ETS MAJOR FIELD TEST IN BUSINESS QUESTIONS & ANSWERS

In marketing research, a firm might consider using secondary data over primary data because a) secondary data usually cost less b) secondary data are usually more accurate c) primary data are usually non specific d) primary data are likely to be outdated - ANSWERSa) secondary data usually cost less In organizational decision making, managers are able to exercise the greatest degree of discretion in the a) enforcement of internal policies b) settlement of legal disputes c) restructuring of outstanding loans d) compliance with federal regulations - ANSWERSa) enforcement of internal policies The term "net working capital" refers to (A) inventories, receivables, and current notes and investments (B) assets divided by liabilities (C) current assets less short-term liabilities (D) net assets left over after subtracting cost of goods sold - ANSWERS(C) current assets less short-term liabilities Dreamland Pillow Company sells the "Old Softy" model for $20 each. One pillow requires two pounds of raw material and one hour of direct labor to manufacture. Raw material costs $3 per pound and direct production labor is paid $4 per hour. Fixed supervisory costs are $2,000 per month and Dreamland rents its factory on a five-year lease for $4,000 per month. All costs are considered costs of production. How many pillows must Dreamland produce and sell each month to earn a monthly gross profit of $1,000? (A) 300 (B) 350 (C) 600 (D) 700 - ANSWERS(D) 700 VC = (2 lbs*$3)+$4 = $10 FC = $2,000+$4,000 = $6,000 CM per unit = $20-(VC) $10=$10 $1,000 = (units sold*$10)-$6,000 Units sold = ($1,000+$6,000)/$10 = 700 pillows Dreamland Pillow Company sells the "Old Softy" model for $20 each. One pillow requires two pounds of raw material and one hour of direct labor to manufacture. Raw material costs $3 per pound and direct production labor is paid $4 per hour. Fixed supervisory costs are $2,000 per month and Dreamland rents its factory on a five-year lease for $4,000 per month. All costs are considered costs of production. Another firm has offered to produce "Old Softy" pillows and sell them to Dreamland for $12 each. Dreamland cannot avoid the factory lease payments, but can avoid all labor costs if it does not produce these pillows. Under these conditions, how many "Old Softy" pillows must Dreamland sell to earn monthly gross profits of $1,000? (A) 417 (B) 500 (C) 625 (D) 875 - ANSWERS(C) 625 Dreamland VC per unit = $12 FC = $4,000 CM per unit = $20-(VC) $12=$8 (GP) $1,000 = (units sold*$8)-$4,000 Units sold = ($1,000+$4,000)/$8 = 625 pillows Which of the following statements about a systems flowchart is true? (A) It is used in systems design to define and describe each piece of data. (B) It is a method of writing programs using only three basic constructs: sequence, selection, and repetition. (C) It documents the sequence of processing steps that take place in an information system. (D) It documents the logical design of an information system. - ANSWERS(D) It documents the logical design of an information system. Which of the following statements about the tort of negligence is true? (A) It cannot be used as a basis for liability for defective products. (B) It is a strict liability tort with no defenses. (C) It requires proof of some intentional conduct. (D) It requires proof of breach of a statutory or common-law duty. - ANSWERS(C) It requires proof of some intentional conduct. On May 31, Company O's general ledger shows a cash balance of $5,123. The May 31 bank statement shows a balance of $4,905. Other information is available as follows: 1. A May 31 deposit of $300 does not appear on the bank statement; but a $3 service charge does. 2. A customer's $40 insufficient funds check has been returned with the bank statement. 3. Outstanding checks of $10, $15, and $100 are identified on May What is the correct cash balance on May 31? (A) $4,905 (B) $5,080 (C) $5,166 (D) $5,204 - ANSWERS(B) $5,080 Cash Balance 5,123.00 Service charge (3.00) NSF Check from customer (40.00) Correct cash balance 5,080.00 Within the context of the capital asset pricing model (CAPM), the risk measure known as beta is often computed by regressing the return of the company's stock against the (A) return on the company's bonds (B) return on the market portfolio (C) change in the gross domestic product (D) change in the consumer price index - ANSWERS(B) return on the market portfolio A project consists of 150 jobs. The expected completion time for each job is given in days. The project has three critical paths with two jobs in common, J and K. In order to finish the project one day early, the completion time should be reduced one day for (A) each of the 150 jobs (B) each of the jobs on the three critical paths (C) either Job J or Job K (D) both Job J and Job K - ANSWERS(C) either Job J or Job K The Organization of the Petroleum Exporting Countries (OPEC) reduces production by 10 percent, and the growth rate of the world economy begins to escalate. How will the simultaneous occurrence of these events affect the equilibrium price and quantity in the world petroleum market? (A) Price will increase, but quantity will remain unchanged. (B) Price will increase, but quantity is indeterminate. (C) Quantity will increase, but price is indeterminate. (D) Both price and quantity will increase. - ANSWERS(B) Price will increase, but quantity is indeterminate. Which of the following would most likely occur as a result of the United States government's imposing tariffs on foreign steel imports? (A) The price of steel produced in the United States would decrease. (B) The price of imported steel in the United States would decrease. (C) Employment in the United States steel industry would increase. (D) Government tax revenue would fall. - ANSWERS(C) Employment in the United States steel industry would increase. In an economy the unemployment rate is 10 percent and the inflation rate is 1 percent. An appropriate fiscal policy in this phase of the business cycle would be to (A) increase government spending (B) increase income taxes (C) decrease transfer payments (D) decrease the money supply - ANSWERS(A) increase government spending Which of the following is an appropriate Federal Reserve action to stimulate the United States economy? (A) Selling government bonds on the open market (B) Increasing the discount rate (C) Reducing the reserve requirement (D) Cutting taxes - ANSWERS(C) Reducing the reserve requirement If the spread between the spot and forward exchange rates of two currencies equals the interest rate difference between the two countries, this phenomenon is referred to as (A) purchasing-power equality (B) commodity arbitrage (C) currency hedging (D) interest-rate parity - ANSWERS(D) interest-rate parity A firm that would like to know whether it has enough cash to meet its bills would be most likely to use which category of financial ratio? (A) Liquidity (B) Leverage (C) Efficiency (D) Profitability - ANSWERS(A) Liquidity In a period of rising prices, which inventory valuation method would generally yield both the lowest ending inventory value and the lowest net income figure? (A) First in, first out (FIFO) (B) Last in, first out (LIFO) (C) Weighted average (D) Standard cost - ANSWERS(B) Last in, first out (LIFO) In the statement of cash flows, the section for cash flows from operating activities will include which of the following? (A) Dividends paid (B) Issuance of common stock (C) A decrease in accounts payable (D) Purchase of a building financed entirely by a mortgage - ANSWERS(C) A decrease in accounts payable Net income $100,000 Depreciation expense $10,000 Net increase in accounts receivable $5,000 Net increase in accounts payable $3,000 On the basis of the information provided in the table above for a corporation, the corporation's net cash flow from operating activities for the current year is (A) $98,000 (B) $102,000 (C) $108,000 (D) $118,000 - ANSWERS(C) $108,000 Net profit 100,000 Add: Non cash Exp (Dep) 10,000 Less: Inc in A/R (5,000) Add: Inc in A/P 3,000 Net cash flow from operating activities 108,000 All of the following are true regarding a seller's rights to reduce legal liability in the sale of nonconsumer goods EXCEPT: (A) The seller can disclaim consequential damages if it is done clearly and conspicuously. (B) The seller can limit the remedy available to the buyer if he or she does so clearly and fairly. (C) The seller can place reasonable conditions on the warranty coverage and a shorter time limit of warranty coverage. (D) The seller can disclaim all implied warranties by simply stating that there are no implied warranties. - ANSWERS(D) The seller can disclaim all implied warranties by simply stating that there are no implied warranties. Green desires to form a new company to manufacture lawn mowers. Green is concerned about having his personal assets exposed to liability for the new company's contracts and torts. Furthermore, he wants to retain control over the company's operations and growth for the next few years. He will need an infusion of equity capital to begin operations. He hopes to take the company public in about five years if it is advantageous to do so at the time. Which of the following types of business associations would be best for Green's new company? (A) Corporation (B) General partnership (C) Limited partnership (D) Member-managed limited-liability company - ANSWERS(A) Corporation A small number of people with complementary skills who are committed to a common purpose, a set of performance goals, and an approach for which they hold themselves mutually accountable is referred to as a (A) committee (B) task force (C) group (D) team - ANSWERS(D) team A department manager telephoned two managers in other departments to discuss a cost savings idea that would benefit their departments as well as her own. Which of the following most accurately defines the communication channel that the manager was using? (A) Upward (B) Lateral (C) Downward (D) Hierarchical - ANSWERS(B) Lateral Based on his scientific management theory, Frederick Taylor developed what pay principle? (A) Hourly pay (B) Incentive pay (C) Profit sharing (D) Monthly salary with bonus - ANSWERS(B) Incentive pay