its price and, therefore, shift the demand curve to the left.
D. An oligopolist is similar to a monopolist, and as the quantity demanded for its product increases, the demand curve for that firm shifts to the right.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. In an oligopoly, each firm faces a "kinked" demand curve. Others will match price cuts, but ignore price increases. The "kink" is at the prevailing price. Best real world examples of oligopoly are the airline and auto industries.
Choice "b" is incorrect. An oligopolist's demand curve is linear but "kinked." Above the "kink," demand is highly elastic. Below, very inelastic.
Choice "c" is incorrect. An oligopolist cannot sell at any price. There is no "saturation point." Choice "d" is incorrect. A change in quantity demanded indicates a movement along the demand curve, not a shift in the curve.
QUESTION 227
An increase in the minimum wage:
A. Willmoveemployersdownthelabordemandcurve,causingthequantityoflabordemandedtofall. II. Is likely to increase the supply of labor, as more people will be willing to work for the higher wage.
B. OnlyI.
C. OnlyII.
D. Both I and II.
E. NeitherInorII.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct; neither statement I nor statement II are correct. Statement I is incorrect, as an increase in the minimum wage will move employers up, not down, the labor demand curve, causing the quantity of labor demanded to fall. Statement II is incorrect, as an increase in the minimum wage leads to a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. It does not increase the supply of labor, only the quantity supplied of labor. Choices "a", "b", and "c" are incorrect, per the above.
QUESTION 228
In a competitive market an increase in the minimum wage will likely have the following effects:
A. Thegeneral(oraggregate)demandforlaborwillincrease;however,thequantitydemandedwillremainunchanged. B. Thegeneral(oraggregate)supplyoflaborwillincrease;however,thequantitysuppliedwillremainunchanged.
C. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease. D. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will decrease.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.
Choice "a" is incorrect, per Explanation: for choice "c" above. Choices "b" and "d" are incorrect. The general (or aggregate) supply of labor will remain unchanged; however, the quantity supplied will increase.
QUESTION 229
An increase in the minimum wage will benefit specific economic wage groups as outlined below:
A. Employeesattheminimumwageratewhoremainemployedwillbenefit,sincetheywillreceivemoremoney.
II. Many of the unskilled could lose their jobs. There would be fewer jobs for the currently unemployed such as less educated and untrained personnel (e.g., teenagers) who will have more difficulty finding work as firms reduce their labor force and pursue more efficiency.
B. OnlyI.
C. OnlyII.
D. Both I and II.
E. NeitherInorII.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Only I.
Choices "b", "c", and "d" are incorrect, since II is a disadvantage - not a benefit.
QUESTION 230
The movement along the demand curve from one price-quantity combination to another is called a(n): A. Changeindemand.
B. Shiftinthedemandcurve.
C. Change in the quantity demanded. D. Increase in demand.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. References to the change in quantity demanded refer to a single demand curve, which is downward sloping to the right.
Changes in the quantity demanded result from changes in price. Choices "a", "b", and "d" are incorrect. All refer to changes in the demand curve itself, like an outward shift from curve D - D to D1 - D1.
QUESTION 231
Which one of the following would cause the demand curve for a commodity to shift to the left?
A. Ariseinthepriceofasubstituteproduct.
B. Ariseinaveragehouseholdincome.
C. A rise in the price of a complementary commodity. D. A rise in the population.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. A rise in the price of a complementary commodity would cause a shift to the left in any demand curve (representing decrease in demand, at all price levels, for that product). With respect to complementary goods, the demand for the primary product is directly impacted by the demand (and hence the price changes) for the complementary goods. For instance, if the price of gasoline goes up, the demand for cars will decrease, causing the demand curve for cars to shift left. Choice "a" is incorrect. A rise in the price of a substitute product will make the demand curve shift to the right.
Choice "b" is incorrect. A rise in average household income would make the demand curve shift to the right, representing an increase in demand.
Choice "d" is incorrect. A rise in population, or a change in consumers' tastes in favor of the commodity are also changes that may cause an increase in demand, making the demand curve shift to the right.
QUESTION 232
In any competitive market, an equal increase in both demand and supply can be expected to always:
A. Increasebothpriceandmarket-clearingquantity. B. Increasemarket-clearingquantity.
C. Increase price.
D. Decrease price.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. As illustrated above, a shift outward (increase) in supply increases quantity supplied at equilibrium. As illustrated, this is true even when demand increases. Choice "a" is incorrect. As illustrated, price may stay the same but quantity will increase. Draw the graph!
Choices "c" and "d" are incorrect. Price may remain the same, but quantity will "always" increase.
QUESTION 233
When the federal government imposes health and safety regulations on certain products, one of the most likely results is:
A. Greaterconsumptionoftheproduct. B. Lowerpricesfortheproduct.
C. Higher prices for the product.
D. Increased supply of the product.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. One of the consequences of greater government regulation of certain products is the resulting higher cost to the consumer when the government imposes health and safety regulations on certain products it is likely that expenses will increase and that the added costs will be passed on to consumers in terms of higher prices. The total output for the product may decrease. Choice "a" is incorrect. Since the price goes up, consumption will decrease. Choice "b" is incorrect. The price can be expected to increase (see choice "c" Explanation: above). Choice "d" is incorrect. Since the price goes up, supply goes down.
QUESTION 234
Tennis rackets and tennis balls are:
A. Substitutegoods.
B. Independentgoods.
C. Inferior goods.
D. Complementarygoods.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. Complementary goods are ones whose demand fluctuates together. If Good A and Good B are complements, then if the demand for Good A increases, the demand for Good B will also increase, tennis rackets and tennis balls are complements. Choice "a" is incorrect. For substitutive goods, as the price of one of the goods increases, the other good experiences an increase in demand as it is substituted for the first good. An example of substitute goods is apple and orange juice.
Choice "b" is incorrect. Independent goods have demand functions that are not interrelated. An example would be bread and vacuum cleaners.
Choice "c" is incorrect. Inferior goods experience a decrease in demand when income levels rise. An example is hamburger, which experiences decrease in demand as incomes rise and buyers switch to higher priced meats.
QUESTION 235
All of the following are complementary goods, except:
A. Margarineandbutter.
B. Gasandmotoroil.
C. Cameras and rolls of film. D. VCRs and video cassettes.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Margarine and butter are substitute goods. If the price of one goes up, demand for the substitute increases.
Choices "b", "c", and "d" are incorrect. They are complements. Two goods are complements if they are used together or their demand curves move together (breakfast cereal and milk, e.g., or tennis balls and tennis racquets). Thus, if the price of one complement goes up, demand for the other good goes down.
QUESTION 236
Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand:
A. Isrelativelyelastic. B. Isperfectlyelastic. C. Is relatively inelastic. D. Is perfectly inelastic.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Goods that are important for a comfortable life-style would be relatively price insensitive (i.e., inelastic). For example, demand for electricity
would only decrease if there were an enormous increase in price (people might then use other forms of energy - such as solar). Only goods that are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves. That is, no matter what price is charged, people will still buy the product because they need it to stay alive.
Choices "a", "b", and "d" are incorrect, per Explanation: for choice "c" above.
QUESTION 237
Product demands become more elastic the:
A. Greaterthenumberofsubstituteproductsavailable. B. Greatertheconsumerincome.
C. Greater the elasticity of supply.
D. Shorter the time period considered.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Product demands become more elastic the greater the number of substitutes available. With price increases, consumers will switch to substitute goods. Choice "b" is incorrect. Consumer income will not affect demand elasticity. Choice "c" is incorrect. Elasticity of supply and demand is unrelated. Choice "d" is incorrect. Product demand is more elastic the longer the time period, since more choices become available.
QUESTION 238
If a product's demand is elastic and there is a decrease in price, the effect will be:
A. Adecreaseintotalrevenue.
B. Nochangeintotalrevenue.
C. A decrease in total revenue and the demand curve shifts to the left. D. Anincreaseintotalrevenue.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. If demand is relatively elastic, then the reduction in price will, by definition, produce a proportionately greater increase in quantity demanded.
Hence, total revenue will increase. Choices "a", "b", and "c" are incorrect, per Explanation: above.
QUESTION 239
If a product has a price elasticity of demand of 2.0, the demand is said to be:
A. Perfectlyelastic. B. Perfectlyinelastic. C. Relativelyelastic. D. Relativelyinelastic.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. A price elasticity of demand of 2.0 means demand will change by 2× (as a percentage) for any change in price. This is called elastic. Choice "a" is incorrect. Perfectly elastic demand does not exist. Choice "b" is incorrect. Perfectly inelastic demand means the quantity demanded will not change when price changes.
Choice "d" is incorrect. Inelastic demand responds less than 1× (as a percentage) for a change in price.
QUESTION 240
In the pharmaceutical industry where a diabetic must have insulin no matter what the cost, the diabetic's demand is considered to be:
A. Perfectlyelastic. B. Perfectlyinelastic. C. Relativelyelastic. D. Relativelyinelastic.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. When a good is demanded, no matter the price, demand is described as perfectly inelastic. The demand "curve" is a vertical line at the quantity demand with price making no difference. Choices "a" and "c" are incorrect. There is no such thing as perfect elasticity. However, the more elastic demand is, the greater the change in quantity demand for price changes. Choice "d" is incorrect. Insulin is an example of perfectly inelastic.
QUESTION 241
If, in a competitive market, a price ceiling is imposed establishing a maximum price below the market equilibrium price, this price ceiling would result in:
A. Shortagesbecausethequantitydemandedwouldexceedthequantitysupplied. B. Noeffectonthequantitysuppliedordemanded.
C. Surpluses because the quantity supplied would exceed the quantity demanded. D. Surpluses because the supply curve would shift to the right.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Setting a ceiling price below the price dictated by the market (as established by the equilibrium price) would create excess demand and a shortage. Choices "b", "c", and "d" are incorrect, per above Explanation: .
QUESTION 242
Government price regulations in competitive markets that set maximum or ceiling prices below the equilibrium price will in the short run:
A. Causedemandtoincrease.
B. Causesupplytoincrease.
C. Create shortages of that product. D. Produce a surplus of the product.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Government price regulations in competitive markets that set maximum or ceiling prices below the equilibrium price will create shortages of that product in the short run because quantity supplied will be less than quantity demanded at that price. Choice "a" is incorrect. Quantity demand will increase at the lower price. Choice "b" is incorrect. Quantity supplied will decrease at the lower price. Choice "d" is incorrect. A price set below the market's equilibrium price causes shortages, not surpluses, per the graph above.
QUESTION 243
Which of the following activities is considered a primary activity?
A. Deliveryofproducts.
B. Procurementofmaterials. C. Human resources.
D. Accounting.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Primary activities are those that are involved with the direct manufacture of products, the delivery of products through distribution channels, and the support of the product that exists after the sale is made (e.g., handling the raw materials, the manufacturing process, taking orders for the product, advertising the product, and servicing the product after it is sold). Choices "b", "c", and "d" are incorrect, as these are all considered support activities. Support activities are those activities that are performed by the support staff of an organization (e.g., purchasing of materials and supplies, development of the technology used, management of employees, accounting, finance, strategic planning, etc.).
QUESTION 244
When applying value chain analysis, a firm asks it accounting department to perform an analysis of the sources of profits and costs of activities that exist within the firm. The firm is performing which form of value chain analysis?
A. Internaldifferentiationanalysis.
B. Internalcostsanalysis. C. Vertical linkage analysis. D. None of the above.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Internal costs analysis includes analyzing the internal value-creating ability of a firm, so the sources of profit and costs of the internal activities of the firm must be analyzed. Choices "a", "c", and "d" are incorrect, per the above Explanation: .
QUESTION 245
Which of the following statements regarding competitive advantage is not true?
A. Thetwomajorformsofcompetitiveadvantageareproductdifferentiationandcostleadership.
B. Ifthemanufacturingcostsofafirmarelessthanthoseofcloserivals,thenthefirmhasacompetitivemarketadvantage.
C. Cost leadership advantage may be the best be obtained by a firm when a firm builds market share or matches the price of its rivals. D. Differentiation advantage may best be obtained by a firm when a firm builds market share or increases its price.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is the proper choice, as it is not a true statement. Simply because the manufacturing costs of a firm are less than those of close rivals, this does not necessarily mean that the firm has a competitive market advantage. Only if TOTAL costs to a firm are less than those of close rivals will a firm have a competitive market advantage.
Choices "a", "c", and "d" are incorrect, as they are all true statements.
QUESTION 246
In which stage of supply chain management will the firm's management turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, with a focus on customer service?
A. Cross-functionalteams.
B. Integratedenterprise.
C. Extendedsupplychain.
D. Supplychaincommunities.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. In the cross-functional teams stage of supply chain management, the firm's management will turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, and the focus will be on customer service. Choice "b" is incorrect. In the integrated enterprise stage of supply chain management, the firm's management will move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards the main business issue of the cost of customer service. Choice "c" is incorrect. In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth.
Choice "d" is incorrect. In the supply chain communities stage of supply chain management, the extended supply chain forms a single competitive entity with a synchronized supply chain and a complex system of networks.
QUESTION 247
Strategy is a broad term that usually means the selection of overall objectives. Strategic analysis would generally exclude the:
A. Trendsthatwillaffecttheentity'smarkets.
B. Targetproductmixandproductionscheduletobemaintainedduringtheyear.
C. Forms of organizational structure that would best serve the entity.
D. Best ways to invest in research, design, production, distribution, marketing, and administrative activities.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Target product mix and production scheduling would be operational plans. Strategy is much more general and conceptual.
Choices "a", "c", and "d" are incorrect, which are parts of strategy.
QUESTION 248
Which one of the following management considerations is usually addressed first in strategic planning?
A. Overallgoalsofthefirm. B. Organizationalstructure. C. Recent annual budgets. D. Being an industry leader.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Setting the overall goals of the firm is usually the starting point in strategic planning.
Choice "b" is incorrect. The organizational structure will be partially determined by the goals of the firm.
Choice "c" is incorrect. Recent annual budgets may be reviewed as an aid in planning, but they are not the first consideration in strategic planning. In fact, they often are ignored. Choice "d" is incorrect. Being an industry leader may be or become a goal of the firm, but that would be determined during the strategic planning process.
QUESTION 249
All of the following are characteristics of the strategic planning process, except the:
A. Emphasisonboththeshortandlongrun.
B. Reviewoftheattributesandbehavioroftheorganization'scompetition. C. Analysis and review of departmental budgets.
D. Analysis of consumer demand.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Analysis and review of departmental budgets is not a part of the strategic planning process. Budgets are operational and much more specific than the things that are part of strategic planning.
Choices "a", "b", and "d" are incorrect. All of these are part of the strategic planning process:
A. Emphasis on both the short and long run.
B. A review of competition.
D. Analysis of consumer demand.
QUESTION 250
Strategic planning, as practiced by most modern organizations, includes all of the following, except:
A. T op-level management participation.
B. Strategiesthatwillhelpinachievinglong-rangegoals.
C. Analysis of the current month's actual variances from budget.
D. Identification of long-term key variables including external influences.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
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 251
The key difference between strategic goals and tactical goals is that tactical goals are:
A. Usuallyattainable.
B. Developedbytopmanagement.
C. Concerned with issues other than profit. D. Short-term in nature.
Correct Answer: D
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "d" is correct. Tactical goals are the means for attaining strategic goals and are short-term in nature. Strategic goals are overall objectives and relatively long-term. Choice "a" is incorrect. Both strategic and tactical goals are usually attainable. Choice "b" is incorrect. Development of all goals are best accomplished
with the involvement of employees at all levels.
Choice "c" is incorrect. Tactical goals are the means for achieving strategic goals. Both are concerned with profit and other issues.
QUESTION 252
Eugene Entrepreneur developed his waste collections and disposal business from one truck 20 years ago to a fleet of 2,000 trucks serving an entire region today. Gene is looking to retire and knows that he cannot find a suitable buyer for the entire business. Gene has developed a series of short range plans with his senior management group that include generous bonuses, funded in part by deferred repair and maintenance expenses and prior earnings, sales of business segments where possible or transfers of assets to the counties and municipalities that had engaged the waste collection and disposal service. Gene has frozen all new capital investment. The mission that Eugene Entrepreneur has mapped out for his company can best be described as:
A. Build.
B. Hold.
C. Harvest. D. Sunset.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. Eugene Entrepreneur has mapped out a harvest mission for his company. As Gene retires and pulls assets and value from the company, he is clearly taking a short-term view toward reaping immediate benefit.
Choice "a" is incorrect. A "build" mission anticipates that the business is positioned to expand markets or market share and is characterized by a long-term view that promotes investment. Choice "b" is incorrect. A "hold" mission contemplates that the business is trying to hold on to current market share and is characterized by appropriate investment and competitive positioning. Choice "d" is incorrect. The term "sunset" mission is a distracter.
QUESTION 253
Anson Industries, a vertically integrated producer and retailer of high end audio visual equipment has mapped out its overall business process as beginning with product development followed by product testing then raw materials purchasing then manufacturing and assembly, and, finally, sales and service. Finance staff at Anson Industries are trying to evaluate the efficiency and the effectiveness of each process and the relationship between each process. This evaluation is often referred to as:
A. Processimprovement.
B. Continuousqualityimprovement. C. Value chain analysis.
D. Benchmarking.
Correct Answer: C
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "c" is correct. The process of developing macro level flow charts of business processes that produce products or services and then identifying the value added by each process is referred to as value chain analysis.
Choice "a" is incorrect. Process improvement represents the results of total quality management efforts. Choice "b" is incorrect. Continuous quality improvement represents an unswerving focus on customer satisfaction and quality, not necessarily the specific steps associated with value chain analysis. Choice "d" is incorrect. Benchmarking relates to determining best practices and, often, using those practices as standards.
QUESTION 254
A market with many independent firms, low barriers to entry, and product differentiation is best classified as:
A. Anaturalmonopoly.
B. Monopolisticcompetition. C. An oligopoly.
D. Pure competition.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. A market with many independent firms, low barriers to entry, and product differentiation is best classified as monopolistic competition. There are few barriers to entry and firms exert some influence over price in such a market. Best examples are brand name consumer products. Choice "a" is incorrect. A natural monopoly exists when economic and technical conditions permit only one efficient supplier.
Choice "c" is incorrect. The presence of only one company indicates a monopoly; the presence of a few companies would indicate an oligopoly.
Choice "d" is incorrect. Market conditions characterizing pure competition include homogeneous, not differentiated, products.
Factors Affecting Financial Modeling and Decision Making
QUESTION 255
Which tool would most likely be used to determine the best course of action under conditions of uncertainty?
A. Cost-volume-profitanalysis. B. Expectedvalue(EV).
C. Program evaluation and review technique (PERT). D. Scattergraph method.
Correct Answer: B
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "b" is correct. Probability and expected value formulate quantitative models to address the issue of appropriate course of action in an environment of uncertainty. The expected value is a weighted average of all values and variables. The course of action with the highest expected monetary value should be selected.
Choice "a" is incorrect. Cost-volume profit analysis is a method used to evaluate operating decisions. Choice "c" is incorrect. PERT is a technique used in project management that focuses on the time required to complete each step in a project. It allows a project manager to monitor a project's progress and identify potential bottlenecks or delays that will postpone the completion date. Choice "d" is incorrect. The scattergraph method is used in statistical analysis toplot relationships between variables to determine a line function that best describes those relationships.
QUESTION 256
In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient idle capacity, which one of the following is not relevant to the decision?
A. Absorptioncosts. B. Directcosts.
C. Variable costs.
D. Incremental costs.
Correct Answer: A
Section: Business Environment and Concepts (Volume C) Explanation
Explanation/Reference:
Explanation:
Choice "a" is correct. Absorption costs are not relevant in situations when management must decide on accepting or rejecting one-time-only special orders, and where there is sufficient idle capacity. All of the following costs are relevant in such situations:
B. Direct costs
C. Variable costs
D. Incremental costs
QUESTION 257
Dough Distributors has decided to increase its daily muffin purchases by 100 boxes. A box of muffins costs $2 and sells for $3 through regular stores. Any boxes not sold through regula