Business (Grades 5–12)
Subtest 1 Sample Items
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Question 1
1. Which of the following is the most important element of an effective employee performance appraisal system?
- detailing how corporate compensation and benefits policies reflect performance
- comparing the performance of employees in similar positions
- employing an easily understood numerical system for rating performance
- creating performance standards for each job description
Answer to question 1
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0002) When creating an effective employee performance appraisal system, the most important task a manager faces is how to communicate clear expectations for the job to each employee. A necessary first step in this process is to decide what those expectations are for each type of job. This, in turn, requires setting performance standards for each job description.
Correct Response: D. (Objective 0002) When creating an effective employee performance appraisal system, the most important task a manager faces is how to communicate clear expectations for the job to each employee. A necessary first step in this process is to decide what those expectations are for each type of job. This, in turn, requires setting performance standards for each job description.
Question 2
2. The primary emphasis of the management by objectives (MBO) management strategy involves:
- managers regularly walking through the workplace, interacting directly with subordinates, and discussing work-related matters.
- joint setting of employee goals by both a supervisor and a subordinate and their evaluation of the employee's success in meeting these goals.
- establishment of teams of employees drawn from different departments to provide fresh perspectives on solving a particular problem.
- continuous management review and improvement of processes and procedures to control production costs, eliminate defects, and improve product quality.
Answer to question 2
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0001) MBO was popularized by Peter Drucker as a way to involve employees in defining objectives and goals within an organization. MBO involves joint, cooperative setting of employee goals and evaluations of whether the goals were met. When applied correctly, MBO increases employee motivation, facilitates communication between managers and subordinates, furnishes bottom-up feedback that can lead to increased efficiencies, and provides a mechanism for jointly evaluating an employee's performance.
Correct Response: B. (Objective 0001) M B O was popularized by Peter Drucker as a way to involve employees in defining objectives and goals within an organization. M B O involves joint, cooperative setting of employee goals and evaluations of whether the goals were met. When applied correctly, M B O increases employee motivation, facilitates communication between managers and subordinates, furnishes bottom-up feedback that can lead to increased efficiencies, and provides a mechanism for jointly evaluating an employee's performance.
Question 3
3. A functional organizational structure that groups together people with similar technical expertise and responsibilities offers which of the following advantages compared with product-based or matrix structures?
- greater flexibility in response to changes in the business environment
- improved coordination and communication across departments
- increased economies of scale and more efficient use of resources
- expanded access to multiple perspectives from employees with different views
Answer to question 3
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0001) In functional structures, a business is divided into departments based on functions (e.g., accounting, marketing). Because each department is responsible for one function across the entire company, duplication of effort is avoided, and economies of scale and more efficient use of resources are possible.
Correct Response: C. (Objective 0001) In functional structures, a business is divided into departments based on functions (e.g., accounting, marketing). Because each department is responsible for one function across the entire company, duplication of effort is avoided, and economies of scale and more efficient use of resources are possible.
Question 4
4. Rick and Jan enter into a general partnership to open a small auto repair shop. A customer successfully sues the business after Rick's failure to perform a job properly causes an accident. The total assets of the business do not fully cover the damages awarded to the customer. Which of the following best describes the personal liability of each partner for covering the remaining damages?
- Rick is personally liable for all remaining damages since it was his mistake that caused the accident.
- Neither Rick nor Jan is personally liable and the remaining damages will not be paid if the business is declared bankrupt.
- Rick and Jan are both personally liable for all remaining damages in proportion to the owner's equity of each partner.
- Rick and Jan are equally personally liable for all remaining damages after the assets of the business have been exhausted.
Answer to question 4
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0001) Unlike stockholders in a corporation, the personal assets of members of a general partnership may be seized to satisfy a debt or obligation incurred by the business. Furthermore, unless specifically excluded as a defendant, each member of the partnership may be personally liable for the actions of all other members of the partnership. According to the law of agency, each partner is an agent of the business and is legally bound by the actions of any other member of the partnership.
Correct Response: D. (Objective 0001) Unlike stockholders in a corporation, the personal assets of members of a general partnership may be seized to satisfy a debt or obligation incurred by the business. Furthermore, unless specifically excluded as a defendant, each member of the partnership may be personally liable for the actions of all other members of the partnership. According to the law of agency, each partner is an agent of the business and is legally bound by the actions of any other member of the partnership.
Question 5
5. Which of the following best describes the most important function of organized labor in government and business?
- working with management to develop strategies and goals that will ensure the short- and long-term success of the business
- providing social support for workers when management decisions adversely affect their pay, benefits, or working conditions
- representing the interest of the workers when management decisions are made or policies implemented that affect workers
- working with the board of directors to help create policy regarding compensation for the CEO and other high-level managers
Answer to question 5
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0001) In any business, the interests of management and the interests of workers do not always coincide. For example, managers may wish to reduce variable costs by freezing wages or delaying promotions to higher salary levels. Workers may feel that their pay does not adequately reflect their responsibilities, that advancement is too slow, or that flexible work schedules would allow them to be more productive. The role of the union is to represent the workers' interests where those interests and the interests of management conflict.
Correct Response: C. (Objective 0001) In any business, the interests of management and the interests of workers do not always coincide. For example, managers may wish to reduce variable costs by freezing wages or delaying promotions to higher salary levels. Workers may feel that their pay does not adequately reflect their responsibilities, that advancement is too slow, or that flexible work schedules would allow them to be more productive. The role of the union is to represent the workers' interests where those interests and the interests of management conflict.
Question 6
6. In which of the following situations would it be advantageous for a company to change from a centralized, hierarchical organizational structure to a more decentralized structure where much of the responsibility for decision making is delegated to middle- and lower-level managers?
- The company has decided to consolidate its product line and concentrate on producing and marketing only its best-selling products.
- The company has invested heavily in automating and outsourcing many operations that will require large layoffs of workers and managers.
- The company is bidding on large government contracts that require standardization of tasks and uniformity of polices, practices, and procedures.
- The company is planning an expansion into global markets and requires increased flexibility to respond to rapidly changing challenges and opportunities.
Answer to question 6
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0001) One of the problems with centralized organizational structures in a rapidly changing business environment is that the flow of information up the hierarchy and the implementation of decisions down the hierarchy are often too slow. Hiring and promoting highly competent middle- and lower-level managers and empowering them to make and implement decisions based on conditions on the ground increase the ability of the company to respond quickly and flexibly to challenges and opportunities.
Correct Response: D. (Objective 0001) One of the problems with centralized organizational structures in a rapidly changing business environment is that the flow of information up the hierarchy and the implementation of decisions down the hierarchy are often too slow. Hiring and promoting highly competent middle- and lower-level managers and empowering them to make and implement decisions based on conditions on the ground increase the ability of the company to respond quickly and flexibly to challenges and opportunities.
Question 7
7. Which of the following is the most important element of an effective employee performance appraisal system?
- detailing corporate compensation and benefits policies
- comparing the performance of employees in similar positions
- establishing mutually agreed upon performance expectations
- creating performance standards for each job description
Answer to question 7
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0002) When creating an effective employee performance appraisal system, the most important task a manager faces is how to communicate clear expectations for the job to each employee. A necessary first step in this process is to decide what those expectations are for each type of job. This, in turn, requires setting performance standards for each job description.
Correct Response: D. (Objective 0002) When creating an effective employee performance appraisal system, the most important task a manager faces is how to communicate clear expectations for the job to each employee. A necessary first step in this process is to decide what those expectations are for each type of job. This, in turn, requires setting performance standards for each job description.
Question 8
8. In which of the following cases would it be most important for a company to increase the ethnic and cultural diversity of managerial positions in its workforce?
- Company managers expect much of the company's future growth to come from greater participation in the global marketplace.
- The nonmanagerial workforce at the company traditionally has been relatively homogeneous, with little ethnic or cultural diversity.
- Product development managers are considering expanding greatly the range of products currently offered in the product line.
- Company headquarters has been moved from a state that is ethnically and culturally homogeneous to one that has a wider range of diversity.
Answer to question 8
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0002) Participation in the global marketplace has become both more commonplace and more critical to a company's success. Cultural differences may act as barriers to effective communication and discourage cooperation between companies in different countries. Lack of understanding of cultural differences may also lead to ineffective marketing strategies. A diverse managerial workforce provides a pool of people who can furnish information about cultural beliefs and values, etiquette, legal and political differences, and other types of information about other countries. This information can help smooth relations between domestic and foreign companies, as well as assist managers in identifying potential marketing pitfalls.
Correct Response: A. (Objective 0002) Participation in the global marketplace has become both more commonplace and more critical to a company's success. Cultural differences may act as barriers to effective communication and discourage cooperation between companies in different countries. Lack of understanding of cultural differences may also lead to ineffective marketing strategies. A diverse managerial workforce provides a pool of people who can furnish information about cultural beliefs and values, etiquette, legal and political differences, and other types of information about other countries. This information can help smooth relations between domestic and foreign companies, as well as assist managers in identifying potential marketing pitfalls.
Question 9
9. Employee cross-training, job rotation, and job sharing among employees would be most advantageous in keeping a company's labor costs as low as possible under which of the following conditions?
- A company relies on a stable workforce of experienced workers who perform specialized tasks requiring extensive and expensive training.
- Employees at a small company perform a wide variety of tasks that fluctuate in frequency and importance over the course of the year.
- The core mission and product line of a company are changing and workers must be retrained rapidly to meet new company objectives.
- The workforce at a company primarily consists of low-skilled workers who do not require extensive training to perform their job tasks.
Answer to question 9
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0002) Cross-training, job rotation, and job sharing all are strategies for increasing the flexibility of a workforce. For example, if one worker is absent for an extended period of time, another worker may be familiar enough with the job responsibilities to fill in with minimal loss of efficiency to the office and without having to hire a temporary replacement worker. This flexibility is likely to be most critical in small companies where tasks vary over time because workers who can perform a variety of tasks can be shifted from task to task to meet the company's ongoing needs.
Correct Response: B. (Objective 0002) Cross-training, job rotation, and job sharing all are strategies for increasing the flexibility of a workforce. For example, if one worker is absent for an extended period of time, another worker may be familiar enough with the job responsibilities to fill in with minimal loss of efficiency to the office and without having to hire a temporary replacement worker. This flexibility is likely to be most critical in small companies where tasks vary over time because workers who can perform a variety of tasks can be shifted from task to task to meet the company's ongoing needs.
Question 10
10. A company that offers employees a defined-benefit pension plan is switching to a 401(k) retirement plan system. This change is most likely to affect employees in which of the following ways?
- Employees will have less control over allocation of their retirement funds to different types of investments.
- Employees will not have to pay a penalty if they withdraw funds from their 401(k) plans before retirement.
- Employees' retirement funds will be fully insured against losses by the Federal Deposit Insurance Corporation (FDIC F, D, I, C, ).
- A larger proportion of employees' 401(k) 4, 0, 1 (k) funds will come from employee contributions rather than employer contributions.
Answer to question 10
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0002) Defined-benefit pension plans are rapidly being replaced by 401(k) 4, 0, 1 (k) retirement plans in U.S. businesses. In defined-benefit plans, all or most of the funds are contributed by the employer, the funds are generally managed by the employer, and the employee receives a predetermined benefit upon retirement. In 401(k) 4, 0, 1 (k) plans, the employee contributes a much greater percentage to his or her retirement fund than in defined-benefit pension plans (although many companies match employee contributions up to a certain percentage). In 401(k) 4, 0, 1 (k) plans the employee generally controls both the amount contributed and its allocation to different forms of investment.
Correct Response: D. (Objective 0002) Defined-benefit pension plans are rapidly being replaced by 4, 0, 1 (k) retirement plans in U.S. businesses. In defined-benefit plans, all or most of the funds are contributed by the employer, the funds are generally managed by the employer, and the employee receives a predetermined benefit upon retirement. In 4, 0, 1 (k) plans, the employee contributes a much greater percentage to his or her retirement fund than in defined-benefit pension plans (although many companies match employee contributions up to a certain percentage). In 4, 0, 1 (k) plans the employee generally controls both the amount contributed and its allocation to different forms of investment.
Question 11
11. United States federal law requires a company to provide workers with information about:
- types and characteristics of chemical hazards that they may encounter on the job.
- how pay scales at the company compare with average pay scales in the industry.
- policies and procedures for evaluating their performance in carrying out their jobs.
- procedures for contacting appropriate state and federal agencies with complaints.
Answer to question 11
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0002) United States federal law explicitly states that workers have the right to know the types and characteristics of hazardous chemicals that they may encounter in the workplace. Many companies will provide workers with a variety of other types of information, but are not required to do so under federal law.
Correct Response: A. (Objective 0002) United States federal law explicitly states that workers have the right to know the types and characteristics of hazardous chemicals that they may encounter in the workplace. Many companies will provide workers with a variety of other types of information, but are not required to do so under federal law.
Question 12
12. A company has been losing more skilled workers than usual from its workforce. Which of the following strategies would best provide company managers with a variety of perspectives and possible solutions to the problem?
- asking former employees to identify the five most important reasons responsible for their leaving the company
- forming a task force consisting of managers and employees from each department to investigate the problem
- assigning several senior managers to observe the interactions between lower-level managers and employees in each department
- comparing the policies, procedures, and pay scales of the company to the expectations of individuals interviewing for jobs
Answer to question 12
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0002) To develop possible solutions to the problem of employee retention, the company has to determine how to collect data about why employees are leaving the company to seek work elsewhere. A task force is an appropriate way to gather this information. To get the most accurate information, it is important that managers and employees from all departments be included. This will help ensure that a variety of perspectives about the problem are obtained and a range of possible solutions are proposed.
Correct Response: B. (Objective 0002) To develop possible solutions to the problem of employee retention, the company has to determine how to collect data about why employees are leaving the company to seek work elsewhere. A task force is an appropriate way to gather this information. To get the most accurate information, it is important that managers and employees from all departments be included. This will help ensure that a variety of perspectives about the problem are obtained and a range of possible solutions are proposed.
Question 13
13. Which of the following personal investment options is likely to be most risky in terms of the possibility of losing principal?
- U.S. Savings Bonds
- certificates of deposit
- common stocks
- money market funds
Answer to question 13
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0003) Choosing investment options requires an assessment of the risks and rewards of each option. Common stocks are the most volatile investment listed. The stock market may rise or fall rapidly for a variety of reasons (e.g., changes in inflation rate, interest rates, or unemployment statistics). If the market rises, rewards can be very quick and substantial, but if it falls suddenly, loss of principal can occur rapidly. Common stocks, therefore, are by far the most risky investment of those listed, albeit the one in which rewards are often greatest.
Correct Response: C. (Objective 0003) Choosing investment options requires an assessment of the risks and rewards of each option. Common stocks are the most volatile investment listed. The stock market may rise or fall rapidly for a variety of reasons (e.g., changes in inflation rate, interest rates, or unemployment statistics). If the market rises, rewards can be very quick and substantial, but if it falls suddenly, loss of principal can occur rapidly. Common stocks, therefore, are by far the most risky investment of those listed, albeit the one in which rewards are often greatest.
Question 14
14. To raise money for expansion, a publically traded company issues additional shares of common stock amounting to 10 percent of its current public float. Which of the following is most likely to be one short-term effect of this decision?
- The price per share of common stock in the company is likely to decline.
- The annual dividend paid to shareholders is likely to increase.
- The debt to equity ratio of the company is likely to increase.
- The interest paid on the money that was raised is likely to decrease.
Answer to question 14
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0003) When raising money for expansion, a company may use a form of equity financing, such as selling newly offered stock, to avoid paying high rates of interest on a traditional loan. If the money thus raised is used wisely, the value of the company may increase and its stock price may rise in the long term. In the short term, however, the additional number of shares dilutes the value of each share. Since each share is now seen by current stockholders and potential buyers as representing a smaller piece of the total value of the company, the value of each share is likely to decline.
Correct Response: A. (Objective 0003) When raising money for expansion, a company may use a form of equity financing, such as selling newly offered stock, to avoid paying high rates of interest on a traditional loan. If the money thus raised is used wisely, the value of the company may increase and its stock price may rise in the long term. In the short term, however, the additional number of shares dilutes the value of each share. Since each share is now seen by current stockholders and potential buyers as representing a smaller piece of the total value of the company, the value of each share is likely to decline.
Question 15
15. One advantage of placing a substantial amount of money from an inheritance in certificates of deposit (CDs) rather than investing in stocks, bonds, or U.S. Treasury securities is that:
- CDs are likely to yield a higher rate of return on investment than stocks, bonds, or securities.
- money in CDs is insured against loss by the Federal Deposit Insurance Corporation (FDIC).
- interest that is earned by money placed in CDs is not subject to state or federal taxation.
- liquidity is greater in CDs because money can be quickly withdrawn without paying a penalty.
Answer to question 15
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0003) The FDIC is an independent agency created by the Glass-Steagall Act of 1933 in response to the failure of numerous banks during the Great Depression. Prior to the creation of the FDIC, depositors would lose all their money if a bank failed. The FDIC insures deposits, including CDs, up to a certain limit (currently $250,000 per depositor per bank), boosting consumer confidence in the safety of their deposits. This protection is not available for most other forms of investments such as stocks, bonds, or other types of securities.
Correct Response: B. (Objective 0003) The F D I C is an independent agency created by the Glass-Steagall Act of 1933 in response to the failure of numerous banks during the Great Depression. Prior to the creation of the F D I C, depositors would lose all their money if a bank failed. The F D I C insures deposits, including C Ds, up to a certain limit (currently $250,000 per depositor per bank), boosting consumer confidence in the safety of their deposits. This protection is not available for most other forms of investments such as stocks, bonds, or other types of securities.
Question 16
16. Which of the following allocation of funds in an investment portfolio is most likely to exhibit both the highest risk and the highest potential rewards?
-
-
Answer to question 16
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0003) Stocks are usually considered to be the most risky type of investment option but carry the highest potential for reward, since individual stocks and the market as a whole may be subject to rapid rises and falls. CDs, since they are insured by the FDIC, are the least risky type of investment, but usually carry the lowest reward in the form of low interest rates. Bonds (depending on the type) are usually considered to be intermediate in both risk and reward. Therefore, an investment portfolio that is heavy on stocks and, to a lesser extent, bonds is both riskier and potentially more rewarding than one that emphasizes CDs.
Correct Response: D. (Objective 0003) Stocks are usually considered to be the most risky type of investment option but carry the highest potential for reward, since individual stocks and the market as a whole may be subject to rapid rises and falls. C Ds, since they are insured by the F D I C, are the least risky type of investment, but usually carry the lowest reward in the form of low interest rates. Bonds (depending on the type) are usually considered to be intermediate in both risk and reward. Therefore, an investment portfolio that is heavy on stocks and, to a lesser extent, bonds is both riskier and potentially more rewarding than one that emphasizes C Ds.
Question 17
17. A couple is planning to purchase a house for the first time. In determining how much of a monthly mortgage payment they can afford the couple should first:
- survey local banks and other lending agencies to determine current interest rates.
- determine their housing needs and preferences given the size of their family.
- calculate monthly nondiscretionary expenses such as principle and interest on current debts.
- decide on the length of the mortgage and whether to seek a variable or fixed rate.
Answer to question 17
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0003) Before making any large purchase that will require obtaining credit, individuals and families must determine the amount of monthly payments that they can afford given their income level and their expenses. The most relevant factor will be the amount of nondiscretionary spending per month. Nondiscretionary spending consists of expenses that cannot be reduced by any reasonable actions of the individual or family. An example of nondiscretionary spending might be interest and principle that is currently being paid on a car loan. Monthly expenditures for dining out or other entertainment are examples of discretionary spending that can be cut to provide funds for payments associated with taking on new debt.
Correct Response: C. (Objective 0003) Before making any large purchase that will require obtaining credit, individuals and families must determine the amount of monthly payments that they can afford given their income level and their expenses. The most relevant factor will be the amount of nondiscretionary spending per month. Nondiscretionary spending consists of expenses that cannot be reduced by any reasonable actions of the individual or family. An example of nondiscretionary spending might be interest and principle that is currently being paid on a car loan. Monthly expenditures for dining out or other entertainment are examples of discretionary spending that can be cut to provide funds for payments associated with taking on new debt.
Question 18
18. A rise in short-term interest rates is likely to affect businesses by reducing:
- the desirability and value of their common stocks.
- the amount they pay on debt service.
- their ability to increase capital spending and hiring.
- the market demand for their goods and services.
Answer to question 18
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0003) An increase in short-term interest rates is likely to cause a business to reduce borrowing. This, in turn, will often constrain the business from seeking credit for expansion of its infrastructure and/or its labor force.
Correct Response: C. (Objective 0003) An increase in short-term interest rates is likely to cause a business to reduce borrowing. This, in turn, will often constrain the business from seeking credit for expansion of its infrastructure and/or its labor force.
Question 19
19. A production manager is analyzing the report shown below.
The item stem shows a table entitled Engines Company Income Statement Performance Report for the Month Ended December 31.
Engines Company
Income Statement Performance Report
Month Ended December 31, 20XX |
blank |
Actual Results |
Flexible Budget |
Master Budget |
Number of Units Sold |
30 |
30 |
25 |
Sales ($) |
159,000 |
150,000 |
125,000 |
Variable Costs ($) |
66,000 |
60,000 |
50,000 |
Fixed Costs ($) |
24,000 |
25,000 |
25,000 |
Operating Income ($) |
69,000 |
65,000 |
50,000 |
Figures for which of the following budget lines should be of primary concern to this manager?
- Sales
- Variable Costs
- Fixed Costs
- Operating Income
Answer to question 19
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0004) Production managers are involved in producing the actual product (in this case engines) and are therefore most interested in the fixed and variable costs of producing an item and how to lower these costs where feasible. In this case, one area of concern is that variable costs exceed the amount budgeted in the flexible budget by 10% and the amount budgeted in the master budget by 32%. Since the number of units sold is close to that projected in both budgets, and fixed costs are actually less, this indicates that the company is spending far too much on materials, labor, or other variable costs to produce each unit.
Correct Response: B. (Objective 0004) Production managers are involved in producing the actual product (in this case engines) and are therefore most interested in the fixed and variable costs of producing an item and how to lower these costs where feasible. In this case, one area of concern is that variable costs exceed the amount budgeted in the flexible budget by 10% and the amount budgeted in the master budget by 32%. Since the number of units sold is close to that projected in both budgets, and fixed costs are actually less, this indicates that the company is spending far too much on materials, labor, or other variable costs to produce each unit.
Question 20
20. A small coffee roaster has fixed costs of $42,000. The variable costs to produce a pound of coffee are $6 per bag and the roaster sells each bag for $8. How many bags of coffee must the roaster sell to break even?
- 6,000
- 8,000
- 21,000
- 48,000
Answer to question 20
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0004) The break-even point is the point where all costs are met by the sale of the product, but no profit is made. The break-even point is calculated by subtracting the variable costs per unit of product from the sale price of the product and dividing the fixed costs by this figure. In this case, the break-even point is $42,000 ÷ ($8 − $6) = 21,000 bags of coffee.
Correct Response: C. (Objective 0004) The break-even point is the point where all costs are met by the sale of the product, but no profit is made. The break-even point is calculated by subtracting the variable costs per unit of product from the sale price of the product and dividing the fixed costs by this figure. In this case, the break-even point is $42,000 divided by open parenthesis $8 minus $6 close parenthesis equals 21,000 bags of coffee.
Question 21
21. At the end of the accounting cycle, which of the following steps should occur after closing the accounts?
- preparing financial statements
- adjusting the accounts
- calculating trial balances
- posting the accounts to the ledger
Answer to question 21
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0004) The accounting cycle is generally considered to consist of five steps; journalizing the transaction and posting the transaction to the ledger occur continuously through the cycle. At the end of the period, the accounts are adjusted, the accounts are closed, and financial statements (e.g., balance sheets) are prepared.
Correct Response: A. (Objective 0004) The accounting cycle is generally considered to consist of five steps; journalizing the transaction and posting the transaction to the ledger occur continuously through the cycle. At the end of the period, the accounts are adjusted, the accounts are closed, and financial statements (e.g., balance sheets) are prepared.
Question 22
22. Use the table below to answer the question that follows.
Stubb's Auto Repair |
Account Title |
Adjusted Account Balance as of
December 31 |
Debit |
Credit |
Cash |
$24,000 |
|
Accounts Receivable |
36,000 |
|
Inventory |
85,000 |
|
Land |
15,000 |
|
Equipment |
120,000 |
|
Materials |
45,000 |
|
Building |
160,000 |
|
|
|
|
Accumulated
Depreciation |
|
$80,000 |
Accounts Payable |
|
65,000 |
Notes Payable |
|
45,000 |
According to the table, the balance of Stubb's garage owner's equity accounts as of December 31 must equal:
- $110,000 110,000 dollars listed as a debit.
- $295,000 295,000 dollars listed as a credit.
- $485,000 485,000 dollars listed as a credit.
- $190,000 190,000 dollars listed as a debit.
Answer to question 22
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0004) In the adjusted account trial balance calculated at the end of the accounting cycle, total debits must equal total credits. This is based on the accounting equation, where assets (which are listed as debits) must equal liabilities (which are listed as credits) plus owner's equity (which is listed as a credit). Since the total debits for Stubb's Auto Repair are $485,000 485,000 dollars and the total credits listed are $190,000 190,000 dollars , owner's equity must be $485,000 485,000 dollars − minus $190,000 190,000 dollars = $295,000 295,000 dollars .
Correct Response: B. (Objective 0004) In the adjusted account trial balance calculated at the end of the accounting cycle, total debits must equal total credits. This is based on the accounting equation, where assets (which are listed as debits) must equal liabilities (which are listed as credits) plus owner's equity (which is listed as a credit). Since the total debits for Stubb's Auto Repair are 485,000 dollars and the total credits listed are 190,000 dollars, owner's equity must be 485,000 dollars minus 190,000 dollars equals 295,000 dollars.
Question 23
23. Which of the following is the major difference between the cash method of accounting and the accrual method?
- The accrual method records expenditures and payments when they are incurred, and the cash method records them when they are paid.
- The cash method allows for a more accurate portrayal of the true overall profitability of a company than the accrual method.
- The accrual method does not allow for the calculations of federal or state taxes on company profits, and the cash method does.
- The cash method is more difficult to use and requires the use of more complex accounting tools and transactions than the accrual method.
Answer to question 23
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0004) The main difference between the cash and accrual methods of accounting is in the timing when expenditures and payments are recorded. In cash accounting, transactions are recorded when they occur; a payment is recorded when the payment is made. The accrual method records transactions when they are made; if a sale is made, the transaction is recorded even if the payment for the product has not been received.
Correct Response: A. (Objective 0004) The main difference between the cash and accrual methods of accounting is in the timing when expenditures and payments are recorded. In cash accounting, transactions are recorded when they occur; a payment is recorded when the payment is made. The accrual method records transactions when they are made; if a sale is made, the transaction is recorded even if the payment for the product has not been received.
Question 24
24. A dairy uses a machine to fill containers with 32 oz of yogurt. The filled and sealed containers are weighed before packing for sale. Several factors can result in containers that may be slightly overfilled or underfilled. Which of the following statistical measures would most effectively be used to provide quality control regarding the weight of the filled containers?
- standard deviation
- correlation coefficient
- mean
- median
Answer to question 24
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0005) Maintaining quality control with regard to the weight of the yogurt sold involves measuring the variation in weight of the containers as they come off the line. The standard deviation is a measure of variation about the mean of any set of measurements. Managers of the dairy would use the standard deviation to set a tolerance limit for each yogurt container, establishing how far from the mean of 32 oz a container could be overfilled or underfilled and still remain acceptable.
Correct Response: A. (Objective 0005) Maintaining quality control with regard to the weight of the yogurt sold involves measuring the variation in weight of the containers as they come off the line. The standard deviation is a measure of variation about the mean of any set of measurements. Managers of the dairy would use the standard deviation to set a tolerance limit for each yogurt container, establishing how far from the mean of 32 ounce a container could be overfilled or underfilled and still remain acceptable.
Question 25
25. In the fall, a ski shop purchases 30 pairs of skis at the wholesale price of $80 80 dollars per pair. The shop marks the skis up 50% to sell during the winter. In spring, the shop still has 10 pairs of skis and holds a 25% off sale. All but one of the pairs of skis sells at this price. The last pair is sold at a special discount of 50% off the original retail price. Discounting fixed costs, what was the amount of profit that the ski shop made on the sale of the 30 pairs of skis?
- $580 580 dollars
- $790 790 dollars
- $870 870 dollars
- $1,960 1,960 dollars
Answer to question 25
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0005) In the fall, the shop paid a total of $2,400 for 30 pairs of skis at $80 per pair. At a markup of 50%, each pair sold for $120. During the winter, the shop sold 20 pairs at this price for a total of $2,400. At a 25% discount in the spring, each pair sold for $90. The shop sold 9 pairs for a total of $810. The last pair was sold at half price, for $60. In total the shop was paid $2,400 + $810 + $60 = $3,270 for all the skis. The profit earned was $3,270 − $2,400 = $870.
Correct Response: C. (Objective 0005) In the fall, the shop paid a total of 2,400 dollars for 30 pairs of skis at 80 dollars per pair. At a markup of 50 percent, each pair sold for $120. During the winter, the shop sold 20 pairs at this price for a total of 2,400 dollars. At a 25% discount in the spring, each pair sold for 90 dollars. The shop sold 9 pairs for a total of 810 dollars. The last pair was sold at half price, for 60 dollars. In total the shop was paid 2,400 dollars plus 810 dollars plus 60 dollars equals 3,270 dollars for all the skis. The profit earned was 3,270 dollars minus 2,400 dollars equals 870 dollars.
Question 26
26. Use the graph below to answer the question that follows.
X-axis is Week, Y-axis is Bags of Cement in Stock. Week 0: 1,100 bags. Week 1: 1,000 bags. Week 2: 900 bags. Week 3: 800 bags. Week 4: 600 bags. Week 5: 400 bags. Week 6: 350 bags. Week 7: 300 bags. Week 8: 250 bags. Week 9: 200 bags.
A small business manufactures cement birdbaths. The graph shows how many bags of cement the company has in stock per week for nine weeks. During this period, the company did not take delivery of any additional bags of cement. From the slopes of the lines of the graph it can be inferred that:
- most of the total number of birdbaths were produced between week 3 and week 5.
- the production of birdbaths has steadily declined from week 1 to week 9.
- more birdbaths were produced in total during weeks 5–9 than during weeks 1–3.
- the production of birdbaths per week increased the most between week 3 and week 5.
Answer to question 26
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0005) The slope of each line on the graph indicates how much cement was used (and by inference, how many birdbaths were produced) for each week. During weeks 0–3, a total of 300 bags of cement were used or 100 bags per week. During weeks 3–5, a total of 400 bags were used or 200 bags per week. During weeks 5–9, 200 bags were used or 50 bags per week. The higher weekly rate of use between weeks 3–5 infers that production of birdbaths increased during this period.
Correct Response: D. (Objective 0005) The slope of each line on the graph indicates how much cement was used (and by inference, how many birdbaths were produced) for each week. During weeks 0 through 3, a total of 300 bags of cement were used or 100 bags per week. During weeks 3 through 5, a total of 400 bags were used or 200 bags per week. During weeks 5 through 9, 200 bags were used or 50 bags per week. The higher weekly rate of use between weeks 3 through 5 infers that production of birdbaths increased during this period.
Question 27
27. A circle graph would be more useful than other types of graphs such as line or bar graphs when comparing:
- week-to-week changes in sales for three different styles of men's shirts.
- relative contributions of seven salespeople to total sales in a month.
- the effectiveness of two different promotional campaigns for the same item over time.
- incidences of breakdowns in quality control during different times of the day.
Answer to question 27
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0005) The best way to compare proportions of a whole is through a circle graph, where the entire circle represents the whole and the wedges into which the circle is divided represent the proportion of the whole that is made by each contributor. In the correct response, the whole is the total sales in one month, and the proportions of the whole are the contributions of each of the seven salespeople to the total sales.
Correct Response: B. (Objective 0005) The best way to compare proportions of a whole is through a circle graph, where the entire circle represents the whole and the wedges into which the circle is divided represent the proportion of the whole that is made by each contributor. In the correct response, the whole is the total sales in one month, and the proportions of the whole are the contributions of each of the seven salespeople to the total sales.
Question 28
28. A toy company makes wooden cars and wooden trucks. The total number of cars and trucks that it makes is 50,000. The company sells each car for $15 15 dollars and each truck for $20 20 dollars . At the end of the year, the company's sales are $850,000 850,000 dollars . How many cars has the company sold?
- 10,000
- 20,000
- 30,000
- 50,000
Answer to question 28
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0005) Let C stand for the number of cars and T stand for the number of trucks. Then C + T = 50,000. Since each car sells for $15 and each truck for $20 and total sales are $850,000, then 15C + 20T = 850,000. This is a system of two equations. One way to solve this system is to note that since C + T = 50,000, then C = 50,000 − T. Substituting this into the second equation results in
15(50,000 − T) + 20T = 850,000. Solving this equation for T gives T = 20,000. If T = 20,000 and 50,000 total units of both kinds of toys are produced, then C, the number of cars produced, is 30,000.
Correct Response: C. (Objective 0005) Let C stand for the number of cars and T stand for the number of trucks. Then C + T = 50,000. Since each car sells for 15 dollars and each truck for 20 dollars and total sales are 850,000 dollars, then 15C + 20T = 850,000. This is a system of two equations. One way to solve this system is to note that since C + T = 50,000, then C = 50,000 minus T. Substituting this into the second equation results in
15(50,000 minus T) + 20T = 850,000. Solving this equation for T gives T = 20,000. If T = 20,000 and 50,000 total units of both kinds of toys are produced, then C, the number of cars produced, is 30,000.
Question 29
29. An exercise center has total fixed costs of $20,000 20,000 dollars . Staff salaries and other labor costs are $60,000 60,000 dollars . A yearly membership in the gym costs $200 200 dollars . How many memberships must the gym sell to break even?
- 100
- 200
- 300
- 400
Answer to question 29
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0005) The breakeven point is the amount of sales that will cover the total fixed and variable production costs of a good or service. In this case, the total yearly fixed and variable production costs are $20,000 + $60,000, or $80,000. Since each membership costs $200, the gym must sell 80,000 ÷ 200 or 400 memberships.
Correct Response: D. (Objective 0005) The breakeven point is the amount of sales that will cover the total fixed and variable production costs of a good or service. In this case, the total yearly fixed and variable production costs are 20,000 dollars + 60,000 dollars, or 80,000 dollars. Since each membership costs 200 dollars, the gym must sell 80,000 divided by 200 or 400 memberships.
Question 30
30. Which of the following types of marketing strategies is likely to be most effective in increasing impulse buying of a new type of granola bar that is being introduced into an area?
- offering incentives to area supermarkets to place the bar at eye level on its shelves
- pricing the new bar below the prices of bars currently in area markets
- including a buy-one-get-one-free coupon for the bar in an area newspaper supplement
- offering free samples of the bar in area supermarkets
Answer to question 30
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0006) Impulse buying is making an unplanned purchase of an item. Food items that are purchased on impulse are often newly introduced items that are relatively inexpensive. Customers are more willing to try out a novel item when the cost is not high. A new type of granola bar fits this description, and offering free samples would be an effective method of introducing it to customers.
Correct Response: D. (Objective 0006) Impulse buying is making an unplanned purchase of an item. Food items that are purchased on impulse are often newly introduced items that are relatively inexpensive. Customers are more willing to try out a novel item when the cost is not high. A new type of granola bar fits this description, and offering free samples would be an effective method of introducing it to customers.
Question 31
31. A company would most likely test-market a new product before fully introducing the product when:
- very little competition from similar products currently exists in the market.
- costs of developing, introducing, and promoting the new product are high.
- the product has one or more design flaws that must be identified and eliminated.
- the demographics of the target market for the product are very narrowly defined.
Answer to question 31
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0006) Introducing a new product may be expensive. The product must be distributed to stores and promoted, and its sales data needs to be analyzed to determine its success. The higher the costs of introducing the product, the greater the loss to the company if the product fails. For a product with high introduction costs, the stakes for the company are high. Introducing the product to a smaller test market allows a company to assess its viability with less risk and determine whether broader marketing is likely to be successful.
Correct Response: B. (Objective 0006) Introducing a new product may be expensive. The product must be distributed to stores and promoted, and its sales data needs to be analyzed to determine its success. The higher the costs of introducing the product, the greater the loss to the company if the product fails. For a product with high introduction costs, the stakes for the company are high. Introducing the product to a smaller test market allows a company to assess its viability with less risk and determine whether broader marketing is likely to be successful.
Question 32
32. Which of the following factors would likely persuade a company to use a strategy of penetration pricing to capture market share when introducing a new product?
- Production costs are high, but the product's quality is greater than that of competing products.
- The product is innovative and is aimed at a target market in which competition is low.
- Competition with similar products on the market is high and is highly price sensitive.
- The market is saturated with similar products and competition depends on non-price features.
Answer to question 32
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0006) The strategy of penetration pricing involves setting a low initial price on a new product to attract a large number of buyers quickly and win a large market share. A company is likely to use this strategy only if the market for the new product is highly competitive and price sensitive. Penetration pricing is not required if few similar competing products are present in the market, and it is likely to be ineffective if consumers are making decisions based on factors other than price.
Correct Response: C. (Objective 0006) The strategy of penetration pricing involves setting a low initial price on a new product to attract a large number of buyers quickly and win a large market share. A company is likely to use this strategy only if the market for the new product is highly competitive and price sensitive. Penetration pricing is not required if few similar competing products are present in the market, and it is likely to be ineffective if consumers are making decisions based on factors other than price.
Question 33
33. Which of the following is the best example of online viral advertising?
- advertisements that appear as banner ads or pop-ups on unrelated Web sites
- targeted advertisements e-mailed to specific audiences identified by data mining
- seemingly innocuous bulk e-mails that contain aggressive advertising when opened
- advertisements on a social media site that are sent to others by individuals using the site
Answer to question 33
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0006) Online viral advertising involves the transmission of advertising information from person-to-person instead of business-to-person. It represents the online version of word-of-mouth advertising. Marketers who hope to use viral advertising usually rely on creating messages that are creative, interesting, often humorous, and memorable so that individuals will pass the advertisement along to friends.
Correct Response: D. (Objective 0006) Online viral advertising involves the transmission of advertising information from person-to-person instead of business-to-person. It represents the online version of word-of-mouth advertising. Marketers who hope to use viral advertising usually rely on creating messages that are creative, interesting, often humorous, and memorable so that individuals will pass the advertisement along to friends.
Question 34
34. Product distribution and the use of marketing channels in Internet marketing differs from traditional marketing in brick-and-mortar stores in which of the following ways?
- Conflict among producers, intermediaries, and retailers is more common and often more serious.
- Distribution chains are shorter and direct producer-to-consumer channels are more common.
- Inventory management and ensuring a stable supply of products to market is more difficult.
- Selection of distribution intermediaries who can add value to the product is more important.
Answer to question 34
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: B. (Objective 0006) The primary function of a distribution chain is to allow producers who produce a large volume of a particular product to offer the product to consumers in smaller units through retail outlets. In Internet marketing, the retail outlet is virtual rather than a real brick-and-mortar store. This allows producers to shorten the distribution chain by selling small quantities of their products directly to consumers or by using a single, extremely large, independent distributor rather than a large number of smaller distributors for their products.
Correct Response: B. (Objective 0006) The primary function of a distribution chain is to allow producers who produce a large volume of a particular product to offer the product to consumers in smaller units through retail outlets. In Internet marketing, the retail outlet is virtual rather than a real brick-and-mortar store. This allows producers to shorten the distribution chain by selling small quantities of their products directly to consumers or by using a single, extremely large, independent distributor rather than a large number of smaller distributors for their products.
Question 35
35. A supermarket chain offers loss-leader pricing on several different popular items each week. The primary reason for following such a strategy is most likely to:
- introduce customers to new items that they might not have tried before.
- disposing of overstocked items that may soon be beyond recommended use date.
- boost sales of items that are nearing the end of their product life cycles.
- persuade customers to shop at the store where they may buy other items at full price.
Answer to question 35
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0006) Loss-leader pricing refers to the practice of selling a product or service below the cost of producing, distributing, and promoting the item. Loss-leader pricing generally involves selecting a few popular items and advertising them at below-cost prices, in the hope that this will entice customers to shop at the store. Once they are shopping at the store, the assumption is that they will buy other items or services for sale that are sold at their regular prices.
Correct Response: D. (Objective 0006) Loss-leader pricing refers to the practice of selling a product or service below the cost of producing, distributing, and promoting the item. Loss-leader pricing generally involves selecting a few popular items and advertising them at below-cost prices, in the hope that this will entice customers to shop at the store. Once they are shopping at the store, the assumption is that they will buy other items or services for sale that are sold at their regular prices.
Question 36
36. A data management company considers the security of the information handled by its employees to be its highest priority. Which of the following security precautions by the company would most likely be considered an invasion of the privacy of its employees?
- monitoring internal and external emails sent by employees from company computers
- placing cameras in high-security areas of the workplace to record employee activities
- restricting all phone calls made by employees from company phones to business or emergency calls only
- requiring employees to disclose personal financial information as a condition of employment
Answer to question 36
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0007) Employees should understand that they do not have an expectation of privacy when using their employer's equipment or facilities such as phones, work spaces, or computers. However, a company cannot ethically require an employee to disclose sensitive personal information as a condition of employment unless that information is relative to the prospective employee's job performance (e.g., drug testing, criminal record). An employee's personal financial information is not likely to meet this standard, and it would be an unethical invasion of privacy for a company to require it as a condition of employment.
Correct Response: D. (Objective 0007) Employees should understand that they do not have an expectation of privacy when using their employer's equipment or facilities such as phones, work spaces, or computers. However, a company cannot ethically require an employee to disclose sensitive personal information as a condition of employment unless that information is relative to the prospective employee's job performance (e.g., drug testing, criminal record). An employee's personal financial information is not likely to meet this standard, and it would be an unethical invasion of privacy for a company to require it as a condition of employment.
Question 37
37. One of the main differences between cases heard in a criminal court and those heard in a civil court is that in a civil court case:
- the plaintiff is an individual, business, or other private entity rather than the state or federal government.
- a judge hears and decides the guilt or innocence of the defendant rather than a jury.
- the defendant's actions are not considered to be illegal according to state or federal law.
- the verdict declaring the defendant guilty or innocent cannot be appealed to a higher court.
Answer to question 37
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0007) Civil courts deal with the resolution or torts, which are defined as behavior by one person or entity that causes another person or entity harm (e.g., physical, financial, emotional, reputational). The defendant may or may not be accused of breaking criminal laws, and the verdict usually involves a financial settlement. As in criminal court, the case may be heard solely by a judge or by a judge and jury, and the verdict may be appealed to a higher court. Tort law allows an individual, business, or other entity to recover damages from another party, while criminal law is based on punishing an individual for a crime against society. Thus, the plaintiff's attorney in a civil case represents a private entity, while the prosecutor in a criminal case is employed by the state or federal government to represent society as a whole.
Correct Response: A. (Objective 0007) Civil courts deal with the resolution or torts, which are defined as behavior by one person or entity that causes another person or entity harm (e.g., physical, financial, emotional, reputational). The defendant may or may not be accused of breaking criminal laws, and the verdict usually involves a financial settlement. As in criminal court, the case may be heard solely by a judge or by a judge and jury, and the verdict may be appealed to a higher court. Tort law allows an individual, business, or other entity to recover damages from another party, while criminal law is based on punishing an individual for a crime against society. Thus, the plaintiff's attorney in a civil case represents a private entity, while the prosecutor in a criminal case is employed by the state or federal government to represent society as a whole.
Question 38
38. Which of the following statements best describes a potential negative ethical effect of marketing upon U.S. society as a whole?
- Marketing provides consumers with too much information that makes it difficult for consumers to make informed choices among various products.
- Marketing emphasizes the positive details of a particular product or service without providing information about its possible undesirable aspects.
- Marketing creates false consumer wants and needs that increase materialism and encourage overconsumption and excessive consumer debt.
- Marketing encourages producers to provide shoddy products and services and de-emphasize the input of resource to ensure product quality.
Answer to question 38
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: C. (Objective 0007) Marketing of products that create false consumer wants and needs has been identified by some economists as contributing to overspending by consumers. According to some studies, the average citizen has very little savings, carries at least one maxed-out credit card, and pays a significant part of his or her income to debt service. Recently, U.S. consumers in the aggregate exhibited negative savings—a situation that leaves many citizens extremely vulnerable to an economic downturn and is considered to be unhealthy for the economy as a whole. Marketing, whose intention is solely to create false consumer wants and needs, is considered by some to be unethical, in that it may have deleterious effects on both consumers and society.
Correct Response: C. (Objective 0007) Marketing of products that create false consumer wants and needs has been identified by some economists as contributing to overspending by consumers. According to some studies, the average citizen has very little savings, carries at least one maxed-out credit card, and pays a significant part of his or her income to debt service. Recently, U.S. consumers in the aggregate exhibited negative savings—a situation that leaves many citizens extremely vulnerable to an economic downturn and is considered to be unhealthy for the economy as a whole. Marketing, whose intention is solely to create false consumer wants and needs, is considered by some to be unethical, in that it may have deleterious effects on both consumers and society.
Question 39
39. Which of the following is likely to be the most important difficulty with applying a cost-benefit analysis to an environmental law that may restrict the activities of a business?
- Costs of compliance with environmental regulations are likely to place a business that complies at a competitive disadvantage compared with businesses that do not.
- Environmentalists are likely to de-emphasize the costs of compliance to the business, while the business is likely to exaggerate the costs of compliance.
- Environmental laws often lack specificity and do not fully describe which practices are permissible under the law and which practices are prohibited.
- Costs and benefits to the business from the law may be much easier to quantify than environmental costs and benefits, which are often intangible.
Answer to question 39
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: D. (Objective 0007) Many businesses contend that complying with environmental protections laws (e.g., Clean Water Act, Endangered Species Act) places an unfair financial burden on their companies. Businesses often suggest that the costs of compliance far outweigh any benefit to the environment. One difficulty with comparing costs and benefits is that, while costs to a business are largely quantifiable (e.g., monetary costs of safe waste disposal, switching to renewable inputs, adopting more sustainable production methods), both the costs to the environment of noncompliance and the benefits of compliance may be much more difficult to calculate and are often intangible (e.g., calculating the costs of the extinction of a species of butterfly).
Correct Response: D. (Objective 0007) Many businesses contend that complying with environmental protections laws (e.g., Clean Water Act, Endangered Species Act) places an unfair financial burden on their companies. Businesses often suggest that the costs of compliance far outweigh any benefit to the environment. One difficulty with comparing costs and benefits is that, while costs to a business are largely quantifiable (e.g., monetary costs of safe waste disposal, switching to renewable inputs, adopting more sustainable production methods), both the costs to the environment of noncompliance and the benefits of compliance may be much more difficult to calculate and are often intangible (e.g., calculating the costs of the extinction of a species of butterfly).
Question 40
40. United States federal antitrust laws would most likely be invoked to prevent:
- a merger between two large telecommunications firms that would significantly reduce competition and give the new company a commanding share of the market.
- a significant rise in the price of gasoline that is implemented by a local chain of gas stations after hurricane damage to refineries leads to reduced supply.
- an agreement between two partner airlines to charge similar rates for economy class passengers on flights to different airports that are served by each company.
- a deceptive advertising campaign by a large fast food chain that implies that a competitor uses substandard ingredients in the preparation of its fast food products.
Answer to question 40
- Answer Enter to expand or collapse answer. Answer expanded
- Correct Response: A. (Objective 0007) Antitrust laws in the United States are designed to regulate the conduct and organization of businesses to promote fair competition for the benefit of consumers. Generally these laws are applied to prevent individual corporations from gaining too large a market share in the sale or distribution of a product or service. They also prevent collusive actions between separate companies (but not subsidiaries or partners) that may restrict competition. The Federal Trade Commission (FTC) often initiates antitrust actions, but such actions may also be brought to court by the Department of Justice or private entities that are affected by the restriction of competition.
Correct Response: A. (Objective 0007) Antitrust laws in the United States are designed to regulate the conduct and organization of businesses to promote fair competition for the benefit of consumers. Generally these laws are applied to prevent individual corporations from gaining too large a market share in the sale or distribution of a product or service. They also prevent collusive actions between separate companies (but not subsidiaries or partners) that may restrict competition. The Federal Trade Commission (FTC) often initiates antitrust actions, but such actions may also be brought to court by the Department of Justice or private entities that are affected by the restriction of competition.