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Practice Test 3 - CPA Bar

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. A division manager's performance report shows controllable costs: budgeted direct labor $180,000 (actual $192,000), budgeted variable overhead $60,000 (actual $63,000), budgeted controllable fixed overhead $90,000 (actual $90,000). What is the total controllable cost variance?
  2. A company's CFO requests a single visualization that displays the hierarchical structure of the company's operating expenses. The visualization must show the breakdown from total expenses into major categories (e.g., R&D, S&GA), then into sub-categories (e.g., Salaries, Marketing within S&GA). The area of each component in the visualization must be proportional to its share of the total expense. Which technique should be used?
  3. A two-way sensitivity table shows: NPV = $850,000 at a 10% discount rate and 5% revenue growth; NPV = $620,000 at a 12% discount rate and 5% revenue growth. What is the estimated impact on NPV of a 1-percentage-point increase in the discount rate, holding revenue growth constant?
  4. An enterprise resource planning (ERP) system serves which primary function for an organization?
  5. Division B purchases a component and processes it further. Division B's selling price for the finished product is $80 per unit and its additional variable processing costs after receiving the component are $15 per unit. What is the maximum transfer price Division B would be willing to pay for the component?
  6. Which of the following statements best describes the behavior of the direct labor cost for this new product?
  7. A 2-year financial forecast shows interest coverage declining from 6.2x to 2.8x while EBIT grows 8% per year. Which interpretation is most concerning?
  8. An IT application controls evaluation shows all 15 payroll control tests functioning correctly. However, the IT general controls review found that payroll application code can be modified by IT staff without an independent change management process. Which conclusion is most analytically sound?
  9. You are a newly licensed CPA at a private company assisting with a financial performance evaluation for budgeting. The CFO wants to predict next quarter's bad debt expense using historical write-off rates by customer risk tier and current accounts receivable by tier to decide whether to tighten credit approvals. What predictive model would best estimate future cash flows?
  10. A 12-month moving average revenue forecast includes two months of revenue from a new product line launched in Month 10, contributing $400,000 in those two months. The analyst uses all 12 months as the base. Which concern does this approach raise?
  11. A company's forecast assumes working capital remains stable at 12% of revenue. Revenue grows from $10,000,000 to $16,000,000 over three years. Which cash flow implication must be explicitly modeled in the pro forma cash flow statement?
  12. Northfield Inc. is evaluating which cost driver best explains variation in its quality control inspection costs. Data show that inspection costs correlate strongly with the number of production batches but only weakly with direct labor hours. Which conclusion is best supported?
  13. A company's fixed costs are $480,000 and variable cost ratio is 65% on a $40 selling price ($26 variable cost). The company wants to earn a target operating profit of $140,000. How many units must be sold?
  14. Ridgewood Manufacturing's standard allows 3 pounds of aluminum per unit at $5.00 per pound. During July, 800 units were produced using 2,600 pounds of aluminum. What is the direct materials quantity variance?
  15. A contribution margin report shows: Line A (revenue $3M, CM ratio 45%, segment margin $600,000), Line B (revenue $2M, CM ratio 30%, segment margin $100,000), Line C (revenue $1M, CM ratio 55%, segment margin $250,000). Management wants to identify the most efficient and the most at-risk product lines. Which analytical conclusion is most appropriate?
  16. A company reports net operating profit after tax (NOPAT) of $400,000, capital employed of $2,000,000, and a weighted average cost of capital (WACC) of 12%. What is the economic value added (EVA)?
  17. An information and communication evaluation finds that financial reports are produced accurately but operational managers do not receive timely notification of control exceptions, and control failures are not escalated to the board. Which evaluation is most appropriate?
  18. A manufacturing plant, Orion Metals, applies fixed manufacturing overhead based on normal capacity machine-hours and tracks budget and volume variances. The fixed overhead budget is $420,000 per month at a denominator level of 70,000 machine-hours, yielding a fixed overhead rate of $6.00 per machine-hour. In November, actual fixed overhead was $435,000 and actual machine-hours were 63,000; standard hours allowed equaled actual hours because output matched the standard routing. Management wants to improve budget accuracy and asks how to address the fixed overhead variances. How should the overhead variance be addressed to improve budget accuracy?
  19. A manufacturer uses process costing (FIFO method). Beginning WIP: 2,000 units, 40% complete for conversion. Units started: 21,000. Units completed: 20,000. Ending WIP: 3,000 units, 60% complete for conversion. What are equivalent units of production for conversion costs under FIFO?
  20. An internal audit identifies a significant risk of data entry errors in the accounts payable process. Management responds by implementing an automated three-way matching system. The level of risk that remains after this control is implemented is referred to as:

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