ACCOUNTING ESSENTIALS FOR HOSPITALITY MANAGERS 3RD EDITION BY CHRIS BUILDING TEST BANK by QuentinAxel

SOLUTIONS MANUAL

ACCOUNTING ESSENTIALS FOR HOSPITALITY MANAGERS 3RD EDITION BY CHRIS BUILDING TEST BANK Chapter 1: Introduction: Hospitality Decision Makers’ Use of Accounting 1.

Which of the following is not an example of a sector that can be classified within the hospitality industry? A. B. C. D. E.

Which of the following statements is not true? A.

C. D. E.

Designing a large hotel’s organisational structure and accounting system is complicated by the need to co-ordinate a range of disparate functions that typically include the provision of accommodation, restaurant and bar facilities. Hotels can be distinguished from most other service sectors as the location of the service provision is also the place where the customer purchases and consumes the services offered. High functional interdependency facilitates departmental accountability. The nature of management decision making in connection with selling rooms in a hotel can be likened to the sale of seats in the airline or entertainment industries. Hotels’ high sales volatility makes accurate budgeting more challenging.

Which of the following is not a key characteristic of the hotel industry? A. B. C. D. E.

Cruise liners Country and sports clubs Pubs and bars Fast-food outlets All of the above can be classified within the hospitality industry

High sales volatility. High product perishability. High proportion of fixed costs. High proportion of labour intensive activities. All of the above are key characteristics of the hotel industry

Which of the following is not a generally acknowledged sales volatility challenge that is evident in the hotel industry? A. B. C. D. E.

Economic cycle volatility Seasonal sales volatility Staff turnover sales volatility Weekly sales volatility Intra-day sales volatility

Which of the following is not a true statement? A.

B. C. D. E.

Which of the following statements is untrue? A. B. C.

D. E.

A lack of confidence in financial accounting systems would likely make it harder to raise debt and equity funding. Management accounting systems are designed to help managers in their decision making and control of businesses. Greater use of the Uniform System of Accounts is signifying increased standardisation of hotel account classification schemes and also financial performance reports produced by hotels. The accounting system is one of several information systems that monitor the performance of all departments within hotels. For the sake of a healthy economy, it is important that a reliable financial accounting system is established.

Which of the following is not a true statement? A. B. C. D. E.

Relative to purchases in most other commercial contexts, there tends to be a short time span between order placement, production and sale of many items in a restaurant kitchen. A high proportion of a hotel’s costs do not vary in line with sales levels. Relative to most other industries, activities conducted in the hotel industry are not labour intensive. Achieving standardised approaches to reporting is more of a concern in financial accounting than in management accounting. Management accounting is less standardised than financial accounting.

Financial accounting concerns the preparation of financial reports for external users on a monthly basis. Management accounting concerns the provision of financial reports to managers. Management accounting reports can be produced using non- standardised formats across companies. For most organisations, the accounting system can be seen as the most extensive and all encompassing information system. A reducing level of confidence in financial accounting systems would translate into a greater reluctance for equity providers to invest in companies.

In the context of hotel management, which of the following does not represent an example of high perishability with respect to a sales opportunity? A. B. C. D. E.

A specific room night. A delivery of strawberries. A delivery of bottled beer. A large conference room for a specific day. None of the above, they are all examples of products or services with high perishability.

Which of the following is not a true statement? A. B. C. D. E.

10.

The Uniform System of Accounts: A. B.

C. D. E. 11.

represents an “off the shelf” accounting system that can be adopted by any business in the hotel industry. is a system that can be viewed as “state of the art” as it benefits from the accumulated experience of the parties that have contributed to the system’s development over many years. promotes consistent account classification schemes as well as consistent presentation of performance reports and therefore facilitates comparison across hotels. represents a common point of reference for hotels within the same hotel group. All of the above are true.

Which of the following statements is not true: A. B.

C. D. E.

12.

Compared to the hotel sector, most business sectors experience a relatively high degree of economic cycle related sales volatility. The hotel sector is subject to high seasonal sales volatility. The hotel sector is subject to high weekly sales volatility. The hotel sector is subject to high intra-day sales volatility. Sales volatility can be expected to be greater in tourism hotels than in hotels located in central business districts.

The hospitality industry encompasses a narrow range of activities and types of organisations. A large hotel’s organisational structure and accounting system should be designed with due regard given to co-ordinating a range of functions that will frequently include the provision of accommodation, restaurant and bar facilities. The sale of a hotel’s rooms can be likened to the sale of seats in the airline industry. A parallel exists between food preparation in restaurant kitchens and production activities in manufacturing organisations. Bar operations can be likened to retailing.

Which of the following statements is not true: A. B.

D. E.

The uniform system of accounts represents an “off the shelf” accounting system that can be adopted by any business in the hotel industry. The uniform system of accounts is a system that can be viewed as “state of the art” as it benefits from the accumulated experience of the parties that have contributed to the system’s development over many years. The uniform system of accounts promotes consistent account classification schemes as well as consistent presentation of performance reports and therefore facilitates comparison across hotels. The uniform system of accounts signifies that all hotels should use the same management accounting system. The uniform system of accounts represents a common point of reference for hotels within the same hotel group.

13.

Which of the following is not a true statement? A. B. C. D. E.

14.

Which of the following statements is not true: A. B.

C. D. E.

15.

The hospitality industry encompasses a broad range of activities and types of organisations. A large hotel’s organisational structure and accounting system should be designed with due regard given to co-ordinating a range of functions that will frequently include the provision of accommodation, restaurant and bar facilities. The sale of a hotel’s rooms can be likened to the sale of seats in the airline industry. A parallel exists between food preparation in restaurant kitchens and production activities in manufacturing organisations. Bar operations can be likened to scheduled batch production.

Which of the following statements is not true: A. B.

D. E.

16.

Financial accounting concerns the preparation of financial reports for external users such as shareholders. A lack of confidence in financial accounts would likely reduce investors’ willingness to buy shares. An important role of management accounting is to help a company that sells produce to a hotel decide whether it is safe to extend credit to the hotel. . Budgeting can be viewed as falling within the management accounting function. Financial accounting is more standardised than management accounting.

The uniform system of accounts is extensively used outside the hotel industry. The uniform system of accounts is a system that can be viewed as “state of the art” as it benefits from the accumulated experience of the parties that have contributed to the system’s development over many years. The uniform system of accounts promotes consistent account classification schemes as well as consistent presentation of performance reports and therefore facilitates comparison across hotels. The uniform system of accounts does not signify that all hotels should use the same management accounting system. The uniform system of accounts represents a common point of reference for hotels within the same hotel group.

Which of the following is not a true statement? A. B. C.

D. E.

Financial accounting concerns the preparation of financial reports for external users such as shareholders. A lack of confidence in financial accounts would likely reduce investors’ willingness to buy shares. Management accounting concerns the production of accounting information and reports that can be used to aid management’s decision making and organisational control. As budgeting involves future projections, it is not viewed as falling within the management accounting function. Financial accounting is more standardised than management accounting.

17.

Which of the following statements is not true? A.

C. D. E.

Designing a large hotel’s organisational structure and accounting system is complicated by the need to co-ordinate a range of disparate functions that typically include the provision of accommodation, restaurant and bar facilities. Hotels can be distinguished from most other service sectors as the location of the service provision is also the place where the customer purchases and consumes the services offered. Low functional interdependency facilitates departmental accountability. Financial measures focus on causes rather than symptoms. Hotels’ high sales volatility makes accurate budgeting more challenging.

Chapter 2: Analysing Transactions and Preparing Year End Financial Statements 1.

A balance sheet: A. B. C. D. E.

Imagine you are reviewing a financial report which has the following words in its heading "As at 30th June 2009". This signifies that the report: A. B. C. D. E.

B. C. D. E.

A balance sheet is always presented with assets on the left and liabilities and owners’ equity on the right. The balance sheet can be seen as a reflection of the accounting equation. The total of all assets must be the same as the total of liabilities and owners’ equity. Assets are generally listed on the balance sheet in order of their liquidity. The balance sheet shows the total amount of money owed to creditors.

The Mosaic hotel hosts an afternoon seminar for Brief Conventions Ltd. Brief Conventions has received an invoice from Mosaic for $1,200 to cover the event. Following the event, but prior to receiving Brief Conventions’ payment, Mosaic would report the amount owing on its balance sheet as: A. B. C. D. E.

Could be a balance sheet Could be a profit and loss statement Could be a statement of owners’ equity. Could be a cash flow statement. Could not be any of the above

Identify which of the following statements is untrue. A.

Discloses all financial factors affecting an organisation at a particular moment in time. Provides a record of today’s worth of an organisation’s assets, liabilities and owners equity. Reveals how an organisation’s assets and liabilities have changed over a period of time Provides a listing of an organisation’s assets, liabilities and owner's equity as at a particular date. All of the above

A liability An account payable A customer advance payment Revenue An account receivable

Inventory should be listed on the balance sheet under what heading? A. B. C. D. E.

Assets Liabilities Owners’ equity Revenue Expense

With respect to owners' equity, which of the following statements is true? A. B. C. D. E.

If a hotel buys $800 of wine on 30 days credit in July, the following would occur: A. B. C. D. E.

An equity deficit An expense Depreciation A liability Asset degradation

Which of the following statements is correct? A. B. C. D. E.

10.

In July expenses would increase by $800 and accounts payable would increase by $800. In July expenses would increase by $800 and the hotel’s bank account would decrease by $800. In July wine inventory would increase by $800 and the hotel’s bank account would decrease by $800. In July cost of wine sales would increase by $800 and accounts payable would increase by $800. In July wine inventory would be increased by $800 and accounts payable would be increased by $800.

Accountants refer to a reduction in owner's equity following the consumption of resources in connection with making sales as: A. B. C. D. E.

It represents assets minus liabilities. It is only affected by owners investing capital in their business or owners taking money out of the business. It reflects the owners’ liquidity in the business. It does not change once owners invest and the business starts operations. None of the above statements are true

Liabilities - Assets = Owner's Equity Liabilities = Assets + Owner's Equity Assets = Owner's Equity - Liabilities Assets - Owner's Equity = Liabilities None of the above

A hotel purchased a new vending machine for $14,000. Half of the cost was paid in cash and the other half was financed through a bank loan. To record this transaction which of the following statements is correct? A. B. C. D. E.

Assets and liabilities would each increase by a total of $14,000. There would be an increase to an asset account and a decrease to a liability account. Assets and liabilities would each increase by a total of $7,000. The vending machine account would be increased by half of its cost as only half of the asset is owned. None of the above is correct.

11.

Net profit in the profit and loss statement is determined by: A. B. C. D. E.

12.

With respect to cash, which of the following statements is true? A. B. C. D. E.

13.

The balance of the cash at bank account is the same as the net profit made for the period. The cash account records all expenses and revenues for the period. All receipts and payments during the period will affect the cash at bank account. Every business transaction affects the cash at bank account. An owner taking money out of the business does not affect the cash available.

Retained earnings at the end of a financial year are: A. B. C. D. E.

14.

The amount of cash held in the business. Deducting the total of all payments made during the accounting period from the total of all receipts for the accounting period. The total of all revenue received for the accounting period less the total of all expenses paid for the accounting period. Deducting the total of all expenses incurred for the accounting period from the total of all revenue earned during the accounting period. The total of all assets less the total of all liabilities.

The amount of cash held in the business at year end that has not been utilised in the running of the business. The balance of owners’ equity. Capital contributed by owners plus profits (or minus any losses incurred) minus any drawings taken by owners. The sum of all yearly profits made since the business began less any losses incurred in any year of operation. The retained earnings balance from the previous period plus the current period’s profit (or minus current period losses) less any dividends paid out to shareholders.

Which of the following statements regarding owner’s equity is false? A. B. C. D. E.

Owners’ equity is equal to assets minus liabilities. Owner’s equity represents what an owner will recoup if the business is sold. Owners’ equity represents the owners’ financial investment in the business. For a company, owners’ equity is equal to shareholders’ capital plus retained earnings. For an owner operated business, owner’s equity represents all capital contributed by the owner plus profits generated minus losses incurred and drawings taken from the business.

15.

Which of the following statements regarding business expenses is correct? A. B. C. D. E.

16.

Which of the following statements regarding revenue is correct? A. B. C. D. E.

17.

Expenses represent the consumption of resources. Expenses occur when payment is made for resources used. An expense has no effect on owner’s equity. Expenses are added to revenue to determine profit for the period. Cash at bank decreases when an expense is incurred.

Revenue arises when payment is received for goods or services provided. Cash at bank increases when revenue is earned. Revenue is deducted from expenses to determine profit for the period. Revenue arises from the sale of goods, provision of services and investing activities of a business. Revenue has no effect on owner’s equity.

On the 2nd January an events company received an invoice for $2,500 from an employment agency for the hire of casual staff in December. On the 31st January the invoice was paid. How would the balance sheet accounts be affected by the 31st January transaction? A. B. C. D. E.

Cash (assets) would increase $2,500 and profit and loss (owner’s equity) would increase $2,500. Cash (assets) would decrease $2,500 and accounts payable (liabilities) would decrease $2,500. Cash (assets) would increase $2,500 and accounts receivable (assets) would increase $2,500. Cash (assets) would decrease $2,500 and profit and loss (owners’ equity) would decrease $2,500. Profit and loss (owners’ equity) would decrease $2,500 and accounts payable (liabilities) would increase $2,500.

Chapter 3: Double Entry Accounting 1.

On 1st of June a hotel purchased a new vacuum cleaner for $12,000. It paid $8,000 in cash and the vacuum cleaner supplier extended 30 days credit for the balance. Which of the following is the accounting entry to record the 1st June transaction? A. B. C. D. E.

In double entry accounting: A. B. C. D. E.

With respect to balance sheet accounts: asset accounts normally have a debit balance, liability and owners’ equity accounts normally have a credit balance. With respect to profit and loss accounts: revenue accounts have a credit balance, expense accounts have a debit balance. For every set of debit entries, there must be a set of credit entries with the same monetary value. Where there is a cash inflow we debit the cash account. For a cash outflow, we credit the cash account. All of the above statements are true.

In a hotel, which of the following is not normally treated as a current asset? A. B. C. D. E.

Debit cleaning equipment $12,000, credit cash $12,000. Debit cleaning equipment $8,000, credit cash $8,000. Debit cleaning equipment $12,000, credit cash $8,000, credit accounts receivable $4,000. Debit cleaning equipment $12,000, credit cash $8,000, credit accounts payable $4,000. None of the above.

Prepaid insurance. Inventory of linen. Marketable securities. Beer held in bar fridge. Cash at bank.

The retained earnings account represents: A. B. C. D. E.

The undistributed profit of a business held as cash. An indicator of how much cash an organisation has accumulated to pay out to owners. Profit earned in the current financial year. The accumulated profit of a business since it began operations minus any dividends or drawings paid out to owners. None of the above.

For the current financial year a hotel had $350,000 in its retained earnings account at the beginning of the year. During the year it earned $80,000 in profit and paid $32,000 in dividends to its owners. The balance sheet at the end of the current financial year should reflect a retained earnings balance of: A. B. C. D. E.

In the current year the Budget Hotel earned $60,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners’ capital contribution or dividend received during the year? A. B. C. D. E.

Assets and revenue Expenses and assets Prepaid expenses and revenues Liabilities and owner's equity None of the above.

When a hotel pays off a bank loan, in its books it: A. B. C. D. E.

Dividend of $20,000. Contribution of $20,000. Dividend of $10,000. Contribution of $10,000. None of the above.

Which of the following normally have a credit balance? A. B. C. D. E.

$430,000. $318,000. $398,000. $48,000. $80,000.

Debits expenses and credits cash Debits cash and credits owner's equity Debits loan payable and credits cash Debits cash and credits loan payable None of the above

With respect to double entry accounting systems, which of the following statements is true? A. B. C. D. E.

When recording a transaction, at least one account is debited and at least one account is credited. The accounting equation should remain intact. The total of the debit balances on general ledger accounts should equal the total of the credit balances on general ledger accounts. Gifts are ignored as there is no double entry. Statements A, B and C are true.

10.

A hotel’s junior accountant was recording advertising expense and made an error. He debited the sales revenue account instead of the advertising expense account. This mistake would signify: A. B. C. D. E.

11.

Journal entries: A. B. C. D. E.

12.

Debiting ‘expenses’ and crediting ‘cash’ Debiting ‘cash’ and crediting ‘expenses’ Debiting ‘cash’ and crediting ‘loan payable’ Debiting ‘loan payable’ and crediting ‘money borrowed’ None of the above.

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $140,000 and its liabilities increased by $50,000. What was the value of the owners’ capital contribution or dividend paid during the year? A. B. C. D. E.

14.

Are presented in account number sequence. Provide a chronological record of all transactions. Are presented in account alphabetical sequence. Use a “T-account” layout. None of the above is true.

The Smith Show Events company took up a $100,000 bank loan last month. The entry to record this transaction involves: A. B. C. D. E.

13.

Assets would be understated at the end of the period. Owner's equity would be understated at the end of the period. Net profit would be overstated for the period. The error would not cause the period’s recorded profit to be incorrect. There would be an overstatement of sales revenue for the period.

$20,000 dividend paid. Contribution of $20,000. $10,000 dividend paid. Contribution of $10,000. None of the above.

Which of the following types of account normally have a debit balance? A. B. C. D. E.

Assets and revenue Expenses and owners equity Prepaid expenses and revenues Assets and expenses None of the above.

15.

With respect to double entry accounting systems, which of the following statements is true? A. B. C. D. E.

16.

A credit entry can have the effect of: A. B. C. D. E.

17.

Is increased by debit entries. Is decreased by debit entries. Normally has a credit balance. Is increased by credit entries. Usually has more credit entries than debit entries.

Which accounts normally have credit balances? A. B. C. D. E.

19.

Increasing assets or increasing liabilities. Decreasing assets or increasing liabilities. Decreasing assets or decreasing owner’s equity. Increasing liabilities or decreasing owner’s equity. Increasing assets or increasing owner’s equity.

An expense account: A. B. C. D. E.

18.

When recording a single transaction we would only debit one account and credit one account. When recording a single transaction, if an asset account is debited we would have to credit a liability account or the owner’s equity account. In a particular accounting period, the total dollar value of the debit entries should equal the total dollar value of the credit entries. A gift made to a business would not be recorded, as the double entry accounting system was not designed to record gifts. None of the statements are true.

Assets, expenses and retained earnings. Liabilities, owner’s equity and expenses. Liabilities, owner’s equity, and retained earnings. Revenue, assets and retained earnings. Revenue, dividends, and liabilities.

Which of the following statements about journal entries is false? A. B. C. D. E.

The general journal only refers to asset, liability and owners equity accounts. The general journal provides a complete record of each transaction. The general journal provides a chronological record of transactions. The general journal often records the number of each account affected by transactions. The general journal can assist in the location of accounting errors.

20.

In its most recent financial year, Gold Coast Events earned $120,000 profit. Its assets increased by $170,000 and its liabilities increased by $70,000. What was the value of the owners’ capital contribution or dividend paid during the year? A. B. C. D. E.

21.

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners’ contribution to capital or dividend declared and paid during the year? A. B. C. D. E.

22.

Is increased by debit entries. Is decreased by credit entries. Normally has a debit balance. Is increased by credit entries. Usually has more debit entries than credit entries.

A hotel sold four cases of wine at a conference function for $2,160 cash. The four cases cost the hotel $1,000. The set of accounting entries to record this transaction would include which of the following: A. B. C. D. E.

24.

Dividend declared and paid of $20,000. Contribution of $20,000. Dividend declared and paid of $10,000. Contribution of $10,000. None of the above.

A revenue account: A. B. C. D. E.

23.

$20,000 dividend paid. Contribution of $20,000. $10,000 dividend paid. Contribution of $10,000. None of the above.

Credit wine revenue account $1,000; Debit cash $2,160. Credit cost of goods sold $1,000; Debit cash $2,160. Debit cost of goods sold $2,160; Credit cash $2,160. Credit wine revenue account $2,160; Credit wine inventory $2,160. Credit wine revenue account $2,160; Credit wine inventory account $1,000.

Last year, assets of the Adventure Tours company increased by $2,800 and the company’s liabilities decreased by $1,200. During this time the owners' equity balance in the company must have: A. B. C. D. E.

Increased by $1,600 Decreased by $1,600 Increased by $4,000 Decreased by $4,000 None of the above

25.

In a hotel, which of the following is not normally treated as a current asset? A. B. C. D. E.

26.

Which of the following is correct? A. B. C. D. E.

27.

Debits decrease expenses Credits increase assets Debits increase assets Credits decrease liabilities Debits increase revenue

In the current year Ms B. Seen operated Main Events. The business earned $50,000 profit for the year. Its assets increased by $100,000 and its liabilities increased by $30,000. What was the net amount of the capital contributions or drawings taken by Ms Seen during the year? A. B. C. D. E.

28.

Prepaid insurance. Staff uniforms. Money held in a bank account. Beer held in bar fridge. Petty cash balance held in a locked tin box and managed by the hotel’s office manager.

Contributions of $20,000 Drawings of $20,000 Drawings of $80,000 Contribution of $80,000 None of the above

Revenue, expense, asset, liability and owners’ equity accounts normally have either a debit or a credit balance. Which of the following is incorrect? A. B. C. D. E.

Liability – credit Revenue – debit Asset – debit Expense – debit Owners’ Equity – Credit

29. On the 15th February a hotel sold four cases of wine at a conference function for $2,160 cash. The four cases cost the hotel $1,000 on the 1st February. The set of accounting entries that would be recorded when the cases were sold on the 15th February are: A. B. C. D. E.

30.

On 1st of March an event operator purchased a sound system for $60,000. The event operator paid a deposit of $6,000 in cash and financed the balance with a bank loan. Which of the following is the accounting entry to record the 1st March transaction? A. B. C. D. E.

31.

Debit equipment $6,000, credit cash $6,000. Debit equipment $60,000, credit cash $60,000 Debit equipment $60,000, credit cash $6,000, credit accounts payable $54,000. Debit equipment $60,000, credit cash $6,000, credit bank loan $54,000. None of the above.

For the current financial year, a tour operating company had $270,000 in its retained earnings account at the beginning of the year. During the year it earned $60,000 in profit and paid $12,000 in dividends to its owners. The balance sheet at the end of the current financial year should reflect a retained earnings balance of: A. B. C. D. E.

32.

Debit revenue $2,160; Credit cash $2,160 Debit Inventory $1,000; Credit cost of goods sold $1,000 Debit Inventory $1,000; Credit cash $1,000 Debit cash $2,160; Credit revenue $2,160 Debit inventory $1,000; Credit cash $1,000 Debit cost of goods sold $1,000; Credit inventory $1,000 Debit cash $2,160; Credit revenue $2,160 Debit cost of goods sold $1,000; Credit inventory $1,000 Debit inventory $1,000; Credit cash $1,000 Debit cash $1,000; Credit revenue $1,000

$318,000. $258,000. $330,000. $48,000. $60,000.

Last year, assets of Adventure Tours increased by $7,000 and the company’s liabilities decreased by $3,000. During this time the owners' equity balance in the company must have: A. B. C. D. E.

Increased by $4,000 Decreased by $4,000 Increased by $10,000 Decreased by $10,000 None of the above

Chapter 4: Adjusting and Closing Entries 1.

A year end balance on an accrued wages account is reported in the year end accounts as: A. B. C. D. E.

On 31st December 20X1, immediately prior to entering adjusting entries, the prepaid insurance account of the White Lion Hotel has a balance of $1,200. This concerns a payment made on 30th September 20X1 for 12 months of insurance cover. The adjusting entry that needs to be made on 31st December 20X1 is: A. B. C. D. E.

Debit prepaid insurance $300, credit insurance expense $300. Debit prepaid insurance $1,200, credit insurance expense $1,200. Debit insurance expense $1,200, credit prepaid insurance $1,200. Debit insurance expense $300, credit prepaid insurance $300. None of the above.

An inventory count conducted on 31st December 20X1 has determined that the Regal Hotel has a cleaning supplies inventory of $260. Accounting records indicate that the hotel had $140 of cleaning supplies at the commencement of the year and purchased $880 of cleaning supplies during the year. What amount should be expensed for cleaning supplies in the year ended 31st December 20X1? A. B. C. D. E.

A deduction in the profit and loss statement. A liability in the balance sheet. A prepaid expense. An asset in the balance sheet. None of the above.

$760 $1,280 $1,020 $880 None of the above

With respect to the ‘Accumulated Depreciation’ account, which of the following statements is correct? A. B. C. D. E.

It appears as a liability in the balance sheet. It reflects that part of an asset’s cost that has been expensed. When deducted from an asset’s original cost, it reflects what the asset is currently worth. It appears as an expense in the profit and loss statement. None of the above statements are correct.

The Excelsior hotel purchased a limousine costing $100,000 on 1 July 20X2. The limousine has an expected useful life of 8 years and it is estimated it will have a salvage value of $20,000. Assuming the hotel depreciates its fleet of vehicles using the straight line approach, what depreciation entry will be required for the limousine for the year ending 30 June 20X3 (assume no prior depreciation entries have been made for the limousine)? A. B. C. D. E.

Debit Accumulated Depreciation $12,500; Credit Depreciation Expense $12,500 Debit Depreciation Expense $10,000; Credit Accumulated Depreciation $10,000 Debit Depreciation Expense $10,000; Credit Limousines $10,000 Debit Accumulated Depreciation $10,000; Credit Depreciation Expense $10,000 None of the above.

The Prima Hotel pays its waged staff $28,000 every 7 days. The hotel’s year end falls 3 days into its 7 day wage payment cycle. The adjusting entry that it needs to make in connection with wages is: A. B. C. D. E.

Debit Wages Prepaid $12,000; Credit Accrued Wages $12,000 Debit Accrued Wages $12,000; Credit Wage Expense $12,000 Debit Wage Expense $12,000; Credit Accrued Wages $12,000 No adjusting entry required. None of the above.

The following information relates to the next two questions. On 1st December the Divine Hotel received a down payment of $30,000 for a 3 day conference that it will host 31 st December – 2nd January. 7.

On 1st December, the Divine Hotel should record the down payment in its accounts as: A. Debit Revenue $30,000; Credit Unearned Revenue $30,000 B. Debit Cash $30,000; Credit Conference Revenue $30,000 C. Debit Cash $30,000; Credit Unearned Revenue $30,000 D. Debit Cash $30,000; Credit Contingent Revenue $30,000 E. None of the above

The Divine Hotel should make the following 31st December year end adjusting entry: A. Debit Unearned Revenue $10,000; Credit Contingent Revenue $10,000 B. Debit Revenue $10,000; Credit Unearned Revenue $10,000 C. Debit Contingent Revenue $10,000; Credit Revenue $10,000 D. Debit Unearned Revenue $10,000; Credit Revenue $10,000 E. None of the above

The Upmarket Hotel has an interest yielding investment earning $18,000 per year. Its year end is 31st December. Indicate what adjusting entry is required if the last time that interest was received and recorded occurred on 31st October. A. B. C. D. E.

Debit Interest Receivable $3,000; Credit Interest Revenue $3,000 Debit Interest Revenue $3,000; Credit Interest Receivable $3,000 Debit Unearned Interest $3,000; Credit Interest Revenue $3,000 Debit Interest Receivable $3,000; Credit Unearned Interest $3,000 None of the above

10.

To provide for the possibility that a portion of a hotel’s accounts receivable ledger may prove to be uncollectible, periodically, the following entry should be entered in the hotel’s accounts. A. B. C. D. E.

11.

An inventory count conducted on 31st December 20X1 indicated that Sports World had $180 of office stationery at that time. Accounting records indicate that the business had $120 of stationery at the beginning of the year and purchased $1,040 of stationery during the year. What amount should be expensed for office stationery in the year ended 31st December 20X1? A. B. C. D. E.

12.

$760 $1,280 $1,020 $980 None of the above

With respect to company’s car ‘depreciation expense’ account, which of the following statements is correct? A. B. C. D. E.

13.

Debit Allowance for Doubtful Accounts; Credit Accounts Receivable Debit Bad Debts Expense; Credit Accounts Receivable Debit Bad Debts Expense; Credit Allowance for Doubtful Accounts Debit Allowance for Doubtful Accounts; Credit Sales None of the above

The balance on the account is off-set against the cost of cars that the company owns to give the net book value of cars in the balance sheet. It reflects that part of a company’s cars that have been expensed since the cars were purchased. It reflects the amount of depreciation charged on company cars in the current accounting period. It appears as a liability in the balance sheet. None of the above statements are correct.

The ABC company pays its salaried staff $40,000 every 10 working days (i.e. every 2 weeks). If the company’s year end were to fall four working days following the last payment made to salaried employees, the following salaries adjusting entry would have to be made: A. B. C. D. E.

Debit Salaries Prepaid $16,000; Credit Accrued Salaries $16,000 Debit Salary Expense $16,000; Credit Accrued Salaries $16,000 Debit Accrued Salaries $16,000; Credit Salary Expense $16,000 Debit Accrued Salaries $16,000; Credit Salaries Prepaid $16,000 None of the above.

14.

The Outward Bounds Tour Operating company made an annual insurance premium payment of $2,400 on 1st November 2009. It recorded this payment by debiting its insurance expense account $2,400 and crediting its cash account $2,400. The insurance adjusting entry that will need to be made at its financial year end of 31 December 2009 is: A. B. C. D. E.

15.

At the end of its financial year a company has an accounts receivable balance of $540,000 and an ‘allowance for doubtful accounts’ credit balance of $4,000. Following a review of the company’s accounts receivable ledger, the auditor has determined that $3,000 should be provided for as doubtful accounts. The year end adjusting entry required is: A. B. C. D. E.

16.

Bad and doubtful accounts Depreciation Revenue earned but not yet received Dividend payments Expenses uncured but not paid for

Which of the following accounts will have a zero balance following the completion of financial year end closing entries? A. B. C. D. E.

18.

Debit Sales account $3,000; Credit Accounts Receivable $3,000 Debit Allowance for Doubtful Accounts $3,000; Credit Bad Debts expense $3,000. Debit Allowance for Doubtful Accounts $1,000; Credit Accounts Receivable $1,000. Debit Allowance for Doubtful Accounts $1,000; Credit Bad Debts expense $1,000. None of the above

Which of the following factors does not result in a need to make a financial year-end adjusting entry. A. B. C. D. E.

17.

Debit Insurance Expense $400; Credit Insurance Prepaid $400 Debit Insurance Prepaid $2,000; Credit Insurance Expense $2,000 Debit Insurance Expense $2,000; Credit Insurance Prepaid $2,000 Debit Insurance Prepaid $400; Credit Insurance Prepaid $400 None of the above

Office supplies. Accumulated depreciation. Prepaid rent. Allowance for doubtful accounts. Depreciation expense.

Which of the following statements about the accrual basis of accounting is false: A. An expense is recognised in the period when the benefit deriving from the associated expenditure arises. B. The wages accrued account records the cost of work performed but not paid for at the end of the accounting period. C. Revenue is recognised when it is earned and certain. D. The accrual basis of accounting lies behind the concept of depreciating an asset as it is used. E. An expense is recognised in the period that it is paid for.

19.

The Sydney Jazz Festival company made an annual insurance premium payment of $1,200 on 1st March 2011. It recorded this payment by debiting its insurance prepaid account $1,200 and crediting its cash account $1,200. The insurance adjusting entry that will need to be made at its financial year end of 31 December 2011 is: A. B. C. D. E.

Debit Insurance Expense $200; Credit Insurance Prepaid $200 Debit Insurance Prepaid $1,000; Credit Insurance Expense $200 Debit Insurance Expense $1,000; Credit Insurance Prepaid $1,000 Debit Insurance Prepaid $200; Credit Insurance Prepaid $200 None of the above

20.

At the end of its financial year a company has an accounts receivable balance of $320,000 and an ‘allowance for doubtful accounts’ credit balance of $2,100. Following a review of the company’s accounts receivable ledger, the auditor has determined that 1% of the accounts receivable balance should be provided for as doubtful accounts. The year end adjusting entry required is: A. Debit Sales account $1,100; Credit Accounts Receivable $1,100 B. Debit Allowance for Doubtful Accounts $1,100; Credit Bad Debts expense $1,100. C. Debit Bad Debts expense $3,200; Credit Allowance for Doubtful Accounts $3,200. D. Debit Bad Debts expense $1,100; Credit Allowance for Doubtful Accounts $1,100. E. None of the above

21.

Which of the following accounts will have a zero balance following the completion of financial year end closing entries? A. B. C. D. E.

22.

Jo Smith earned a salary of $540 for the last week of June. She is due to be paid for this work on 2nd July. The adjusting entry for Jo’s employer at 30 June is: A. B. C. D. E.

23.

Office supplies. Revenue. Prepaid rent. Unearned revenue. Accrued wages.

Debit Salaries Accrued $540; Credit Salaries Expense $540. Debit Salaries Expense $540; Credit Salaries Accrued $540. Debit Salaries Accrued $540; Credit Cash $540. Debit Salaries Expense $540; Credit Cash $540. None of the above.

A hotel and country club bought a lawn mower on 1st January 2012 for $10,000. It has been estimated that the lawn mower will be sold off for a salvage value of $2,000 after four years. If the hotel uses the straight line depreciation method, what is the accounting entry to record the lawn mower’s depreciation for the hotel’s year ending 31 March 2012: A. Debit Accumulated Depreciation $625; Credit Depreciation Expense $625. B. Debit Depreciation Expense $625; Credit Accumulated Depreciation $625. C. Debit Depreciation Expense $500; Credit Accumulated Depreciation $500. D. Debit Accumulated Depreciation $500; Credit Depreciation Expense $500. E. None of the above.

24.

The Sea Breeze Hotel and Golf club operates a periodic inventory system in connection with its office supplies. Prior to the posting of its current financial year end adjusting entries, the office supplies account has a $200 debit balance and the office supplies purchases account has a debit balance of $1,100. A year end stock check has established that the hotel has $300 of office supplies on hand. What year end adjusting entry is required? A. B. C.

D. E.

25.

Debit Supplies inventory $1,100; Credit Supplies purchases: $1,100 Debit Supplies inventory $1,000; Credit Supplies expense $1,000. Debit Supplies purchases $1,100; Credit Supplies inventory: $1,100 Debit Supplies inventory $1,000; Credit Supplies expense $1,000. Debit Supplies purchases $1,100; Credit Supplies inventory: $1,100 Debit Supplies expense $1,000; Credit Supplies inventory $1,000. Debit Supplies inventory $1,100; Credit Supplies purchases: $1,100 Debit Supplies expense $1,000; Credit Supplies inventory $1,000. None of the above

The Iconic Hotel has an investment of $30,000 earning 6% interest per annum which is paid semi-annually. The last time the hotel updated its records with respect to this account was when it received an interest payment of $900 for the six months ended 31 December 2011. What adjusting entry should the hotel make for its 31 March 2012 financial year end with respect to this interest bearing account? A. B. C. D. E.

Debit Interest Receivable $450; Credit Unearned Revenue $450. Debit Interest Receivable $450; Credit Interest Revenue $450. Debit Cash $450; Credit Interest Revenue $450. Debit Interest Revenue $450; Credit Interest Receivable $450. Debit Interest Revenue $1,800; Credit Interest Receivable $1,800.

26.

The Snow Drift ski resort pays its salaried staff $40,000 for 10 days work (Monday – Friday) every two weeks. The resort’s financial year end falls 4 working days into its fortnightly salary payment cycle. The adjusting entry that it needs to make in connection with wages is: A. B. C. D. E.

27.

A year end adjusted balance on a prepaid insurance account is reported in the year end financial statements as: A. B. C. D. E.

28.

An additional expense in the profit and loss statement. An asset in the balance sheet. A reduction to an expense in the profit and loss statement. A liability in the balance sheet. None of the above.

The Snow Drift ski resort pays its salaried staff $50,000 for 10 days work (Monday – Friday) every two weeks. The resort’s financial year end falls 5 working days into its fortnightly salary payment cycle. The adjusting entry that it needs to make in connection with wages is: A. B. C. D. E.

29.

Debit Wages Pending $16,000; Credit Wages Accrued $16,000 Debit Wages Accrued $16,000; Credit Wage Expense $16,000 Debit Wage Expense $16,000; Credit Wages Accrued $16,000 Debit Wage Expense $16,000; Credit Wages Pending $16,000 None of the above

Debit Wages Expense $25,000; Credit Accounts Payable $25,000 Debit Wages Accrued $25,000; Credit Wage Expense $25,000 Debit Wage Expense $25,000; Credit Wages Accrued $25,000 Debit Wage Expense $25,000; Credit Cash $25,000 Debit Wages Accrued $25,000; Credit Cash $25,000

On 1st May 2012 Byron Bay Events invested $72,000 in a term deposit earning 5% per annum. Its year end is 31st December 2012. Indicate what adjusting entry is required at 31st December. A. B. C. D. E.

Debit Interest Receivable $2,400; Credit Unearned Revenue $2,400 Debit Interest Revenue $2,400; Credit Interest Receivable $2,400 Debit Cash $3,600; Credit Interest Revenue $3,600 Debit Interest Receivable $2,400; Credit Interest Revenue $2,400 Debit Interest Receivable $1,200; Credit Interest Revenue $1,200

Chapter 5: Financial Statement Analysis 1.

Which of the following statements is true? A. B. C. D. E.

Financial ratio analysis is used: A. B. C. D. E.

Meet short-term debt obligations Earn a strong rate of return Cover long term debt obligations Secure a strong short-term asset turnover Earn the company’s owners a good return in the short-term only.

Which of the following statements is true with respect to financial stability? A. B. C. D. E.

By stock brokers to analyse company performance. By shareholders to gauge profitability and liquidity. By managers to support decision making. By creditors to appraise short term financial stability of a company. All of the above.

The current asset ratio is an indicator of a company’s capacity to: A. B. C. D. E.

An excess of inventory will lead to a high current asset ratio figure. An increasing inventory turnover signifies a reducing number of days inventory is held. If inventory prices are declining inventory turnover will tend to decrease. All of the above are true. A and B are true.

Financial stability ratios provide a basis for determining a company’s capacity to improve sales. Financial stability ratios provide a basis for determining the likelihood of a company’s share price improving. Financial stability ratios provide a basis for determining whether a company’s earnings per share is satisfactory. A financial stability analysis can be broken into short-term and long-term perspectives. None of the above.

Which of the following is not an indicator of profitability? A. B. C. D. E.

Net profit to sales Gross profit margin Times interest earned Return on capital employed Return on ordinary shareholder's equity

In the most recent year, the Decadent Hotel earned $150,000 of profit before tax, after the deduction of $30,000 in interest expense. The Hotel’s liabilities are $600,000 and its owner's equity is $900,000. What is the hotel’s return on total assets, before interest and tax? A. B. C. D. E.

A company’s financial leverage concerns: A. B. C. D. E.

7.5% 8.75% 11.25% 12% 10%

Which of the following is consistent with a decreased operating profit margin? A. B. C. D. E.

10.

Its capacity to earn profit. Its capacity to pay off current liabilities. Its capacity to lever inventory to achieve a high turnover Its capacity to pay dividends None of the above

In the most recent year, Byron Bay Events financial statements reported net profit of $70,000 after deducting interest expense of $20,000 and income tax of $30,000. The company liabilities are $400,000 and its owner's equity is $800,000. What is the hotel’s return on total assets, before interest and tax? A. B. C. D. E.

13% 12% 11% 10.6% 9%

A decrease in fixed costs relative to variable costs A reduction in inventory turnover Average number of days to collect accounts receivable increasing from 20 to 25. An increase in the times interest earned ratio. None of the above.

The Supremo Hotel’s pizzeria incurred $40,000 in cost of sales when generating sales of $100,000 last year. Its food inventory account was $750 at the start of the year and $1,250 at the end of the year. Food stocks were held in inventory for how many days on average during the year (assume a 360-day year)? A. B. C. D. E.

3.6 days 4.5 days 9.0 days 40 days None of the above

11.

Which of the following contributes to a higher ROI: A. B. C. D. E.

12.

Which of the following contributes to a lower ROI for a business? A. B. C. D. E.

13.

B. C. D. E.

The acid test ratio’s calculation involves deducting current liabilities from a company’s most liquid current assets. Current liabilities that are due for payment in less than a year are stated as a percentage of current assets. The acid test ratio is a useful measure of short term liquidity in a business that has slow moving inventory stock. Current liabilities are deducted from current assets net of inventories and prepayments. If calculated correctly, the acid test ratio will always be greater than one.

Which of the following statements concerning Revpar is true? A. B. C. D. E.

15.

Higher levels of assets held in anticipation of increasing sales An increase in gross profit margin Increasing total asset turnover Decreasing number of days to collect accounts receivable A decrease in the times interest earned ratio

Which of the following statements is true about the acid test ratio? A.

14.

Increasing number of days to collect accounts receivable Decreasing total asset turnover ratio Decreasing debt to assets ratio Stable gross profit margin Increasing inventory turnover.

It is not as complete a measure of hotel performance as the widely-used room occupancy measure. It represents a useful gauge of a hotel’s financial stability. It represents an amalgamation of the room rate and occupancy performance measures. If it is increasing in a hotel, the hotel’s ROI must also be increasing. Revpar is calculated by dividing daily room letting revenue by the number of rooms sold.

An appraisal of a company’s long term financial stability relative to a second company’s long term financial stability can be achieved by: A. B. C. D. E.

Determining each company’s trend in paying dividends Comparing each company’s times interest earned ratio Comparing each company’s current asset ratio Comparing each company’s earnings per share. Comparing the total asset turnover for the two companies.

16.

Which of the following statements is true? A. A high accounts receivable turnover figure will contribute towards a high current asset ratio. B. An increasing accounts receivable turnover figure signifies a reduction in the average number of days to collect accounts receivable. C. If selling prices are increasing the accounts receivable turnover figure will tend to increase. D. An increase in the accounts receivable balance will result in an increase in the accounts receivable turnover figure. E. None of the above are true.

17.

ROI can be seen to comprise two elements: A. B. C. D. E.

18.

The debt to equity ratio is an indicator of: A. B. C. D. E.

19.

A company’s capacity to use debt to lever up returns to equity holder holders. The extent equity funds are drawn upon to pay off debt. The amount paid to debt holders relative to the returns earned by equity holders. The long-term indebtedness of a company. None of the above.

The relative profitability of two companies can be appraised by calculating and comparing: A. B. C. D. E.

20.

Profit margin and owners equity return. Gross profit and asset revenue. Profit margin and asset turnover. Return on equity and asset turnover. None of the above.

The earnings per share for each company. The times interest earned for each company. The return on investment for each company. The current ratio for each company. None of the above

The souvenir shop in a hotel foyer incurred $60,000 in cost of sales when generating sales of $140,000 last year. Its inventory account balance was $2,500 at the start of the year and $3,500 at the end of the year. The merchandise sold was held in the shop’s inventory for how many days on average during the year (assume a 360-day year)? A. B. C. D. E.

18 days 16 days 12 days 8 days None of the above

21.

Which of the following statements is untrue: A. B. C. D. E.

22.

An appraisal of a company’s long term financial stability relative to a second company’s long term financial stability can be achieved by: A. B. C. D. E.

23.

B. C. D. E.

An increase in the accounts receivable turnover ratio will generally result in an increase in the current ratio. The current asset ratio is calculated by deducting current liabilities from current assets. The current asset ratio is widely used as an indicator of a company’s long term liquidity. If calculated correctly, the current asset ratio will always be greater than one. The current asset ratio is calculated by dividing current assets by current liabilities.

Which of the following statements concerning revenue yield per restaurant seat is true? A. B. C. D. E.

25.

Determining each company’s EPS trend Comparing each company’s acid test ratio Comparing each company’s asset turnover ratio Comparing each company’s debt ratio. Comparing the dividend payment trend for the two companies.

Which of the following statements is true about the current asset ratio? A.

24.

The results of a ratio analysis convey limited information unless they are compared to some benchmark data. ROI can be calculated in a range of ways that include: return on equity and return on assets available. ROI can be dissected into two parts: profit margin and financial stability. When calculating an asset turnover ratio, it is better to use an average of the asset balance through the year, rather than the asset balance at the end of the year. An increase in inventory turnover does not always represent a desirable development.

It represents an amalgamation of the seat turnover and average spend per head performance measures. If it is increasing in a restaurant, the restaurant’s ROI must also be increasing. Revenue yield per seat can be calculated by dividing daily restaurant revenue by the number of customers served. It is not as complete a measure of restaurant performance as the widely-used seat turnover measure. It represents a useful gauge of a restaurant’s financial stability.

Which of the following contributes to a higher ROI for a business? A. B. C.

A decreasing debt to assets ratio An increase in sales while holding costs constant A decreasing inventory turnover

D. E.

26.

Which ratio provides insight into a company’s capacity to pay its current liabilities? F. G. H. I. J.

27.

12% 8.57% 10% 8% None of the above.

The relative financial stability of two companies can be appraised by calculating and comparing: A. B. C. D. E.

30.

Earnings per share Debt to assets ratio Inventory turnover Current asset ratio Times interest earned

The Great Barrier Reef Coral Dive company reported EBIT of $30,000 and sales of $375,000 in 2010. Its asset base grew from $250,000 at the beginning of the year to $350,000 by 31st December 2010. What is its 2010 ROI? A. B. C. D. E.

29.

Current asset ratio Acid test ratio Times interest earned ratio Debt to equity ratio Both A. and B.

Which of the following impacts on the profit margin or asset turnover elements that comprise the ROI ‘Dupont formula’? A. B. C. D. E.

28.

Increasing number of days to collect accounts receivable A decrease in the times interest earned ratio

The earnings per share for each company. The times interest earned for each company. The return on investment for each company. The inventory turnover for each company. None of the above

The Gold Coast Professional Conference Organisation company took an average of 32 days to collect its accounts receivable in 2010. In 2011, it incurred $70,000 in expenses when generating sales of $250,000. Its accounts receivable balance was $25,000 at the start of 2011 and $31,250 at the end of the year. Compared to 2010, during 2011 has the company been faster or slower in collecting its accounts receivable? (Assume a 360-day year). A.

4 days slower

B. C. D. E.

31.

Which of the following statements is untrue?: A.

B. C. D. E.

32.

Times interest earned ratio. Debt to equity ratio. Price earnings ratio. Profit margin ratio. Current ratio.

In its last financial year, the Dubbo Hotel reported net profit of $40,000, gross profit of $30,000, sales of $240,000 and average assets of $360,000. What was the hotel’s gross profit margin? A. B. C. D. E.

34.

Ratio analysis is most usually conducted in the context of a benchmark such as past performance, goal achievement, performance of similar organisations, industry average data, etc. A ratio analysis can be systematically structured by investigating a company’s profit performance and its financial stability. It is common to investigate the financial stability of an organisation according to two perspectives: the short term and the long term. Analysis of the profitability of a firm can be conducted according to two perspectives: profit margin and financial stability. When calculating ROI, what is meant by ‘return’ and also ‘investment’ is dependent on the context in which the analysis is being made.

Which of the following ratios provides an evaluation of a company’s ability to pay its current liabilities? A. B. C. D. E.

33.

4 days faster 8.5 days slower 13 days slower 13 days faster

12.5%. 16.66%. 8.33%. 11.11%. 15%.

Which of the following computations would provide a measure of a hotel’s average room rate for a month? A. B. C. D. E.

Total letting revenue for the month  daily average rooms available. Total letting revenue for the month  number of rooms sold in the month. Total letting revenue for the month  total rooms available during the month. Total letting revenue for the month  daily average rooms sold during the month. Total letting revenue for the month  average room letting revenue during the month.

35.

Which of the following statements is true about the current asset ratio? A. B. C. D. E.

36.

The current asset ratio is an indicator of a company’s capacity to: A. B. C. D. E.

37.

Increasing number of days to collect accounts receivable Increasing total asset turnover ratio Increasing accounts receivable Stable gross profit margin Decreasing inventory turnover.

Which of the following statements concerning Revpar is true? A. B. C. D. E.

40.

Its capacity to earn profit. Its capacity to pay off current liabilities. Its capacity to lever inventory to achieve a high turnover Its capacity to pay dividends Its capacity to pay long term debt

Which of the following contributes to a higher ROI? A. B. C. D. E.

39.

A company’s financial leverage concerns: A. B. C. D. E.

38.

An increase in the accounts receivable turnover ratio will generally result in an increase in the current ratio. The current asset ratio is calculated by deducting current liabilities from current assets. When calculating the current asset ratio, inventory should be deducted from other current assets. If calculated correctly, the current asset ratio will always be greater than one. None of the above statements concerning the current asset ratio is true.

It is not as complete a measure of hotel performance as the widely-used average room rate. It represents a useful gauge of a hotel’s financial stability. Revpar is calculated by dividing daily room letting revenue by the number of rooms sold. If it is increasing in a hotel, the hotel’s ROI must also be increasing. Considered individually, it represents a more complete performance measure than average room rate or percentage room occupancy.

An appraisal of a company’s long term financial stability relative to a second company’s long term financial stability can be achieved by:

A. B. C. D. E.

41.

Which of the following statements is true? A. B. C. D. E.

42.

A high accounts receivable turnover figure will contribute towards a high current asset ratio. An increasing accounts receivable turnover figure signifies an increase in the average number of days to collect accounts receivable. If selling prices are increasing, the accounts receivable turnover figure will tend to increase. If credit sales are constant, an increase in the accounts receivable balance will result in a decrease in the accounts receivable turnover figure. None of the above are true.

In the most recent year, the Decadent Hotel earned $220,000 of profit before tax, after the deduction of $40,000 in interest expense. The Hotel’s liabilities are $800,000 and its owner's equity is $1,200,000. What is the hotel’s return on total assets, before interest and tax? A. B. C. D. E.

43.

Determining each company’s trend in paying dividends Comparing each company’s earnings before interest (EBIT) trend Calculating each company’s current asset ratio Calculating each company’s debt to equity ratio Comparing the total asset turnover for the two companies.

13% 9% 11% 10.6% 12%

Which of the following statements regarding gross profit is correct? A. B. C. D. E.

A reduction in gross profit margin will positively affect net profit margin. Gross profit is calculated as revenue less variable expenses. Gross profit is calculated as revenue less direct costs. Any change in the gross profit margin can have a significant effect on the net profit margin. A decline in total sales will reduce the gross profit margin.

Chapter 6: Internal Control 1.

Which of the following statements is true? A. B. C. D. E.

Which of the following statements is untrue? A. B. C. D. E.

The most effective internal control procedures are preventative, i.e., they are designed to avoid inefficiencies or theft occurring. An example of a theft avoidance procedure is to require cash to always be held in a locked safe. An example of a theft detection procedure would be to conduct a surprise search of employee bags as staff leave the hotel. Control is best achieved when completion of a particular task is assigned to three or more people. Internal audits generally involve an appraisal of the extent to which document procedures are adhered to.

Reasons for a difference between a bank balance recorded on a bank statement and the record in a company’s accounting system include: A. B. C. D. E.

Under a periodic inventory system, an up-to-date record of the inventory balance is maintained. If an inventory accounting system were to move from a periodic to a perpetual basis, stock-takes would have to be conducted more regularly. Under a periodic inventory system, no record is maintained of items issued from inventory. A periodic inventory system is preferable if a hotel is experiencing an inventory pilferage problem. None of the above

Timing differences, e.g., some cheque payments by a company may be late in being presented to the bank. Errors, e.g., an error may be made in recording a deposit amount in the company’s accounts. Bounced cheque, i.e., a customer’s cheque that has been recorded in a hotel’s accounting system might not be honoured by the customer’s bank. Direct deposits to the bank account that have not yet been recorded by the company holding the bank account. All of the above.

To prepare a bank reconciliation statement it is necessary to have the following: A. B. C. D. E.

The previous period’s bank reconciliation statement. The company’s record of bank account payments and receipts. A bank statement covering the bank reconciliation period. The bank account balance per the company’s accounting system at the period end. All of the above.

A new internal control procedure should only be implemented if: A. B. C. D. E.

The imprest system of petty cash accounting refers to: A. B. C. D. E.

Deducted form the balance appearing on the bank statement. Added to the hotel’s cash receipts record. Deducted when preparing the bank reconciliation statement. Added to operating revenue. None of the above

Which of the following represent internal control principles? A. B. C. D. E.

The petty cash being managed by a responsible person. The petty cash being used to fund small purchases. The fund being periodically replenished with enough cash to return it to its original balance. Frequent reconciliations of the petty cash account being made. None of the above

When a hotel prepares its monthly bank reconciliation exercise, bank interest received is: A. B. C. D. E.

It is approved by the company’s external auditors. All staff members agree to the new procedure. It enhances bank reconciliation preparation. The benefits of the new procedure are expected to be greater than the cost of its implementation. None of the above

Job rotation Segregation of duties Restricted access to assets All of the above B and C

Which of the following does not represent an internal control procedure? A. B. C. D. E.

Preparing written procedure manuals Use of mechanical and electronic devices Combining goods ordering and receiving responsibilities Physical controls All of the above represent internal control procedures

10. On 1 July 20X1 the MountainTop hotel established a petty cash fund with an imprest balance of $300. At the end of the month there was $160 in petty cash and four taxi receipts and vouchers totalling $140. The accounting entry to record the replenishment of the petty cash fund is: A. Debit Taxi Expenses; Credit Cash at Bank B. Debit Petty Cash; Credit Cash at Bank C. Debit Taxi Expenses; Credit Petty Cash D. Debit Taxi Expenses; Credit Accounts Payable E. Debit Accounts Payable; Credit Petty Cash

11.

From your hotel’s most recent bank statement, you note that there are two cheque payments that your hotel made to suppliers a week ago for $110 and $140 that have yet to clear the bank account. The bank statement has recorded $13 of interest earned on the account and this has yet to be recorded in your hotel’s accounting system. If the bank statement is recording a closing credit balance of $3,480, what should be the pre-reconciliation balance recorded in your hotel’s double entry book keeping system with respect to money held at bank? A. Credit balance of $3,217. B. Debit balance of $3,217. C. Credit balance of $3,243. D. Debit balance of $3,243. E. None of the above.

12.

The accounting entries to record the establishment of a petty cash fund are: A. Debit Petty Cash Expenses; Credit Cash at Bank B. Debit Cash at Bank; Credit Petty Cash Payable C. Debit Petty Cash; Credit Petty Cash Payable D. Debit Petty Cash; Credit Cash at Bank E. Debit Account Expenses; Credit Cash at Bank

13.

Which of the following statements is true? A. B. C. D. E.

A perpetual inventory system is cheaper to maintain than a periodic inventory system. If a perpetual inventory system is adopted, stock-takes will need to be undertaken more frequently than if a periodic inventory system is adopted. Under a perpetual inventory system, no record is maintained of items issued from inventory. A periodic inventory system is preferable if a hotel is experiencing an inventory pilferage problem. A periodic inventory system does not maintain an up-to-date record of the balance held in inventory.

14.

Which of the following statements is true? A. B. C. D.

15.

Which of the following represent internal control principles? A. B. C. D. E.

16.

Companies should prepare a bank reconciliation statement every week. A bank reconciliation statement reflects bank account payments and receipts. A bank statement can be a useful procedure to alert management to any banking anomalies. Accounting errors are the main reason for a difference between a company’s bank account balance reported on its bank statement and the balance reported by its internal accounting system. If a company has a positive balance in its bank account, in its own accounting records, a credit balance will be reflected for the account “Money at bank”.

Establish clear lines of responsibility Prepare written procedures Conduct internal audits All of the above B and C

Which of the following statements is untrue. A. B. C. D. E.

The most effective internal control procedures are preventative. Internal control procedures can be classified into two main types: 1) administrative controls, and 2) accounting controls. Cash management presents a particularly significant internal control challenge in hotels due to the large number of cash transactions occurring in restaurants and bars. High staff turnover in hotels increases the need for hotel managers to have an awareness of internal control procedures. Unlike administrative controls, accounting internal control procedures are primarily concerned with promoting adherence to business policies.

17.

The Highlands Resort hotel maintains a petty cash fund with an imprest balance of $500. At the end of a month there was $180 in the petty cash box and four lunch receipts and vouchers totalling $320. The accounting entry to record the replenishment of the petty cash fund is: A. Debit Lunch Expenses; Credit Cash at Bank B. Debit Petty Cash; Credit Cash at Bank C. Debit Lunch Expenses; Credit Petty Cash D. Debit Lunch Expenses; Credit Accounts Payable E. Debit Accounts Payable; Credit Petty Cash

18.

Internal control concerns all of the procedures and policies that a business takes in order to: A. Prevent any mistakes B. Ensure managers behave ethically C. Produce correct financial statements D. Safeguard its assets E. Ensure the business does not make a loss

19.

The principles of internal control do not include: A. B. C. D. E.

20.

Physical controls do not include: A. B. C. D. E.

21.

Preparation of written procedures Restricted asset access Segregation of duties Job rotation Conduct of external audits.

Safe for holding cash Employee identification cards Maintenance of a petty cash balance. Lockable storage areas. External fencing

In a bank reconciliation, when the bank statement shows a debit balance, outstanding deposits are: A. B. C. D. E.

Added to the business records balance Deducted from the business records balance Added to the balance as per bank statement Deducted from the balance as per bank statement Debited to the bank statement

22.

The accounting entries to record the establishment of a petty cash fund are: A. Debit Petty Cash Expenses; Credit Cash at Bank B. Debit Petty Cash; Credit Cash at Bank C. Debit Petty Cash; Credit Petty Cash Payable D. Debit Cash at Bank; Credit Petty Cash Payable E. Debit Account Expenses; Credit Cash at Bank

23.

Which of the following statements is true? A. Under a periodic inventory system, an up-to-date record of the inventory balance is maintained. B. If an inventory accounting system were to move from a periodic to a perpetual basis, stock-takes would have to be conducted more regularly. C. A perpetual inventory system is generally preferred when accounting for small supply items. D. A perpetual inventory system is preferable if a hotel is experiencing an inventory pilferage problem. E. None of the above

24. Which of the following represent internal control principles? A. Consolidate responsibility for related transactions B. Job rotation C. Restricted access to assets D. All of the above E. B and C

25.

Which of the following does not represent an internal control procedure? A. Preparing written procedure manuals B. Segregating physical assets from computer hardware C. Use of mechanical and electronic devices D. Physical controls E. All of the above represent internal control procedures

26.

On 1 July 20X1 the MountainTop hotel established a petty cash fund with an imprest balance of $300. At the end of the month there was $160 in petty cash and four taxi receipts and vouchers totalling $140. The accounting entry to record the replenishment of the petty cash fund is: A. Debit Accounts Payable; Credit Petty Cash B. Debit Petty Cash; Credit Cash at Bank C. Debit Taxi Expenses; Credit Petty Cash D. Debit Taxi Expenses; Credit Accounts Payable E. Debit Taxi Expenses; Credit Cash at Bank

Chapter 7: Cost Management Issues 1.

Identify which of the following statements is true. Management accounting: A. B. C. D. E.

Which of the following represents an overhead if a hotel is trying to determine the cost of hosting a recent conference? A. B. C. D. E.

An overhead Direct material An opportunity cost A sunk cost None of the above

An opportunity cost is: A. B. C. D. E.

Food served to conference delegates Depreciation of the hotel audio visual equipment used at the conference. Paper and pens provided to conference delegates. Wages paid to staff engaged to run the conference desk. None of the above

Material costs that are not traceable to a cost object represent: A. B. C. D. E.

Is used by shareholders to help them manage their investments. Helps managers make decisions and control an organisation. Is used by suppliers to manage their customers. Must comply with accounting standards. None of the above.

The cost arising from pursuing a particular opportunity. When alternative 1 is selected, it is the benefit foregone as a result of not being able to pursue alternative 2. The costs resulting from managers acting opportunistically. The cost savings resulting from buying stock opportunistically. None of the above

A sunk cost is: A. B. C. D. E.

The cost of foundations sunk in the ground. A cost that always varies in line with sales and management cannot change this relationship. A cost relating to an event that has already occurred and cannot be altered. A cost that is recurring. None of the above

A direct cost is: A. B. C. D. E.

Which of the following is true? A. B. C. D. E.

It is generally assumed that variable costs become greater per unit as sales increase. It is generally assumed that variable costs become less per unit as sales decrease. It is generally assumed that total variable costs are unaffected by a reduction in sales. It is generally assumed that variable costs remain approximately the same per unit, regardless of the volume of sales None of the above

A semi-variable cost is: A. B. C. D. E.

A cost that can be observed directly and therefore measured accurately. A cost resulting from the specific directions of a senior manager. A cost that directly relates to sales. A cost that can be traced to a particular cost object. None of the above

A cost that increases by at least half of increases in revenue. Has a sunk and a variable cost component. Has a fixed and a variable cost component. A cost that increases in line with sales sometimes. None of the above

In a week when a hotel sells 800 room nights, its cost of cleaning rooms is $23,000. In a week when it sells 500 room nights, its total room cleaning cost is $20,000. Use the high-low method to determine the hotel’s fixed cost per week to clean rooms. A. B. C. D. E.

Weekly fixed cost is $12,000. Weekly fixed cost is $15,000. Weekly fixed cost is $16,000. Weekly fixed cost is $18,000. None of the above

10.

A hotel has the following profit and loss statement for its quietest month of the year. Gala Hotel Ltd Profit and Loss Statement for February Revenue $100,000 Cost of sales 34,000 Gross profit 66,000 Less expenses Maintenance 24,000 Salaries 32,000 Electricity 55,000 111,000 Net operating loss 45,000 The hotel accountant has determined that:  The hotel pays $8,000 per month under a maintenance agreement to a contractor. The remaining maintenance expense is variable.  Salaries are all fixed.  Variable electricity expense in February was $20,000, the remainder is fixed. What would have been the impact on the hotel’s profit for the year if it had closed in February? A. B. C. D. E.

11.

A Las Vegas hotel is considering disposing of a drinks vending machine as it would like to place a hotel phone in the space occupied by the vending machine. The vending machine has been generating $6,500 in profit for the hotel. When making this decision, the $6,500 annual profit generated by the vending machine can be viewed as: A. B. C. D. E.

12.

Reduced profit by $15,000. Reduced profit by $30,000. Reduced profit by $40,000. Increased profit by $45,000. None of the above

A sunk cost On overhead A variable cost An opportunity cost. None of the above

Which of the following statements is true: A. B. C. D. E.

If revenue doubles, a variable cost could treble. A hotel restaurant fixed costs per meal sold will stay the same across quiet and busy seasons. Semi-variable costs have fixed and variable components. In most business situations, the majority of variable costs are indirect. None of the above

13.

Widely-used cost classification schemes include: A. B. C. D. E.

14.

Which of the following statements is true: A. B. C. D. E.

15.

Increase at decreasing rates as revenue increases. Vary per unit of output as activity changes. Vary in total as activity output levels change. Remain constant per unit of output as activity varies. C and D are both true statements concerning variable costs.

Which of the following is not an example of a variable cost? A. B. C. D. E.

17.

Incremental costs vary in direct proportion to revenue. A semi variable cost item can stay the same over large changes in revenue, but increase once a decision to increase capacity is implemented. An opportunity cost will tend to vary in line with revenue. A direct cost is a cost that can be traced to a particular cost object. None of the above

Variable costs are costs that: A. B. C. D. E.

16.

Direct and indirect costs. Variable and fixed costs. Decision making and control costs. A, B and C. A and B.

The cost of housekeeping in a large hotel. The cost of beer sold at a bar The cost of spaghetti ingredients sold at an Italian restaurant. The cost of incentive-based commissions paid to sales staff. Straight line depreciation on a kitchen oven that will be replaced after five years.

In a month when a hotel’s laundry department processes 20,000 kg of laundry, the laundry operating costs are $15,000. In a month when it processes 25,000 kg of laundry, the laundry operating costs are $17,500. Use the high-low method to determine the laundry department’s fixed cost per month. A. B. C. D. E.

Monthly fixed cost is $10,000. Monthly fixed cost is $8,000. Monthly fixed cost is $5,000. Monthly fixed cost is $3,000. None of the above

18.

A hotel has the following profit and loss statement for its quietest month of the year. Silky Sheets Hotel Ltd Profit and Loss Statement for February Revenue $90,000 Cost of sales 26,000 Gross profit 64,000 Less expenses Maintenance 26,000 Salaries & wages 30,000 Electricity 49,000 105,000 Net operating loss $ 41,000 The hotel accountant has determined that:  The hotel pays $6,000 per month under a maintenance agreement to a contractor. The remaining maintenance expense is variable.  Half the salaries and wages are fixed.  Variable electricity expense in February was $24,000, the remainder is fixed. What would have been the impact on the hotel’s profit for the year if it had closed in February? A. B. C. D. E.

19.

A Las Vegas hotel is considering disposing of a drinks vending machine as it would like to place a hotel phone in the space occupied by the vending machine. The vending machine has three years of $2,500 per annum depreciation charges still to be expensed. When making this decision, the $2,500 annual depreciation charges can be viewed as: A. B. C. D. E.

20.

Reduced profit by $5,000. Reduced profit by $10,000. Reduced profit by $15,000. Reduced profit by $20,000. None of the above

A sunk cost An incremental cost A variable cost An opportunity cost None of the above

Which of the following is untrue? A. B. C. D. E.

It is generally assumed that total variable costs increase when sales increase. It is generally assumed that fixed cost per unit remains the same when sales decrease. It is generally assumed that total monthly fixed cost remains the same as the volume of sales changes from the busy to the quiet season in a year. It is generally assumed that variable costs remain approximately the same per unit sold as the volume of sales changes from the busy to the quiet season in a year. Many overheads are fixed costs.

21.

Which of the following is untrue? A. B. C. D. E.

22.

Variable costs: A. B. C. D. E.

23.

$2,000 $4,000 $6,000 $8,000. None of the above.

When trying to decide whether a cost is relevant to a decision to outsource office cleaning services, a manager should view a cost as relevant if: A. B. C. D. E.

25.

Vary in total in proportion to changes in sales. Remain the same per unit as sales levels change. Can also be direct costs. A and B only. A. B. and C.

In the last financial year, during its busiest month, the Outback Tours company took 12,000 guests on its tours and incurred total costs of $28,000. During its quietest month it had 8,000 guests and its costs were $20,000. How much are Outback Tours monthly fixed costs? A. B. C. D. E.

24.

An opportunity cost represents the cost of an opportunity that has been lost. Some costs double when the volume of sales doubles. Semi variable costs have a fixed and a variable cost component. A direct cost is a cost that can be traced to a cost object relatively easily. An incremental cost is a cost that does not change as a result of a decision.

It is a sunk cost. It is a historical cost that is the same regardless whether the outsourcing occurs. It is an anticipated future cost that will arise if the cleaning service is outsourced. It is a historical cost that can be precisely measured. None of the above

The Outback Spectacular show has a shop that sells cowboy style jackets. It has spent $33,000 to purchase 3,000 jackets. Due to changing fashions, they have not been able to sell the jackets at the regular selling price of $20.00. The company is evaluating two alternatives. They could drop the selling price of the jackets to $8 each or they could modify the jackets at a cost of $5,000 and sell them for a total of $32,000. What would be the effect on profit of modifying the jackets as opposed to selling them for $8 each? A. B. C. D. E.

$3,000 increase. $3,000 decrease. $1,000 increase. $1,000 decrease. $5,000 increase.

26.

A hotel has the following profit and loss statement for its quietest month of the year. Romantic Nights Hotel Ltd Profit and Loss Statement for March Revenue $80,000 Cost of sales 22,000 Gross profit 58,000 Less expenses Maintenance 22,000 Salaries & wages 28,000 Electricity 45,000 95,000 Net operating loss $ 37,000 The hotel accountant has determined that:  The hotel pays $60,000 per year under a maintenance agreement to a contractor. The remaining maintenance expense is variable.  75% of the salaries and wages are fixed.  Variable electricity expense in March was $21,000, the remainder is fixed. What would have been the impact on the hotel’s profit for the year if it had closed in March? A. B. C. D. E.

27.

A hotel is preparing a cost schedule for a client who is planning to hold a conference in the hotel’s main ballroom. Which of the following is not a direct cost in connection with the hotel hosting the conference. A. B. C. D. E.

28.

Reduced profit by $5,000. Reduced profit by $10,000. Reduced profit by $13,000. Reduced profit by $20,000. None of the above

Food provided to delegates. Casual employee engaged to act as delegate receptionist during the conference. Depreciation of chairs and tables to be used in the ballroom. Main conference venue set up costs (arranging seating, hanging sponsor banners, etc.). Flower arrangements provided for the conference gala dinner.

In a month when a hotel’s laundry department processes 10,000 kg of laundry, the laundry operating costs are $15,000. In a month when it processes 20,000 kg of laundry, the laundry operating costs are $20,000. Use the high-low method to determine the laundry department’s fixed cost per month. A. B. C. D. E.

Monthly fixed cost is $5,000. Monthly fixed cost is $8,000. Monthly fixed cost is $10,000. Monthly fixed cost is $12,000. None of the above

29.

In a month when a hotel’s laundry department processes 30,000 kg of laundry, the laundry operating costs are $17,000. In a month when it processes 20,000 kg of laundry, the laundry operating costs are $14,000. Use the high-low method to determine the laundry department’s fixed cost per month. A. B. C. D. E.

30.

In a month when a hotel’s laundry department processes 10,000 kg of laundry, the laundry operating costs are $9,000. In a month when it processes 15,000 kg of laundry, the laundry operating costs are $11,500. Use the high-low method to determine the laundry department’s fixed cost per month. A. B. C. D. E.

31.

B. C. D. E.

It is generally assumed that variable costs remain approximately the same per unit of output, regardless of the volume of sales. It is generally assumed that variable costs become less per unit as sales decrease. It is generally assumed that total variable costs are unaffected by a reduction in sales. It is generally assumed that variable costs become less per unit as sales increase, but at a diminishing rate. None of the above are true statements

Costs that have a fixed and a variable component are termed: A. B. C. D. E.

33.

Monthly fixed cost is $7,000. Monthly fixed cost is $6,000. Monthly fixed cost is $5,000. Monthly fixed cost is $4,000. None of the above

Which of the following is true? A.

32.

Monthly fixed cost is $10,000. Monthly fixed cost is $8,000. Monthly fixed cost is $5,000. Monthly fixed cost is $3,000. None of the above

Pseudo variable costs Partial variable costs Semi-variable costs Quasi variable costs None of the above

Which of the following is not a widely-used cost classification scheme: A. B. C. D. E.

Direct vs indirect costs. Variable vs fixed costs. Outlay vs opportunity costs. Fixed vs volatile costs. Incremental vs sunk costs.

34.

A hotel has the following profit and loss statement for its quietest month of the year. Gala Hotel Ltd Profit and Loss Statement for February Revenue $100,000 Cost of sales 34,000 Gross profit 66,000 Less expenses Maintenance 24,000 Salaries 32,000 Electricity 55,000 111,000 Net operating loss 45,000 The hotel accountant has determined that:  The hotel pays $10,000 per month under a maintenance agreement to a contractor. The remaining maintenance expense is variable.  50% of salaries are fixed.  Variable electricity expense in February was $25,000, the remainder is fixed. What would have been the impact on the hotel’s profit for the year if it had closed in February? A. B. C. D. E.

35.

When making a short-term pricing decision: A. B. C. D. E.

36.

Reduced profit by $5,000. Reduced profit by $8,000. Reduced profit by $11,000. Reduced profit by $14,000. None of the above

Management can be justified in setting a price that covers variable cost but no other costs. Management must ensure all costs are covered. Management can be justified in restricting its thinking to accounting issues and can ignore marketing issues. Management can be justified in focusing on direct costs and making a contribution to overheads. None of the above.

A cost that has a variable as well as a fixed component is termed: A. B. C. D. E.

Partial fixed cost. Semi-variable cost. Hybrid variable cost. Blended cost. Convoluted cost.

37. An indirect expense: A. B. C. D. E.

38.

A Las Vegas hotel is considering disposing of a row of vending machines as it would like to place an internet cafe in the space occupied by the vending machines. The vending machines have been generating $18,000 in profit for the hotel. When making this decision, the $18,000 annual profit generated by the vending machines can be viewed as: A. B. C. D. E.

39.

Allocated to individual departments will reduce the overall net profit of the business. When allocated to departments will provide the correct departmental net profit. Should be allocated on the basis of the revenue or square metres of each department. When allocated encourages manager’s to set prices covering indirect and direct costs. When allocated does not assist with accountability for that cost.

An incremental cost An opportunity cost A sunk cost An overhead A variable cost

In a week when hotel room cleaning costs were $18,000, 600 rooms had been sold. In a week when hotel room cleaning costs were $22,000, 800 rooms had been sold. Use the high-low method to determine the hotel’s fixed cost per week to clean rooms. A. B. C. D. E.

Weekly fixed cost is $6,000. Weekly fixed cost is $4,000. Weekly fixed cost is $8,000. Weekly fixed cost is $12,000. None of the above

40.

A scuba diving shop has the following profit and loss statement for its quietest month of the year. Scuba Dives Ltd Profit and Loss Statement for February Revenue $70,000 Cost of goods sold 28,000 Groff profit 42,000 Less expenses Maintenance 28,000 Salaries & wages 22,000 Rent 25,000 75,000 Net operating loss 33,000 The shop’s accountant has determined that:  The shop pays $7,000 per month under a maintenance agreement to a contractor. The remaining maintenance expense is variable.  50% of the salaries and wages are fixed.  Rent is all fixed. What would have been the impact on the shop’s profit for the year if it had closed in February? A. B. C. D. E.

Reduced profit by $24,000. Reduced profit by $10,000. No change to the profit. Increased profit by $1,000. Reduced profit by $3,000.

Chapter 8: Cost-Volume-Profit Analysis 1.

Which of the following are true in cost-volume profit analysis? A. B. C. D. E.

Selling price per unit is usually treated as constant. Fixed costs per unit decrease as volume increases. Total variable costs vary directly in proportion with sales volume. Fixed costs are constant. All of the above.

In the course of a year, cost items such as rent, insurance, external property maintenance and a general manager’s salary represent what types of cost? A. B. C. D. E.

Incremental Semi-variable Fixed Opportunity None of the above

Use this information to answer the next two questions. The following data relates to the Excelsior Hotel that provides overnight accommodation but no other services:  Fixed costs: $120,000 per annum.  Variable cost per room night sold: $10.  Average selling price per room: $110.  Annual after tax target profit: $144,000.  Excelsior’s profit taxed at: 40% 3.

What is the Excelsior Hotel’s monthly breakeven in terms of rooms sold? A. B. C. D. E.

100 1,200 960 80 None of the above

What annual number of rooms sold does the Excelsior Hotel have to achieve in order to achieve its target level of profit? A. B. C. D. E.

2,640 1,200 3,600 3,140 None of the above

In a profit and loss statement that is prepared using the contribution margin layout: A. B. C. D. E.

Costs are classified according to function Costs are segregated into controllable and uncontrollable. Fixed costs are distinguished from variable costs. Direct costs are distinguished from overheads. None of the above.

Percentage contribution margin ratio is: A. B. C. D. E.

Sales minus variable costs Contribution as a percentage of sales Variable costs as a percentage of sales. Gross profit as a percentage of sales None of the above

Use the following data to answer the next 3 questions. The Glorious hotel generally charges conference organisers $65 per delegate attending a one day conference. It also incurs $10 in variable costs per delegate. Over the last few years it has averaged 80 delegates for each conference sold. Last year the hotel incurred $88,000 of fixed costs and allocated $2,000 to each of the 44 conferences that it hosted. 7.

On average, what is the total contribution generated per conference sold? A. B. C. D. E.

If the fixed costs for the hotel are truly $2,000 per conference, how many delegates must be attracted to one of its conferences in order for it to breakeven? A. B. C. D. E.

$4,400. $5,480. $8,840. $9,840 None of the above

36.36 delegates 42.42 delegates. 54.54 delegates. 78.78 delegates None of the above

If conferences sold by the Glorious hotel in the current year are expected to attract an average of 80 delegates, how many conferences must the hotel host in the year in order to breakeven? A. B. C. D. E.

50 conferences. 40 conferences. 20 conferences. 15 conferences. None of the above

10.

A hotel sells its single room nights for an average of $86 and its double room nights for an average of $102. The variable cost per single room night sold is $8 and the variable cost per double room night sold is $10. The hotel has annual fixed costs of $992,000. In the past the hotel has sold two single rooms for each double room sold. Based on the 2:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven? A. B. C. D. E.

11.

Break-even is the level of sales where A. B. C. D. E.

12.

8,000 singles and 4,000 doubles. 9,000 singles and 4,500 doubles. 10,000 singles and 5,000 doubles. 11,000 singles and 5,500 doubles. None of the above

Total revenue equals all of an organisation’s fixed costs. Total revenue equals all of an organisation’s variable costs. Total revenue equals all of an organisation’s direct and fixed costs. Total revenue is the same as total costs. The revenue from the next item sold is the same at its cost.

Contribution margin is: A. B. C. D. E.

The surplus of revenue over fixed costs Profit as a percentage of sales The amount contributed to covering variable costs by an incremental increase in the sales level. Revenue minus variable costs None of the above

Use this information to answer the next two questions. The following data relates to the Bravo Hotel that provides overnight accommodation but no other services: Fixed costs: $240,000 per annum; Variable cost per room night sold: $15; Average selling price per room night: $65; Annual after tax target profit: $288,000; Bravo’s profit taxed at: 40%. 13.

What is the Bravo Hotel’s monthly breakeven in terms of room nights sold? A. B. C. D. E.

14.

1,200 800 600 400 None of the above

What annual number of rooms sold does the Bravo Hotel have to achieve in order to achieve its target level of profit? A. B. C. D. E.

14,400 12,200 10,800 8,600 None of the above

15.

A hotel sells its single room nights for an average of $100 and its double room nights for an average of $130. The variable cost per single room night sold is $10 and the variable cost per double room night sold is $12. The hotel has annual fixed costs of $1,358,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven? A. B. C. D. E.

16.

An ice cream stall is planning to sell 1,000 ice creams at $4 each at the next Gold Coast grand prix event. This will generate a contribution margin ratio of 75%. If the ice cream stall will break even at this level of sales, what are its fixed costs associated with the event. A. B. C. D. E.

17.

10,500 singles and 3,500 doubles. 12,000 singles and 4,000 doubles. 13,500 singles and 4,500 doubles. 15,000 singles and 5,000 doubles. None of the above

$1,000. $2,000. $3,000. $4,000. None of the above.

The revenue required to obtain a target net profit can be determined by: A. B. C. D. E.

Fixed costs + target net profit Variable costs + fixed costs + target net profit Variable costs + target net profit Variable costs + fixed costs None of the above

Use this information to answer the next two questions. The following data relates to the Exquisite Hotel that provides overnight accommodation but no other services: Fixed costs: $252,000 per annum; Variable cost per room night sold: $14; Average selling price per room night: $84; Annual after tax target profit: $63,000; Bravo’s profit taxed at: 40%. 18.

What is the Exquisite Hotel’s monthly breakeven in terms of room nights sold? A. B. C. D. E.

19.

200 250 300 350 None of the above

What annual number of rooms sold does the Exquisite Hotel have to achieve in order to achieve its target level of profit? A. B. C. D. E.

4,600 5,100 5,600 6,100 None of the above

20.

Which of the following is not needed to calculate breakeven level: A. B. C. D. E.

21.

A T-shirt retailer is planning to sell 500 T-shirts for $20 each at the next Olympics. This will generate a contribution margin ratio of 70%. If this level of sales will signify breakeven for the T-shirt retailer’s operations at the Olympics, what are the retailer’s fixed costs associated with selling at the Olympics. A. B. C. D. E.

22.

$5,000. $6,000. $7,000. $8,000. None of the above.

A hotel sells its single room nights for an average of $110 and its double room nights for an average of $140. The variable cost per single room night sold is $8 and the variable cost per double room night sold is $12. The hotel has annual fixed costs of $3,472,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven? A. B. C. D. E.

23.

The proportion of sales between different services (when more than one service is sold). Selling price per unit for each service sold. Variable cost per unit for each service sold. Total fixed costs. All of the above are needed to calculate breakeven.

18,000 singles and 6,000 doubles. 21,000 singles and 7,000 doubles. 24,000 singles and 8,000 doubles. 27,000 singles and 9,000 doubles. None of the above

Which of the following signifies that a target profit level has been achieved: A. B. C. D. E.

Total revenue is equal to all of an organisation’s fixed costs plus the before tax value of the target profit. Total revenue is equal to all of an organisation’s variable costs plus the before tax value of the target profit. Total revenue is equal to all of an organisation’s direct and fixed costs plus the before tax value of the target profit. Total revenue is equal to total costs plus the before tax value of the target profit. None of the above.

24.

Which of the following statements regarding contribution margin is correct? A. B. C. D. E.

25.

An increase in contribution margin will negatively affect net profit margin. Contribution margin is equivalent to revenue less cost of sales. Reducing variable costs while maintaining the sales price will improve contribution margin. A decline in total sales will reduce the contribution margin. If fixed costs increase, a greater contribution margin is required to break-even.

A hotel sells its single room nights for an average of $90 and its double room nights for an average of $120. The variable cost per single room night sold is $10 and the variable cost per double room night sold is $20. The hotel has annual fixed costs of $884,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven? A. B. C. D. E.

7,800 singles and 2,600 doubles. 7,200 singles and 2,400 doubles. 12,600 singles and 4,200 doubles. 14,700 singles and 4,900 doubles. None of the above

Chapter 9: Budgeting and Responsibility Accounting 1.

Which of the following is not a generic example of a responsibility centre? A. B. C. D. E.

The head of a profit centre is held accountable for which of the following? A. B. C. D. E.

B. C. D. E.

An engineered cost centre is a centre where an output can be quantitatively measured and there is a reasonably good understanding of the centre’s input / output relationship. The training group in a hotel represents a discretionary cost centre as there is no readily measurable output. To motivate kitchen staff to act in a way that is consistent with increasing revenue, the kitchen could be made into a profit centre. Control can be seen to be relatively incomplete in a discretionary cost centre. Of the four generic types of responsibility centre, profit centres encompass the greatest span of accountability.

Which of the following is not a role of the budget? A. B. C. D. E.

Cost. Cost and revenue. Revenue. Cost, revenue and assets. Return on investment.

Which of the following statements is untrue? A.

A cost centre. A profit centre. An asset centre. A revenue centre. An investment centre.

Expenditure authorisation. Attention directing. Job sequencing. Motivation. Performance evaluation.

The Majestic Restaurant has provided you with the following data for its last financial year:  Contribution margin: $400,000  Fixed costs: $80,000  Assets $900,000 Majestic’s head office requires a 10% rate of return on assets. What was Majestic Restaurant’s residual income in the last financial year? A. B. C. D. E.

$320,000. $230,000. $90,000. $392,000. $312,000.

The Honolulu HighSurf Hotel has a foyer shop that sells jars of pineapple marmalade. The shop manager likes to keep 20% of the following month’s projected sales of marmalade in stock. Projected sales of marmalade in the next two months are:

Marmalade jars to be sold

July 300

August 420

The shop has projected it will be holding 50 jars of marmalade in stock on 1st July. Required: If the jars of marmalade cost $3 each, what is the cost of marmalade purchases to be made in July? A B. C. D. E.

Which of the following is not an organisational benefit deriving from promoting manager participation in budget setting? A. B. C. D. E.

$1,002. $1,152. $972. $900. $750.

It can result in a more informed budgetary process. It can result in managers feeling greater commitment to achieving the targets set. It can result in managers engineering budget slack. It can facilitate manager learning. All of the above are benefits arising from manager participation in budget setting.

At the Fawlty Towers Hotel, it takes the Housekeeping Manager 2 hours to supervise 4 Room Maids’ cleaning of 20 rooms. The Housekeeping manager is paid $25 per hour and the Room Maids are paid $16 per hour. What will be the total labour cost to clean all of the hotel’s 32 rooms? A B. C. D. E.

$178.00 $200.00 $284.80 $342.40 $262.60

In a kitchen that produces and sells meat pies, what is the right sequence in which to prepare the following three budgets: 1) budgeted meat pie ingredient purchases; 2) budgeted meat pie production; and 3) budgeted meat pie sales? A B. C. D. E.

10.

Which of the following statements is not true? A B. C. D. E.

11.

Budgetary participation refers to the degree to which managers are involved in setting the budgetary targets for which they will be held accountable for. Budgets can always serve as a strong basis for appraising performance. Management rewards that result from achieving budgetary targets include salary increments, promotion, and enhanced peer and self esteem. Failure to achieve a budgeted sales level can compromise planning and result in wasted resources. Psychological researchers suggest that higher motivation results when targets are just beyond reach, but not so hard that the manager views them as unreasonable.

Which of the following statements is true? A. B. C. D. E.

12.

1) budgeted meat pie ingredient purchases; 2) budgeted meat pie production; and 3) budgeted meat pie sales. 1) budgeted meat pie sales; 2) budgeted meat pie production; and 3) budgeted meat pie ingredient purchases. 1) budgeted meat pie ingredient purchases; 2) budgeted meat pie sales; and 3) budgeted meat pie production. 1) budgeted meat pie sales; 2) budgeted meat pie ingredient purchases; and 3) budgeted meat pie production. 1) budgeted meat pie ingredient production; 2) budgeted meat pie sales; and 3) budgeted meat pie ingredient purchases.

An engineered cost centre is a centre where an output can be quantitatively measured and there is a reasonably good understanding of the input / output relationship. A laundry in a hotel represents a discretionary cost centre as there is no readily measurable output. In a profit centre, staff are held accountable for maximising return on investment. The most widely used measure in investment centres is residual income. Of the four generic types of responsibility centre, profit centres encompass the greatest span of accountability.

Budgetary slack refers to: A. B. C. D. E.

The budget target in a discretionary cost centre. Giving middle managers the opportunity to participate in setting budgetary targets. A budget that is hard for managers to achieve. A budget that is easy for managers to achieve. None of the above.

13.

Residual income is calculated as: A. B. C. D. E.

14.

The human resources department in most organisations can be viewed as: A B. C. D. E.

15.

An administrative discretionary cost centre. A marketing discretionary cost centre. An engineered discretionary cost centre. A standards based discretionary cost centre. None of the above.

Which of the following statements is true? A B. C. D. E.

16.

Investment centre % profit margin – Investment centre’s % required rate of return. Investment centre profit – (Investment centre’s assets X Investment centre’s required rate of return). Investment centre profit – Interest paid on debt that finances investment centre assets. Investment centre profit – Investment centre share of dividend to be paid to equity holders. None of the above.

Raising budget targets is an effective way to ensure higher manager performance. An accurate forecast budget will frequently be different to a maximum motivation budget. Budgets represent important control mechanisms as they can always be used as a strong basis for appraising manager performance. Greater budget participation is positively related to greater manager disenchantment. Political issues in budgeting should all be eradicated by senior management.

A hotel has a foyer shop that sells tourist clothing and souvenirs. The shop manager likes to keep 80% of the following month’s projected T-shirt sales in stock. Projected T-shirt sales in the next two months are:

Projected number of T-shirts to be sold

July 480

August 560

The shop has projected it will be holding 384 T–shirts in stock on 1st July. Required: If the T-shirts cost $2.50 each, what is the cost of T-shirt purchases to be made in July? A B. C. D. E.

$1,200. $1,400. $240. $544. $1,360.

17.

The Honeymoon Hotel has a foyer shop that sells souvenir T-shirts. The shop manager likes to hold 40% of the following month’s projected T-shirt sales in stock. Projected T-shirt sales in the next two months are:

T-shirt sales

August 500

September 400

The shop has projected it will be holding 200 T-shirts in stock on 1st August. Required: If the T-shirts cost $5 each, what is the cost of T-shirt purchases to be made in August? A B. C. D. E.

18.

$2,000 $2,100 $2,300 $2,500 None of the above

The Hearty Feast restaurant has a strong reputation for its meat pies. The head chef likes to hold 5% of the following month’s projected pie sales in stock. The meat pie chef is paid $15 per hour to produce a batch of 10 meat pies. Projected meat pie sales in the next two months are:

Meat pie sales

August 1,000

September 1,200

The head chef has projected the restaurant will be holding a balance of 50 meat pies on 1st August. Required: What is the budgeted cost of labour for the meat pie chef in August? A. B. C. D. E.

19.

$1,480 $1,490 $1,500 $1,515 None of the above

Which of the following statements is not true. A. B. C. D. E.

Responsibility accounting involves sub-dividing an organisation into units of accountability. Budgeting involves allocating resources to an organisation’s sub-units. As budgeting is a technical exercise, it is misleading to talk of behavioural issues associated with budgeting. Budgets generally play an important role in facilitating organisational control. The budget comprises many schedules that feed into an overarching schedule that is widely referred to as the master budget.

20.

Which of the following statements is not true? A. B. C. D. E.

21.

Which of the following statements is not true? A. B. C. D. E.

22.

Accounting controls are more effective means of control in a discretionary cost centre than an engineered cost centre. Goal incongruence is present when the goal of an organisation’s department differs from the goal of the whole organisation. It is sometimes difficult to hold a marketing manager tightly accountable for sales, as sales are affected by many factors beyond the marketing manager’s control. Profit is a less than perfect measure of performance for a range of reasons that include the fact that monetary measures do not exactly measure all aspects of input or output. In some situations it can be a fairly arbitrary decision as to whether a centre is established as a cost centre or a profit centre.

A kitchen uses half a kilogram of meat to make a meat pie. It has been estimated that 800 pies will be made in July and 900 pies will be made in August. The chef likes to hold the kitchen’s meat inventory at 10% of the following month’s needs. If the 30 June inventory of meat is 40 kilograms, how many kilograms of meat should be purchased during July? A. B. C. D. E.

23.

The head of a cost centre is held accountable for the expenditures incurred by her department. The head of a revenue centre is held accountable for the revenues generated by her department. The head of a profit centre is held accountable for the expenditures incurred and also the revenues generated by her department. The head of an investment centre is held accountable for the profit generated by her department relative to the assets held in her department. The most widely-used performance measure in investment centres is Residual Income.

400 kg 405 kg 410 kg 425 kg 450 kg

In the last financial year a company made a profit of $80,000 on sales of $1,600,000. It has assets of $400,000 and a required rate of return 8%. It earns 3% on its business bank account. The company’s residual income is: A. B. C. D. E.

5%. $48,000. 8%. $68,000. None of the above.

24.

Suppose that a department manager deliberately underestimates next year’s revenue for his department by $24,000. This is an example of: A B. C. D. E.

25.

Which of the following is not an example of a responsibility centre? A B. C. D. E.

26.

Budgetary participation. Discretionary budget exercise. Exercising appropriate caution. Budgetary self-actualisation. Creating budgetary slack.

Cost centre. Revenue centre. Profit centre. Investment centre. Corporate centre.

Budgetary roles include all of the following except: A B. C. D. E.

Authorising expenditure Directing managers’ attention Reducing political behaviour Promoting manager motivation Providing a basis for performance evaluation

27.

The Tallebudgera Tea Rooms has a foyer shop that sells souvenir T-shirts. The shop manager likes to hold 20% of the following month’s projected T-shirt sales in stock. Projected T-shirt sales in the next two months are:

T-shirt sales

August 600

September 500

The shop has projected it will be holding 120 T-shirts in stock on 1st August. Required: If the T-shirts cost $4 each, what is the cost of T-shirt purchases to be made in August? A B. C. D. E.

28.

$2,160 $2,240 $2,320 $2,440 None of the above

Which of the following statements is incorrect? Responsibility accounting involves: A. Segmenting an organisation into units of accountability based on function, geographic location or product. B. Managers being held accountable for the performance of their department. C. Determining the aspects of accountability for each manager based on their scope of influence. D. Decentralizing authority and control by delegating responsibility to each unit. E. Centralizing an organisation’s accountability based on function, geographic location or product.

29.

In the last financial year a company made a profit of $100,000 on sales of $1,250,000. It has assets of $800,000 and a required rate of return 9%. What was the company’s residual income in the last financial year? A. B. C. D. E.

$72,000 $28,000 $125,500 $12,500 $100,000

Chapter 10: Flexible Budgeting and Variance Analysis 1.

A flexible budget: A B. C. D. E.

Refers to a budget that can be changed if unanticipated circumstances are encountered. Refers to a budget that can be updated and used in future years. Refers to a budget that has scope for new cost lines to be entered while the financial year to which the budget pertains is underway. Refers to a budget that can be flexed to ensure targets are achieved. Refers to a budget that is changed based on the actual volume of sales achieved.

Which of the following statements is not true? A B. C. D. E.

Discrepancies between activity levels in the static budget and actual activity levels result in expense variances that are not necessarily reflective of performance. Flexible budgeting can be achieved by preparing a series of budgets for different levels of sales activity. Any unfavourable cost variances between actual performance and the flexible budget will be attributable to inefficient use of resources. A flexible budget will show what costs and revenues should have been for the actual level of activity achieved. When preparing a flexible budget, changes are generally not made to fixed costs to reflect updated information available.

Use the following information to answer the next two questions. The BlueGum Hotel predicted $12,000 in variable labour costs and room revenue of $220,000 from 2,000 room sales in its static budget for January. The hotel actually sold 1,800 rooms and incurred $10,000 in variable labour costs in January. 3.

What would be recorded in the BlueGum hotel’s flexible budget for variable labour costs in January? A B. C. D. E.

$12,000. $10,800. $13,333. $14,000. $11,000.

What is the BlueGum hotel’s flexible budget variance for labour variable costs in January? A B. C. D. E.

$2,000 (favourable). $2,000 (unfavourable). $800 (favourable). $800 (unfavourable). None of the above.

Use the following information to answer the next two questions. At the beginning of the current financial year, the BeachShack Hotel established the standard that it should take 45 minutes to process 1 container of laundry. The Hotel also budgeted that laundry labour should be paid $18 per hour. At the end of May, the laundry department’s performance report indicated that 160 hours had been worked in processing 200 containers of laundry. Laundry staff wages for May were $3,200. 5.

What is the Beach Shack hotel’s laundry labour rate variance for May? A B. C. D. E.

What is the Beach Shack hotel’s laundry labour efficiency variance for May? A B. C. D. E.

$90 (unfavourable). $90 (favourable). $180 (unfavourable). $180 (favourable). None of the above.

The term ‘benchmarking’ is generally used to refer to: A B. C. D. E.

$320 (unfavourable). $320 (favourable). $180 (unfavourable). $180 (favourable). None of the above.

Using variance analysis as a basis for improving performance. Using flexible budgeting as a basis for improving performance. Comparing dimensions of an organisation’s performance to best practice. Adopting a management by objectives philosophy. Placing more emphasis on unfavourable variances than favourable variances.

A materials price variance can be calculated as: A B. C. D. E.

(Actual amount of materials X actual material cost per unit) - (Budgeted amount of materials X actual material cost per unit). (Actual amount of materials X actual material cost per unit) - (Budgeted amount of materials X budgeted material cost per unit). (Actual amount of materials X actual material cost per unit) - (Actual amount of materials X budgeted material cost per unit). (Actual amount of materials X budgeted material cost per unit) - (Budgeted amount of materials X budgeted material cost per unit). (Actual amount of materials X budgeted material cost per unit) - (Budgeted amount of materials X actual material cost per unit).

A materials efficiency variance can be calculated as: A B. C. D. E.

10.

A labour rate variance can be calculated as: A B. C. D. E.

(Actual labour hours X actual labour rate) - (Budgeted labour hours X actual labour rate). (Actual labour hours X actual labour rate) - (Budgeted labour hours X budgeted labour rate). (Actual labour hours X actual labour rate) - (Actual labour hours X budgeted labour rate). (Actual labour hours X budgeted labour rate) - (Budgeted labour hours X budgeted labour rate). (Actual labour hours X budgeted labour rate) - (Budgeted labour hours X actual labour rate).

Use the following information to answer the next two questions. The Big Ben View Hotel predicted $20,000 in variable housekeeping costs and room revenue of $242,000 from 2,200 room sales in its static budget for March. The hotel actually sold 2,310 rooms and incurred $20,800 in variable housekeeping costs in March. 11.

What would be recorded in the Big Ben View Hotel’s flexible budget for variable housekeeping costs in March? A. B. C. D. E.

12.

$18,000. $19,000 $20,000 $21,000 $22,000

What is the Big Ben View Hotel’s flexible budget variance for variable housekeeping costs in March? A. B. C. D. E.

$200 (favourable) $200 (unfavourable) $180 (favourable) $180 (unfavourable) None of the above.

Use the following information to answer the next two questions. The Smoke n’ Mirrors hotel housekeeping department has established a room cleaning standard of 30 minutes to clean a room by casual staff paid $15 per hour. In April the housekeeping casual staff were paid $20,385 and worked 1,350 hours to clean 3,000 rooms. 13.

What is the labour rate variance for the casual housekeeping staff at the Smoke n’ Mirrors hotel in April? A. B. C. D. E.

14.

What is the labour efficiency variance for the casual housekeeping staff at the Smoke n’ Mirrors hotel in April? A. B. C. D. E.

15.

$125 unfavourable variance. $135 unfavourable variance. $145 unfavourable variance. $155 unfavourable variance. $165 unfavourable variance.

$1,950 favourable variance. $2,050 favourable variance. $2,150 favourable variance. $2,250 favourable variance. None of the above.

Which of the following statements is not true. A. B. C. D. E.

In a static budget system, a budget is not modified once the actual volume of sales is known. A flexible budget is a control technique that can be used because it can be hard for an organisation to accurately predict its sales volume in a future period. Fixed costs are reported as the same amount in a static and a flexible budget. A labour rate variance arises if the actual wage rate differs to the budgeted wage rate. If the flexible budget figure for material costs is more than the actual figure for material costs, there must be a favourable material price variance.

Use the following information to answer the next two questions. The Sydney Harbour Bridge View Hotel predicted $30,000 in variable housekeeping costs and room revenue of $240,000 from 3,000 room sales in its static budget for March. The hotel actually sold 3,300 rooms and incurred $32,000 in variable housekeeping costs in March. 16.

What would be recorded in the Sydney Harbour Bridge View Hotel’s flexible budget for variable housekeeping costs in March? A. B. C. D. E.

17.

$27,000 $30,000 $33,000 $36,000 $39,000

What is the Sydney Harbour Bridge View Hotel’s flexible budget variance for variable housekeeping costs in March? A. B. C. D. E.

$1,000 (favourable) $1,000 (unfavourable) $2,000 (favourable) $2,000 (unfavourable) None of the above

Chapter 11: Performance Measurement 1.

Which of the following statements is untrue? A.

B. C.

D. E.

Which of the following is not a shortcoming of financial performance measures? A. B. C. D. E.

Financial performance measures focus on results not causes. Financial performance measures suffer from having a backward-looking orientation. Financial performance measures focus on a limited performance dimension. Financial performance measures can promote short-term focused behaviour. All of the above are shortcomings of financial performance measures.

Which of the following is not an example of the type of balance that should be sought in a performance measurement system? A. B. C. D. E.

Accountants’ views of the measures that can be included in a management accounting performance measurement system have broadened considerably since the 1980s. In the 1980s a concern arose that accounting systems put too much emphasis on a backward looking orientation. In the 1980s a concern arose that accounting systems had too much of an inward looking tendency, with little attention given to an organisation’s external commercial environment. The 1980s saw growing importance attached to contribution margin management. The 1980s saw development of a view that management accounting should develop more of a strategic orientation.

Employ a mix of financial and non-financial performance measures. Employ a mix of lag and lead performance measurement indicators. Employ a mix of internal and external performance measures. Employ a mix of labour and machine oriented performance measures. Employ a mix of objective and subjective performance measures.

Which of the following is not a bias found in traditional management accounting systems? A. B. C. D. E.

The performance measures have a financial orientation. The performance measures have a lead indicator orientation. The performance measures have an internal orientation. The performance measures have an objective orientation. All of the above orientations are found in traditional accounting performance measurement systems.

Which of the following is not a key feature of the balanced scorecard? A. B. C. D. E.

With respect to the balanced scorecard, which of the following statements is not true? A. B. C. D. E.

The financial performance dimension The customer performance dimension. The internal process performance dimension. The learning & growth performance dimension. None of the above.

With respect to the balanced scorecard, the proportion of rooms meeting standard presentation is a measure that relates to: A. B. C. D. E.

Financial performance measures tend to be lag indicators. Customer performance measures provide a mix of lead and lag measures. Internal process performance measures tend to be lead indicators. Learning & growth performance measures tend to be lag indicators. Lead indicators provide a pointer to the future.

With respect to the balanced scorecard, training hours per employee and an employee motivation index are measures that relate to: A. B. C. D. E.

It is structured around four key performance dimensions: financial, customer, internal processes and learning & growth. It is a strategy based framework. It represents a cause-effect integrated framework of performance measures. Performance measures used at senior levels need to be translated into more operational performance measures at lower organisational levels. Its performance measures have a qualitative and non-financial orientation.

The financial performance dimension The customer performance dimension. The internal process performance dimension. The learning & growth performance dimension. None of the above.

Measures that monitor aspects of hotel performance that represent the outcome of actions already taken are called: A. B. C. D. E.

Outcome indicators Lead indicators Lag indicators Summative indicators Development indicators.

10.

Which of the following is not a lag indicator? A. B. C. D. E.

11.

With respect to the balanced scorecard, time to process check-ins and number of customer billing errors are measures that relate to: A. B. C. D. E.

12.

The financial performance dimension The customer performance dimension. The internal process performance dimension. The learning & growth performance dimension. None of the above.

Which of the following statements is untrue? A.

B. C.

D. E.

13.

Proportion of returning customers Labour cost per room sold Share price growth Training hours per employee Average duration of customer relationship.

Accountants’ views of the measures that can be included in a management accounting performance measurement system have broadened considerably since the 1980s. Financial performance measures tend to focus on performance in a specific time period that has past. Improved employee morale has a forward-looking dimension as it points towards a likely reduction in staff turnover and increase in the care and quality of service provided. Financial measures are robust and can be used to measure a range of factors that include customer loyalty and employee morale. If managers focus too much on short term performance, they may take steps that damage an organisation’s long term success.

Which of the following statements is untrue? A. B. C.

D. E.

Several years may elapse before the negative implications of some cost-cutting measures are felt. Lag measures monitor aspects of performance that represent the outcome of actions already taken. A preference for accurate and verifiable measurement can result in organisations placing too much emphasis on those activities that lend themselves to objective measurement. Traditional accounting performance measurement systems tend to be externally focussed and based on a high proportion of lead indicators. The difference that can occur between the time when a managerial action is taken and the time when the financial results of the action are felt is a shortcoming of financial performance measurement systems.

14.

Which of the following is not one of the four key balance dimensions that should be considered when designing a performance measurement system: A. B. C. D. E.

15.

Which of the following statements is untrue? A. B. C. D. E.

16.

Lead measures focus on measuring the actions or factors that drive outcomes. A performance measurement system should be linked to strategy and pursuit of an organisation’s mission. Timely reporting signifies that measures have greater relevance for management decision making and enables managers to take early corrective action if it is required. Managers rarely have complete control over the outcomes of any particular aspect of an organisation’s activities. Performance measures should be stated in a negative manner, not a positive manner, in order to ensure that managers treat the measures seriously.

With respect to the balanced scorecard, employee absenteeism is a measure that relates to: A. B. C. D. E.

17.

Financial vs Non-financial measures Lag vs lead measures Internal vs external measures Objective vs subjective measures Timely vs untimely measures.

The financial performance dimension The customer performance dimension. The internal process performance dimension. The learning & growth performance dimension. None of the above.

Which of the following statements is untrue? A. B. C.

D. E.

Accountants’ views of the measures that can be included in a management accounting performance measurement system have evolved little since the 1980s. Financial performance measures tend to focus on performance in a specific time period that has past. Improved employee morale has a forward-looking dimension as it points towards a likely reduction in staff turnover and increase in the care and quality of service provided. Financial measures have limitations as they cannot measure all dimensions of organisational performance, such as customer loyalty and employee morale. If managers focus too much on short term performance, they may take steps that damage an organisation’s long term success.

18.

Which of the following statements is untrue? A. B. C.

D. E.

Several years may elapse before the negative implications of some cost-cutting measures are felt. Lead measures monitor aspects of performance that represent the outcome of actions already taken. A preference for accurate and verifiable measurement can result in organisations placing too much emphasis on those activities that lend themselves to objective measurement. Traditional accounting performance measurement systems tend to be internally focussed and based on a high proportion of lag indicators. The difference that can occur between the time when a managerial action is taken and the time when the financial results of the action are felt is a shortcoming of financial performance measurement systems.

Chapter 12: Cost Information and Pricing 1.

Which of the following statements is untrue? A.

C. D. E.

A hotel dropped its room rates from $100 to $80 and found that rooms sold per night increased by 25%. The hotel’s price elasticity index is: A. B. C. D. E.

1.25. 0.8. $20. 20%. 25%.

Which of the following statements is untrue? A. B. C. D. E.

Factors such as the number of meals to be priced on a restaurant menu and the different room configurations offered in many hotels signify that pricing is a challenging aspect of hospitality management. When the contribution percentage margin for beer sold in a bar is compared to room nights sold, it is evident that there is a greater discretionary price range when setting beer prices compared to room rates. A highly price elastic service is one where a change in price results in a relatively high change in demand for the service. Higher degrees of price elasticity provide a potential for more imaginative approaches to pricing strategy. Low price elasticity signifies that there is scope to raise prices during the busy season.

Product perishability can signify that it can be justified to set a product’s selling price below its variable cost of production. If using cost mark up pricing, setting the prices for a restaurant menu is more straight forward than setting beverage prices in a bar. A percentage mark up on cost is not the same as a gross profit margin percentage. Low price elasticity signifies that a hotel has scope to raise its room rate during the busy season. Due to inconsistency of products, it can be hard for a hotel to conduct direct price comparisons with its competitors to the same degree as companies operating in the retail sector.

Imagine your recently constructed 100 room hotel has determined that it will use the rule of a thousand to set room rates. The total cost of building the hotel was $15,000,000 and 20% of the infrastructure investment relates to non-accommodation hotel activities such as Food and Beverage. What price should be charged per room night? A. B. C. D. E.

$150. $140. $130. $120. $110.

The Bellisimo Hotel has 20 rooms that are 125 square meters and 40 rooms that are 100 square meters. Both types of room run at a 70% occupancy level. The rooms manager is seeking a revenue of $1,474,200 for the 360 days that the hotel will be open next year. Based on room size, at what rate should the larger rooms be priced? A. B. C. D. E.

The SandCastle Hotel has thirty 42 square metre rooms that achieve an occupancy rate of 70% and forty 64 square metre rooms that achieve an occupancy rate of 60%. The hotel has a total room revenue target of $3,627 per day. What rate should be charged for a room night in one of the 42 square metre rooms? A. B. C. D. E.

$120.50 $115.50 $112.50 $100.00 $90.00

$63.00 $96.00 $39.88 $48.96 $54.64

The General Manager of the recently opened 30 room Taj Mahal Hotel has developed the following projected operating costs for the forthcoming year: Variable operating costs $7 per room sold Fixed costs: Salaries and wages Maintenance Other costs Total fixed costs

$250,000 60,000 110,000 $420,000

The General Manager believes that if rooms are priced in the range of $100-$90, 10,000 room nights will be sold next year. All rooms are to be priced at the same rate. Capital invested in the hotel is $2,000,000 and the General Manager’s target return on investment is 25%. In order to achieve this target rate of return, what price should be charged per room night sold? A. B. C. D. E.

$100 $99 $98 $97 $95

In its foyer shop, the Pacific Plaza hotel has a policy of keeping the cost of merchandise sold at 30% of selling prices. What selling price would be put on an item that cost $9? A. B. C. D. E.

To apply the required rate of return approach to setting room rates, you need to be provided with all of the following items except one. Identify the item not needed. A. B. C. D. E.

10.

Customer focused pricing Revpar pricing Contribution pricing Yield management Market pricing

A hotel increased its room rates from $100 to $110 and found that rooms sold per night decreased by 8%. The hotel’s price elasticity index is: A. B. C. D. E.

12.

A way to determine total target profit Number of projected room sales Variable cost per room sold Number of rooms in the hotel Fixed costs.

A pricing philosophy that is designed to maximise revenue per available room and involves sales and marketing management developing pricing plans that recognise factors such as whether a reservation pertains to a quiet or busy season, weekday or weekend and also the nature of a customer’s market segment (e.g., tour group booking vs a single transient guest) is known as. A. B. C. D. E.

11.

$11.70 $30.00 $12.00 $25.00 $21.00

1.25. 0.8. $10. 20%. 25%.

Which of the following statements is untrue? A. B. C. D. E.

If a price change is made for a service with low price elasticity, there is a relatively low change in the demand for the service. Pricing strategies to take into account the extent to which a product or service is perishable. If a product is highly perishable, a case can be made for dropping its selling price below its variable cost. Cost plus pricing involves identifying costs that are traceable to the item to be sold and marking the cost up by a multiple in order to determine its selling price. Compared to pricing meals on a restaurant menu, pricing beverages on a cost plus basis is relatively difficult.

13.

The Evasogrande Hotel has 30 rooms that are 110 square meters and 50 rooms that are 120 square meters. Both types of room run at a 75% occupancy level. The rooms manager is seeking a revenue of $2,008,800 for the 360 days that the hotel will be open next year. Using a relative room size pricing approach, determine the nightly rate that should be charged for the larger rooms. A. B. C. D. E.

14.

Imagine your recently constructed 120 room hotel has determined that it will use the rule of a thousand to set room rates. The total cost of building the hotel was $15,200,000 and 25% of the infrastructure investment relates to non-accommodation hotel activities such as Food and Beverage. What price should be charged per room night? A. B. C. D. E.

15.

$96 $98 $100 $102 $104

$90 $95 $100 $105 $110

Which of the following statements is untrue? A. B. C. D. E.

The application of pricing strategies designed to maximize revpar is often referred to as ‘yield management’. Yield management’s main focus is on maximising occupancy levels. Yield management focuses on maximising revenue. Yield management does not include a consideration of costs. Yield management is concerned with matching pricing to demand factors.

Chapter 13: Working Capital Management 1.

Which of the following statements is untrue? A. B. C. D.

The Pickwick Hotel, which hosts a large number of conferences, receives 5% of revenue as a deposit in the month prior to a conference, 40% of revenue is received in the same month that a conference is held and 55% of revenue is collected in the month following a conference. Conference revenue was $60,000, $70,000 and $80,000 in January, February and March, respectively. What conference receipts would have been collected in February? A. B. C. D. E.

$60,000 $65,000 $70,000 $75,000 $80,000

Which of the following is not an example of inventory carrying cost? A. B. C. D. E.

Working capital is equal to current assets minus current liabilities. Failure to predict the timing of cash shortfalls can result in costly borrowing arrangements. The economic order quantity (EOQ) model is a tool that calculates how much inventory should be held on average. The inability of a selling company to deposit the monetary value of a completed credit sale in its bank and collect interest represents a cost arising from extending credit to customers. An “Ageing of Accounts Receivable” schedule provides an analysis of a company’s accounts receivable balance according to the period of time that amounts have been owed.

The opportunity cost of money tied up in inventory. Handling costs Inventory purchase cost Cost of deterioration of perishable inventory items Cost of inventory insurance.

Which of the following is not a possible reason for profit in a period not being the same as cash flow in the same period? A. B. C. D. E.

Revenue is recognised at the time a service is provided, not when cash is received. Many suppliers provide credit terms signifying the purchase of an item can be recorded well before it is paid for. Small immaterial supplies tend to be expensed on purchase and not recorded as inventory, even though they may be held as supplies. Depreciation expense typically occurs well after the asset in question is paid for. Insurance is paid in advance of charging the associated expense to the profit and loss statement.

Which of the following is not one of the ‘five C’s’ of credit management? A. B. C. D. E.

The McLeish Hotel had credit sales of $438,000 last year and had an accounts receivable balance at the year end of $30,000. Based on this information, what is the average amount of days of credit that the McLeish Hotel is extending to its credit customers? A. B. C. D. E.

250 300 350 400 450.

You hotel has been offered credit terms of 1/8 net 45. What is the effective annual rate of return earned if the discount offered is taken? A. B. C. D. E.

25 days 27 days 29 days 31 days 33 days

Your hotel sells 4,500 cases of beer per year. The cost of ordering and receiving a shipment of beer is $50. The cost of holding a case of beer in stock for a year is $5. Use the EOQ model to determine the most economic order quantity for beer. A. B. C. D. E.

Character Capability Capital Conditions Collateral

8.19% 9.86%. 9.96% 10.015%. 8.11%.

If your hotel receives an invoice on terms of 2/10 net 30, what is the effective annual rate of return earned if the discount offered is taken? A. B. C. D. E.

24.33% 24.83%. 26.34% 36.50%. 37.24%.

10.

Which of the following statements is untrue? A. B. C. D. E.

11.

Which of the following statements is untrue? A. B. C. D. E.

12.

All of the following accounts are included in the calculation of a business’s working capital: cash, accounts receivable, inventory and accounts payable. It is rare for a large business’s cash flow in a period to be the same as its profit in the same accounting period. It is not appropriate to develop an aging of accounts receivable schedule that spans a period in excess of 90 days. The importance of producing cash budgets is particularly apparent in a business that experiences highly seasonal sales volatility. Inventory carrying costs include: the opportunity cost of the money tied up in inventory, cost of insuring the inventory, pilferage costs, inventory handling costs and the cost of maintaining inventory storage space.

The Austinville Hotel, which hosts a large number of conferences, receives 10% of revenue as a deposit in the month prior to a conference, 50% of revenue is received in the same month that a conference is held and 40% of revenue is collected in the month following a conference. Conference revenue was $70,000, $80,000 and $90,000 in January, February and March, respectively. What conference receipts would have been collected in February? A. B. C. D. E.

13.

Current liabilities are a cheaper form of financing than long term capital. It is widely acknowledged in the finance literature that long term assets (i.e., fixed assets) should be financed through long term capital. A decrease in net working capital signifies increased risk due to the lower short-term asset coverage of short-term liabilities. A relatively high short to long-term financing ratio has a positive impact on profit and risk. It is normal for short term lending rates to be above long term lending rates.

$67,000 $72,000 $77,000 $82,000 $87,000

The Foster Hotel had credit sales of $273,750 last year an average accounts receivable balance of $30,000 during the year. Based on this information, what is the average amount of days of credit that the Foster Hotel is extending to its credit customers? A. B. C. D. E.

25 days 30 days 35 days 40 days 45 days

14.

An Italian restaurant uses 2,500 tins of tomatoes per year. The cost of ordering and receiving a shipment of tinned tomatoes is $10. The cost of holding a tin of tomatoes in the store room for a year is $5. Use the EOQ model to determine the most economic order quantity for tins of tomatoes. A. B. C. D. E.

15.

You hotel has been offered credit terms of 1/12 net 35. What is the effective annual rate of return earned if the discount offered is taken? A. B. C. D. E.

16.

16.03% 15.12%. 14.44% 13.21%. 12.96%.

Which of the following accounts is not part of working capital. A. B. C. D. E.

17.

180 tins of tomatoes 160 tins of tomatoes 140 tins of tomatoes 120 tins of tomatoes 100 tins of tomatoes

Long term bank loan Accounts receivable Inventory Cash Accounts payable

Smiths tours have provided the following sales forecast for the next four months. April $250,000

May $150,000

June $225,000

July $150,000

Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the month following sale. What are the estimated cash collections in May A. B. C. D. E.

$105,000. $155,000. $175,000. $195,000. $205,000.

18.

90% of Ridgewell Hotel’s sales are made on credit. Sales were $506,945 last year and the hotel had an opening year accounts receivable balance of $37,000, and a year-end accounts receivable balance of $43,000. Based on this information, what is the average amount of days of credit that the Ridgewell Hotel is extending to its credit customers? A. B. C. D. E.

19.

A French restaurant sells 450 cases of wine per year. The cost of ordering and receiving a shipment of wine is $2.50. The cost of holding a case of wine in the restaurant cellar for a year is $10. Use the EOQ model to determine the most economic order quantity for the wine. A. B. C. D. E.

20.

10 cases of wine 15 cases of wine 20 cases of wine 25 cases of wine 30 cases of wine

Your organisation has been offered credit terms of 2/10 net 40. What is the effective annual rate of return earned if the discount offered is taken? A. B. C. D. E.

Approximately 35 days Approximately 28 days Approximately 26 days Approximately 38 days Approximately 32 days

21.66% 23.54% 24.83% 25.78% 26.89%

The Randwick Hotel has a large conferencing facility. It receives 10% of conference revenue as a deposit in the month prior to a conference, 50% of revenue is received in the same month that a conference is held and 40% of revenue is collected in the month following a conference. Conference revenue was $70,000, $80,000 and $90,000 in October, November and December, respectively. What conference receipts would have been collected in November? A. B. C. D. E.

$69,000 $73,000 $77,000 $81,000 $85,000

22.

90% of Redmond Hotel’s sales are made on credit. Sales were $405,556 last year and the hotel had an opening year accounts receivable balance of $26,000, and a year-end accounts receivable balance of $34,000. Based on this information, what is the average amount of days of credit that the Redmond Hotel is extending to its credit customers? A. B. C. D. E.

23.

An Italian restaurant sells 80 cases of wine per month. The cost of ordering and receiving a shipment of wine is $5. The cost of holding a case of wine in the restaurant cellar for a month is $2. Use the EOQ model to determine the most economic order quantity for the wine. A. B. C. D. E.

24.

Approximately 29 days Approximately 30 days Approximately 31 days Approximately 32 days Approximately 33 days

10 cases of wine 15 cases of wine 20 cases of wine 25 cases of wine 30 cases of wine

Your organisation has been offered credit terms of 1/10 net 35. What is the approximate effective annual rate of return earned if the discount offered is taken? A. B. C. D. E.

11.75% 12.75% 13.75% 14.75% 15.75%

Chapter 14: Investment Decision Making 1.

The Serene Hotel is considering investment in some new low maintenance kitchen equipment that will increase the range of meals that its restaurant can offer. Based on the following information, calculate the payback period. Initial investment = $90,000 Investment life = 6 years Increased revenues resulting from investment = $16,000 per year Decreased costs resulting from investment = $4,000 per year Salvage value associated with investment = $10,000 in year 6 Investment’s required rate of return = 13% A: 4.25 years B: 3.75 years C: 3.5 years D: 4.0 years E: 4.5 years

The SoothingSpa Resort is appraising a January 1st 20X0 investment of $32,000 that will increase cash inflows by $8,000 in 20X0, $9,000 in 20X1, $9,000 in 20X2, $12,000 in 20X3 and $8,000 in 20X4. At the end of 20X4, it is estimated the investment can be salvaged for $6,000. What is the payback period for the investment? A. B. C. D. E.

The City Lodge Hotel is appraising a January 1st 20X0 investment of $20,000 in maintenance equipment that will increase accounting profits by $4,000 in 20X0, $6,000 in 20X1 and $8,000 in 20X2. At the end of 20X2, it is estimated the maintenance equipment will be sold for $4,000. What is the projected accounting rate of return for the investment? A. B. C. D. E.

3 years. 3 years and 6 months. 3 years and 9 months. 4 years. 4 years and 6 months.

30%. 40%. 50%. 60%. None of the above.

Imagine Cairns’ BarrierReef Lodge is appraising a January 1st 20X0 investment of $8,000 in a drinks vending machine that will increase accounting profits by $1,000 in 20X0, $2,000 in 20X1 and $3,000 in 20X2. At the end of 20X2, it is estimated the vending machine will be sold for $2,000. What is the projected accounting rate of return for the investment? A. B. C. D. E.

12.5%. 25%. 40%. 50%. None of the above.

Use discounting tables to determine the value today of an opportunity to receive $5,000 at the end of each of the next four years. Assume an interest rate of 8%. A. B. C. D. E.

Use discounting tables to determine today’s value of an investment that will provide a dividend of $1,000 at the end of each of the next five years and will be sold for $10,000 in five years time. Assume the required rate of return is 8%. A. B. C. D. E.

$2,940 $13,750 $16,560 $19,965 $20,000

$10,003 $10,203 $10,403 $10,603 $10,803

The ParkRidge Resort accountant has developed the following estimates relating to a proposed investment in its laundry department. Cost of new laundry equipment $40,000 Annual cash savings from new equipment $8,200 Life of the new equipment 7 years Equipment salvage value $6,000 ParkRidge Resort cost of capital 7% What is the net present value of the proposed investment? A. B. C. D. E.

$6,427.8 $6,927.8 $7,427.8 $7,927.8 $8,427.8

Use the following information to answer the next two questions. The Debonair Hotel is considering a kitchen investment with a ten year life. The investment will require an initial outlay of $120,780 and provide increased cash inflows of $24,000 per annum and generate increased running cost cash outflows of $6,000 per annum. There will be no salvage value at the end of the life of the investment.

What is the internal rate of return for the Debonair Hotel’s kitchen investment? A: 5% B: 6% C: 7% D: 8% E: 9%

Assuming a 6% cost of capital, what is the net present value of the Debonair Hotel’s kitchen investment? A: $9,700 B: $11,700 C: $13,700 D: $15,700 E: $17,700

10.

Which of the following statements is true? A. B. C.

D. E.

11.

If three investment projects are under consideration, the one with the highest IRR is preferable. If a project has an IRR greater than 0, the NPV of the project will be positive. If a payback analysis and an accounting rate of return analysis both indicate that the larger of two possible investments should be made, but the internal rate of return indicates that the smaller project investment should be made, the smaller project should be chosen. If the cost of capital is less than the IRR, the NPV will always be positive. NPV and IRR approaches always provide the same answer when ranking two or more investment opportunities.

The Gorgeous Grand Hotel is considering overhauling and redesigning its main restaurant. Based on the following information, calculate the payback period. Initial investment = $127,500 Investment life = 7 years Increased revenues resulting from investment = $22,000 per year Decreased costs resulting from investment = $8,000 per year Salvage value associated with investment = $12,000 in year 7 Investment’s required rate of return = 8% A: 9.11 years B: 7.75 years C: 6.25 years D: 5.15 years E: 4.25 years

Use the following information to answer the next two questions. The Slick Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $22,988 and provide increased cash inflows of $24,000 per annum and generate increased cash outflows of $20,000 per annum. There will be no salvage value at the end of the life of the investment. 12.

What is the internal rate of return for the vending machine investment? A: 5% B: 6% C: 7% D: 8% E: 9%

13.

Assuming a 6% cost of capital, what is the net present value of the Slick Hotel vending machine investment? A: $1,252 B: $1,552 C: $1,852 D: $2,152 E: $2,452

14.

The WhiteCliffs Resort accountant has developed the following estimates relating to a proposed replacement of a boiler. Cost of new boiler $60,000 Annual cash savings from new equipment $13,000 Life of the new equipment 6 years Equipment salvage value $4,000 WhiteCliffs Resort cost of capital 7% What is the net present value of the proposed investment? A. B. C. D. E.

15.

$3,945 $4,635 $5,235 $6,144 $7,011

Which of the following statements is true? A. B. C. D. E.

If three investment projects are under consideration, the one with the highest IRR is preferable. If a project has an IRR greater than one, the project’s NPV will be positive. A higher payback period is consistent with a higher NPV. If a project’s required rate of return is above the IRR, the project’s NPV will be negative. If ranking investment opportunities, the NPV and IRR investment appraisal approaches will provide the same rankings.

16.

The Moons AFL club has raised $80,000 of long term debt and $120,000 in owners equity capital. The after tax cost of the long term debt is 5% and the club’s shareholders expect a 10% return on their investment. What is the club’s weighted average cost of capital? A: B: C: D: E:

6% 6.5% 7% 7.5% 8%

Use the following information to answer the next two questions. The Slick Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $22,000 and provide increased cash inflows of $24,000 per annum and generate increased cash outflows of $20,000 per annum. The vending machine will be sold off for $3,000 in eight year’s time. 17.

What is the payback period for the vending machine investment? A: 4 years and 9 months B: 5 years C: 5 years and 3 months D: 5 years and 6 months E: 5 years and 9 months

18.

Assuming a 6% cost of capital, what is the net present value of the Slick Hotel vending machine investment? A: $3,931 B: $4,322 C: $4,721 D: $5,152 E: $5,423

19.

A positive net present value means that the: A. B. C. D. E.

20.

project’s rate of return is less than the company’s cost of capital. project’s rate of return exceeds the required rate of return. project’s rate of return is the same as the company’s cost of capital. present value of cash inflows associated with the project are the same as the present value of cash outflows associated with the project. project’s IRR is more than 1.

The theoretically preferred quantitative approach to take in capital budget decision making is: A. B. C. D. E.

Return on Investment Internal Rate of Return Payback Net Present Value Accounting rate of return

21.

A travel company has raised $60,000 of long term debt and $40,000 in owners equity capital. The after tax cost of the long term debt is 6% and the club’s shareholders expect a 12% return on their investment. What is the club’s weighted average cost of capital? A: 6.8% B: 7.6% C: 8.4% D: 9.2% E: 9.8% Use the following information to answer the next two questions. The Premier Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $16,000 and provide increased cash inflows of $17,000 per annum and generate increased cash outflows of $14,000 per annum. The vending machine will be sold off for $2,000 in eight year’s time.

22.

What is the payback period for the vending machine investment? A: 5 years B: 5 years and 3 months C: 5 years and 4 months D: 5 years and 6 months E: 5 years and 9 months

23.

Assuming a 6% cost of capital, what is the net present value of the Premier Hotel’s vending machine investment? A: $931 B: $1,655 C: $2,630 D: $3,884 E: $4,534

24.

The Marvellous Resort accountant has developed the following estimates relating to a proposed investment in its laundry department. Cost of new laundry equipment $38,000 Annual cash savings from new equipment $8,000 Life of the new equipment 7 years Equipment salvage value $5,000 Marvellous Resort cost of capital 8% What is the net present value of the proposed investment? A. B. C. D. E.

$6,063 $6,163 $6,563 $6,763 $6,963

25.

Use discounting tables to determine the value today of an opportunity to receive $3,000 at the end of each of the next five years. Assume an interest rate of 6%. A. B. C. D. E.

26.

$10,636 $11,136 $11,636 $12,136 $12,636

The Adele Tower Resort’s accountant has developed the following estimates relating to a proposed investment in its laundry department. Cost of new laundry equipment $40,000 Annual cash savings from new equipment $9,000 Life of the new equipment 7 years Equipment salvage value $4,000 Adele Tower Resort’s cost of capital 8% What is the net present value of the proposed investment? A. B. C. D. E.

27.

$7,822 $8,131 $8,648 $9,186 $9,823

Use discounting tables to determine the value today of an opportunity to receive $4,500 at the end of each of the next six years. Assume an interest rate of 7%. A. B. C. D. E.

$19,221.44 $20,343.60 $21,451.50 $22,139.88 $23,156.98

Chapter 15: Other Managerial Finance Issues

Net profit divided by the total number of shares outstanding provides: A. B. C. D. E.

Profit margin per share Share return Capital gain per share Earnings yield Earnings per share

A high Price/Earnings ratio for a company’s share could signify:

A. B. C. D. E. 3.

A high Price/Earnings ratio for a company’s share could signify: A. B. C. D. E.

A relatively low value of share earnings The stock market perceives relatively high risk in the share The stock market perceives a potential for high share price growth Dividends are low relative to the share price The stock market perceives the EPS to be relatively low.

The Stable Hotel Management Company has been consistently paying an annual dividend of $4 for many years. The market expects this annual dividend payment to continue well into the future. Analysts attribute a required rate of return of 10% for shareholders in the company. Based on the perpetuity formula, what is the value of the company’s shares? A. B. C. D. E.

The company has a high debt to equity ratio The stock market perceives relatively low risk in the share The stock market perceives low potential for share price growth Dividends are low relative to the share price The stock market believes EPS is going to decrease.

A low Price/Earnings ratio could signify: A. B. C. D. E.

The company has a high debt to equity ratio The stock market perceives relatively high risk in the share The stock market perceives low potential for share price growth Dividends are low relative to the share price The stock market believes EPS is going to increase.

$38 $40 $42 $44 $46

The Immaculate hotel has a degree of operating leverage index of 2 and a degree of financial leverage of 2.5. If its room nights sold increased by 8%, by how much would you expect its earning per share to rise? A. B. C. D. E.

32% 34% 36% 38% 40%

Chapter 16: Revenue Management 1.

The purpose of revenue management is to: A. B. C. D. E.

Which of the following statements is not true: A. B. C.

D. E.

Ensure total revenue increases each year. Promote an even follow of revenue throughout the year. Maximise total revenue by using demand forecasts to determine what price to charge for a class of rooms on a particular day. Ensure room night prices are relatively consistent across the year. Maximise room occupancy throughout the year.

Revenue management can include getting a tour operator to change the dates of a booking to a time that a hotel has low occupancy. Revenue management systems use rate categories and demand forecasts. Revenue management seeks to find the optimal point between minimising revenue lost due to unsold rooms and minimising revenue lost from rooms sold at prices below what they could have been sold for. Revenue management is inconsistent with maximising RevPar. If demand for a particular night is low, a revenue management system would indicate that prices for that night should be dropped in order to minimise unsold room inventory.

A hotel revenue management system requirements include: A. B. C. D. E.

Having a knowledge of reservation booking patterns. Having information on historical demand by market segment. Having an understanding of the hotel’s over-booking policy. Having knowledge concerning how much a particular price change for a particular room type at a particular time of year will change the volume of bookings. All of the above

4. Imagine, unexpectedly, a tour operator seeks to book 100 rooms at a 180 room hotel for $80 per room on 15th May. Rooms normally sell for $120. Forecasts indicate that without this incremental group booking, the hotel would sell 140 rooms at $120 each on 15th May. Which of the following statements is untrue: A. The decision to provide the tour operator with the 100 rooms at $80 will have the impact of increasing revenue for the year by $800. B. Selling the rooms to the tour operator is justified as the increased occupancy will more than off-set the discounted pricing of the rooms. C. Application of a revenue management philosophy could result in the tour operator being offered the 100 rooms at $78 each on a different night. D. Application of a revenue management philosophy could result in the tour operator being encouraged to make the 15th May booking for less than 100 rooms. E. Application of a revenue management philosophy would result in the rooms not being sold to the tour operator.

Which of the following statements is untrue: A. B.

C. D. E.

Due to employee morale issues, it can be important to view a Revenue Management system as an information resource, but not necessarily as the finite decision maker. If a Revenue Management system is introduced to a hotel, staff in group-sales departments that have been rewarded based on the number of group sales achieved, should have this incentive system modified. Introduction of a new Revenue Management system will require the reservations and front office staff to be trained on using the system. Care should be taken not to alienate customers when operating a Revenue Management system. A Revenue Management system should not be linked in with a hotel chain’s central reservation system.