You’re on a roll
Create a free account to save your CPA progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › CPA › Business Analysis and Reporting
Free CPA Business Analysis and Reporting Practice Questions & Answers
500 exam-style Business Analysis and Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 121
EBIT is $400,000 and interest expense is $100,000. DFL is:
Select an option first.
Correct answer: D — 1.33
Explanation: DFL = EBIT / (EBIT − Interest) = $400,000 / ($400,000 − $100,000) = $400,000 / $300,000 = 1.33.
Question 122
With a DOL of 5.0 and a DFL of 1.33, the DEGREE OF COMBINED LEVERAGE is:
Select an option first.
Correct answer: D — 6.65
Explanation: DCL = DOL × DFL = 5.0 × 1.33 = 6.65. The leverages MULTIPLY, they do not add. A 10% sales increase would raise EPS by approximately 66.5%.
Question 123
Beta is 1.2, the risk-free rate is 3%, and the market risk PREMIUM is 7%. The cost of equity is:
Select an option first.
Correct answer: C — 11.4%
Explanation: CAPM: Re = Rf + β × Market risk premium = 3% + 1.2 × 7% = 3% + 8.4% = 11.4%. Note the question gives the PREMIUM directly (7%), not the market return — read carefully.
Question 124
Equity is $600m (cost 12%), debt is $400m (pre-tax cost 6%), tax rate 25%. WACC is:
Select an option first.
Correct answer: B — 9.0% — (0.6 × 12%) + (0.4 × 6% × 0.75)
Explanation: V = $1,000m. WACC = (600/1000 × 12%) + (400/1000 × 6% × (1 − 0.25)) = 7.2% + (0.4 × 4.5%) = 7.2% + 1.8% = 9.0%. Only DEBT receives the (1 − t) tax shield.
Question 125
A project costs $500,000 and generates $150,000 annually for 5 years. The discount rate is 10%; the 5-year annuity factor is 3.7908. NPV is:
Select an option first.
Correct answer: C — $68,620
Explanation: PV of inflows = $150,000 × 3.7908 = $568,620. NPV = $568,620 − $500,000 = $68,620. Positive NPV → ACCEPT.
Get the full CPA question bank — free
Drop your email and we'll send you fresh CPA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 126
Using the prior facts, the PROFITABILITY INDEX is:
Select an option first.
Correct answer: B — 1.14
Explanation: PI = PV of future cash flows / Initial investment = $568,620 / $500,000 = 1.14. PI ≥ 1 corresponds exactly to NPV ≥ 0 — the two criteria always agree on accept/reject.
Question 127
A project costs $400,000 with even annual cash flows of $100,000. The simple PAYBACK period is:
Select an option first.
Correct answer: D — 4.0 years
Explanation: Payback = Initial investment / Annual cash flow = $400,000 / $100,000 = 4.0 years. Payback ignores BOTH the time value of money and all cash flows after year 4.
Question 128
A machine costs $200,000, is depreciated straight-line over 5 years with no salvage, and the tax rate is 25%. The annual DEPRECIATION TAX SHIELD is:
Select an option first.
Correct answer: C — $10,000
Explanation: Annual depreciation = $200,000 / 5 = $40,000. Tax shield = Depreciation × Tax rate = $40,000 × 25% = $10,000 per year — a cash INFLOW.
Question 129
An asset with a book value of $30,000 is sold for $50,000; the tax rate is 25%. The AFTER-TAX proceeds are:
Select an option first.
Correct answer: B — $45,000 — proceeds less tax on the $20,000 gain
Explanation: Gain = $50,000 − $30,000 = $20,000. Tax = 25% × $20,000 = $5,000. After-tax proceeds = $50,000 − $5,000 = $45,000.
Question 130
The same asset (book value $30,000) is instead sold for $20,000. After-tax proceeds are:
Select an option first.
Correct answer: C — $22,500 — proceeds PLUS the tax BENEFIT of the $10,000 loss
Explanation: Loss = $30,000 − $20,000 = $10,000, which is TAX-DEDUCTIBLE. Tax benefit = 25% × $10,000 = $2,500 (a cash INFLOW). After-tax proceeds = $20,000 + $2,500 = $22,500. Selling at a loss produces MORE after-tax cash than the sale price alone.
Question 131
Direct materials: standard 5 lbs at $4/lb. Actual: 5,200 lbs PURCHASED at $4.20/lb for 1,000 units produced. The PRICE variance is:
Select an option first.
Correct answer: A — $1,040 unfavourable — (Actual price $4.20 − Standard $4.00) × 5,200 lbs purchased
Explanation: DM Price variance = (AP − SP) × AQ PURCHASED = ($4.20 − $4.00) × 5,200 = $0.20 × 5,200 = $1,040 UNFAVOURABLE (actual price exceeded standard). Note it uses quantity PURCHASED.
Question 132
Same facts (5,200 lbs used; standard 5 lbs × 1,000 units = 5,000 lbs; standard price $4). The QUANTITY variance is:
Select an option first.
Correct answer: B — $800 UNFAVOURABLE — (5,200 used − 5,000 allowed) × $4 standard price
Explanation: DM Quantity variance = (AQ USED − SQ allowed) × SP = (5,200 − 5,000) × $4 = 200 × $4 = $800 UNFAVOURABLE. Note it uses quantity USED and the STANDARD price.
Question 133
Direct labour: standard 2 hrs at $20/hr. Actual: 2,100 hrs at $21/hr for 1,000 units. The RATE variance is:
Select an option first.
Correct answer: A — $2,100 unfavourable — ($21 − $20) × 2,100 actual hours
Explanation: Labour Rate variance = (AR − SR) × Actual hours = ($21 − $20) × 2,100 = $2,100 UNFAVOURABLE.
Question 134
Same facts (2,100 actual hrs; standard 2 hrs × 1,000 = 2,000 hrs; standard rate $20). The EFFICIENCY variance is:
Select an option first.
Correct answer: A — $2,000 unfavourable — (2,100 − 2,000) × $20 standard rate
Explanation: Labour Efficiency variance = (Actual hours − Standard hours allowed) × STANDARD rate = (2,100 − 2,000) × $20 = $2,000 UNFAVOURABLE.
Question 135
Budgeted fixed overhead is $200,000 at a normal capacity of 10,000 units. Actual production is 8,000 units. The VOLUME variance is:
Select an option first.
Correct answer: D — $40,000 UNFAVOURABLE — (10,000 − 8,000) × $20 per unit fixed OH rate
Explanation: Fixed OH rate = $200,000 / 10,000 = $20 per unit. Applied FOH = 8,000 × $20 = $160,000. Volume variance = Budgeted $200,000 − Applied $160,000 = $40,000 UNFAVOURABLE (underapplied). It reflects CAPACITY UNDER-UTILISATION, not overspending.
Question 136
Annual demand 10,000 units; ordering cost $40 per order; carrying cost $5 per unit per year. The EOQ is:
Select an option first.
Correct answer: B — 400 — √(2 × 10,000 × 40 / 5)
Explanation: EOQ = √(2DS/H) = √(2 × 10,000 × $40 / $5) = √(800,000/5) = √160,000 = 400 units.
Question 137
Lead time is 5 days; daily usage is 40 units; safety stock is 100 units. The REORDER POINT is:
Select an option first.
Correct answer: D — 300
Explanation: ROP = (Lead time × Daily usage) + Safety stock = (5 × 40) + 100 = 200 + 100 = 300 units.
Question 138
Operating income $300,000; average operating assets $1,500,000; required return 12%. RESIDUAL INCOME is:
Select an option first.
Correct answer: D — $120,000 — $300,000 less (12% × $1,500,000)
Explanation: RI = Operating income − (Required return × Average operating assets) = $300,000 − (12% × $1,500,000) = $300,000 − $180,000 = $120,000. ROI, for comparison, is $300,000/$1,500,000 = 20%.
Question 139
NOPAT is $500,000; invested capital is $3,000,000; WACC is 10%. EVA is:
Select an option first.
Correct answer: B — $200,000 — $500,000 less (10% × $3,000,000)
Explanation: EVA = NOPAT − (WACC × Invested Capital) = $500,000 − (10% × $3,000,000) = $500,000 − $300,000 = $200,000. Positive EVA means the division earned ABOVE its cost of capital.
Question 140
Sales $2,000,000; net income $160,000; average assets $1,000,000; average equity $500,000. ROE via DuPont is:
Select an option first.
Correct answer: A — 32% — margin 8% × turnover 2.0 × equity multiplier 2.0
Explanation: Margin = $160,000/$2,000,000 = 8%. Turnover = $2,000,000/$1,000,000 = 2.0. Equity multiplier = $1,000,000/$500,000 = 2.0. ROE = 8% × 2.0 × 2.0 = 32%. Cross-check: $160,000/$500,000 = 32%.
Question 141
High activity: 10,000 units, $80,000 total cost. Low: 6,000 units, $60,000. The VARIABLE cost per unit is:
Select an option first.
Correct answer: A — $5.00 — ($80,000 − $60,000) / (10,000 − 6,000)
Explanation: High-low: VC per unit = (High cost − Low cost) / (High activity − Low activity) = ($80,000 − $60,000) / (10,000 − 6,000) = $20,000 / 4,000 = $5.00 per unit.
Question 142
Using the prior facts, FIXED costs are:
Select an option first.
Correct answer: A — $30,000 — $80,000 total less (10,000 × $5)
Explanation: Fixed costs = Total cost − (VC per unit × Activity) = $80,000 − (10,000 × $5) = $80,000 − $50,000 = $30,000. Cross-check with the low point: $60,000 − (6,000 × $5) = $60,000 − $30,000 = $30,000. Both reconcile.
Question 143
Beginning WIP 2,000 units (60% complete); started 10,000; completed 9,000; ending WIP 3,000 (40% complete). WEIGHTED-AVERAGE equivalent units are:
Select an option first.
Correct answer: A — 10,200 — 9,000 completed + (3,000 × 40%)
Explanation: Weighted-average EU = Units completed and transferred out (9,000) + (Ending WIP × % complete) = 9,000 + (3,000 × 40%) = 9,000 + 1,200 = 10,200. Weighted average IGNORES the beginning WIP's prior-period work.
Question 144
Same facts under FIFO (beginning WIP 2,000 units 60% complete; 9,000 completed; ending WIP 3,000 units 40% complete). Equivalent units are:
Select an option first.
Correct answer: A — 9,000 — (2,000 x 40% to complete) + 7,000 started & completed + (3,000 x 40%)
Explanation: FIFO EU = (Beginning WIP x % REMAINING to complete) + Started and completed + (Ending WIP x % complete). Beginning WIP was 60% complete, so 40% REMAINS: 2,000 x 40% = 800. Started and completed = 9,000 completed - 2,000 that came from beginning WIP = 7,000. Ending WIP = 3,000 x 40% = 1,200. Total = 800 + 7,000 + 1,200 = 9,000. Weighted-average gives 10,200 (option A) — the 1,200 difference is exactly the prior-period work in beginning WIP (2,000 x 60%) that FIFO EXCLUDES and weighted-average INCLUDES.
Question 145
Sales $1,000,000; variable costs $600,000; fixed costs $250,000. The CM RATIO is:
Select an option first.
Correct answer: C — 40%
Explanation: CM = $1,000,000 − $600,000 = $400,000. CM ratio = $400,000 / $1,000,000 = 40%.
Question 146
Using the prior facts, operating income is:
Select an option first.
Correct answer: D — $150,000
Explanation: Operating income = CM $400,000 − Fixed costs $250,000 = $150,000. DOL = $400,000/$150,000 = 2.67.
Question 147
A company sells two products: A (CM $30, 60% of mix) and B (CM $10, 40%). The WEIGHTED-AVERAGE CM is:
Select an option first.
Correct answer: D — $22
Explanation: Weighted-average CM = (0.60 × $30) + (0.40 × $10) = $18 + $4 = $22. Break-even units (total) = Fixed costs / $22, then split by the mix.
Question 148
With fixed costs of $220,000 and a weighted-average CM of $22, total break-even units are:
Select an option first.
Correct answer: A — 10,000
Explanation: Break-even units = $220,000 / $22 = 10,000 total units — of which 6,000 are Product A (60%) and 4,000 are Product B (40%).
Question 149
A project has cash flows of −$100,000, then $60,000 and $60,000. At a 10% discount rate (PV factors 0.9091 and 0.8264), NPV is:
Select an option first.
Correct answer: C — $4,130
Explanation: PV = ($60,000 × 0.9091) + ($60,000 × 0.8264) = $54,546 + $49,584 = $104,130. NPV = $104,130 − $100,000 = $4,130.
Question 150
A perpetuity of $50,000 per year discounted at 8% has a present value of:
Select an option first.
Correct answer: B — $625,000
Explanation: PV of a perpetuity = Cash flow / Rate = $50,000 / 0.08 = $625,000.
More free CPA topics
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.