2012 aicpa business questions 2

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2012 AICPA Newly Released Questions Business

Following are multiple choice questions recently released by the AICPA. These questions were released by the AICPA with letter answers only. Our editorial board has provided the accompanying explanation. Please note that the AICPA generally releases questions that it does NOT intend to use again. These questions and content may or may not be representative of questions you may see on any upcoming exams.

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2012 AICPA Newly Released Questions Business

1. If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased? a. b. c. d. Direct materials. Direct labor. Prime costs. Conversion costs.

Solution: Choice "d" is correct. Conversion costs include both direct labor and overhead. Increases in crude oil prices are likely to impact the cost of generating electricity (and, by extension, the rate for electricity). Electricity is significant in manufacture of the product in the fact pattern and would likely increase the overhead costs of the manufacturer. Choice "a" is incorrect. Electricity is not included in direct materials. Direct material costs would likely not increase. Choice "b" is incorrect. Electricity is not included in direct labor. Direct labor costs would likely not increase. Choice "c" is incorrect. Prime costs are the sum of direct materials and direct labor. Electricity is not included in prime costs. Prime costs would likely not increase.

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2012 AICPA Newly Released Questions Business

2. According to the Sarbanes-Oxley Act of 2002, a chief executive officer or chief financial officer who misrepresents the company's finances may be penalized by being: a. b. c. d. Fined, but not imprisoned. Imprisoned, but not fined. Removed from the corporate office and fined. Fined and imprisoned.

Solution: Choice "d" is correct. An individual who knowingly executes or attempts to execute, securities fraud will be fined or imprisoned not more than 25 years or both. Choice "a" is incorrect. The provisions of the Sarbanes-Oxley Act of 2002 provide for penalties for misrepresentation of company finance that may include both fines and penalties. Choice "b" is incorrect. The provisions of the Sarbanes-Oxley Act of 2002 provide for penalties for misrepresentation of company finance that may include both penalties and fines. Choice "c" is incorrect. The provisions of the Sarbanes-Oxley Act of 2002 provide for penalties for misrepresentation of company finance that may include both fines and penalties but do not carry provisions for removal from corporate office.

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2012 AICPA Newly Released Questions Business

3. Which of the following items is one of the eight components of COSO's enterprise risk management framework? a. b. c. d. Operations. Reporting. Monitoring. Compliance.

Solution: Choice "c" is correct. Monitoring is one of the eight components of COSO's enterprise risk management (ERM) framework. The eight components of the ERM framework are summarized as follows in the mnemonic IS EAR AIM: Internal environment Setting objectives Event identification Assessment of risk Risk response Activities (control) Information and communication Monitoring

Choice "a" is incorrect. Operations are not one of the eight components of the COSO's ERM framework identified by the mnemonic IS EAR AIM as shown above. Choice "b" is incorrect. Reporting is not one of the eight components of the COSO's ERM framework identified by the mnemonic IS EAR AIM as shown above. Choice "d" is incorrect. Compliance is not one of the eight components of the COSO's ERM framework identified by the mnemonic IS EAR AIM as shown above.

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2012 AICPA Newly Released Questions Business

4. Based on the following data, what is the gross profit for the company? Sales Net purchases of raw materials Cost of goods manufactured Marketing and administrative expenses Indirect manufacturing costs Beginning inventory $500,000 100,000 $1,000,000 600,000 800,000 250,000 500,000 Ending inventory $400,000 500,000

Work in process Finished goods a. b. c. d. $200,000 $400,000 $600,000 $900,000

Solution: Choice "c" is correct. The gross profit for the company is $600,000 computed as follows: Sales Beginning finished goods inventory Cost of goods manufactured Less: Ending finished goods inventory Cost of goods sold Gross profit $1,000,000 $100,000 800,000 (500,000) 400,000 $ 600,000

Note that significant irrelevant information was provided in the problem. Some of the information (e.g., the raw materials purchases, indirect costs and WIP) relate to data used to develop the relevant cost of goods manufactured. Other information (e.g., marketing and administrative expenses) relate to computation of operating income rather than gross profit. Choices "a", "b", and "d" are incorrect per computations above.

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2012 AICPA Newly Released Questions Business

5. Management of a company has a lack of segregation of duties within the application environment, with programmers having access to development and production. The programmers have the ability to implement application code changes into production without monitoring or a quality assurance function. This is considered a deficiency in which of the following areas? a. b. c. d. Change control. Management override. Data integrity. Computer operations.

Solution: Choice "a" is correct. Programmer access to development and production represents flawed segregation of duties that creates deficiencies for change control. Change control considers the manner in which management monitors and authorizes changes to a variety of information technology matters including software applications programs. Only authorized individuals should be allowed to move changes into production and the function of making the change should be segregated from the function of putting the change into production. Programmers with access to both programming instructions and live data undermine management's control of data and their ability to verify that all changes have been performed in a manner consistent with their instructions. Choice "b" is incorrect. Management override is a control weakness in which managers ignore or circumvent controls. Programmers are typically not management. Choice "c" is incorrect. Data integrity requires that information be accurate and complete. The poor segregation of duties associated with programmer access to production may not impact the completeness or even the accuracy of data. Choice "d" is incorrect. Computer operations would not necessarily be compromised as a result of programmer access to live data. The computer operations would continue to efficiently generate results only with potentially flawed instructions as a result of compromised change control.

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2012 AICPA Newly Released Questions Business

6. The coefficient of determination, r squared, in a multiple regression equation is the: a. Percentage of variation in the independent variables explained by the variation in the dependent variable. b. Percentage of variation in the dependent variable explained by the variation in the independent variables. c. Measure of the proximity of actual data points to the estimated data points. d. Coefficient of the independent variable divided by the standard error of regression coefficient.

Solution: Choice "b" is correct. The coefficient of determination (R2) is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x). Choice "a" is incorrect. The independent variable is not explained by the dependent variable. Changes in the independent variable drive the variation in the dependent variable. The coefficient of determination (R2) is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x). Choice "c" is incorrect. The measure of proximity of actual data points to estimated data points is not the coefficient of determination. The coefficient of determination (R2) is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x). Choice "d" is incorrect. The coefficient of determination (R2) is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x), not the coefficient of the independent variable divided by the standard error of regression coefficient.

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2012 AICPA Newly Released Questions Business

7. For the current period production levels, XL Molding Co. budgeted 8,500 board feet of production and used 9,000 board feet for actual production. Material cost was budgeted at $2 per foot. The actual cost for the period was $3 per foot. What was XL's material efficiency variance for the period? a. b. c. d. $1,000 favorable. $1,000 unfavorable. $1,500 favorable. $1,500 unfavorable.

Solution: Choice "b" is correct. The materials efficiency variance is computed as: (Actual Quantity Used Standard Quantity Used) x Standard Price The fact pattern anticipates that budgeted amounts are the standard quantity allowed. As a result, the variance is computed as follows: (9,000 board feet 8,500 board feet) x $2 = $1,000 Since we used more than budget, the variance is unfavorable. Choice "a" is incorrect. The variance is unfavorable, not favorable, because the company used more board feet than budgeted. Choice "c" is incorrect. The variance is unfavorable, not favorable. The materials efficiency variance is calculated using the budgeted material cost, not the actual material cost. Actual material cost is used when computing the materials price variance. Choice "d" is incorrect. The materials efficiency variance is calculated using the budgeted material cost, not the actual mat

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