COM Financial Management & Budgeting 3

Question 1

What is the weighted average cost of capital (WACC) used for in capital budgeting?

Accepted Answer

To set the discount rate for evaluating investment projects

Answer

WACC represents the minimum return a company must earn on investments to satisfy its debt and equity holders, used as the discount rate in NPV analysis.

Question 2

An unfavorable labor efficiency variance most likely indicates that:

Accepted Answer

More labor hours were used than the standard hours allowed

Answer

Labor efficiency variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard rate.

Question 3

Which of the following is a sunk cost and therefore irrelevant to future capital investment decisions?

Accepted Answer

A $200,000 feasibility study already completed and paid for

Answer

Sunk costs are already spent and cannot be recovered, so they should not influence future investment decisions.

Question 4

A company uses activity-based costing (ABC). Which step comes first in implementing ABC?

Accepted Answer

Identify the activities that consume resources

Answer

ABC implementation begins by identifying all activities performed, then tracing costs to those activities before assigning them to products.

Question 5

Days Sales Outstanding (DSO) of 75 days compared to an industry average of 45 days suggests:

Accepted Answer

The company may have credit or collection problems

Answer

A DSO significantly above the industry average signals the company is slower to collect payment, which ties up working capital.

(COM) Certified Operations Manager Practice Test

(COM) Certified Operations Manager Practice Test

COM Financial Management & Budgeting 3