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A sample from the full question set for this exam.
QUESTION 1 OF 5
Based on the data below, what can be concluded about outsourcing print job?
Based on the data below, what can be concluded about outsourcing print job?
Correct Answer: B
Understanding the Scenario
The table compares the costs of four printing jobs performed by an "Internal Print Shop" versus three
external vendors (Ace Printing, ABC Printing, and Printing, Inc.). Each vendor's pricing varies by print
job type. The task is to evaluate whether outsourcing (hiring external vendors) is a reasonable
alternative to keeping the work in - house.
Key Considerations in Outsourcing
According to governmental accounting principles and budgeting practices outlined by the
Association of Government Accountants (AGA), the decision to outsource should consider
Cost - effectiveness Does outsourcing reduce costs without compromising quality or service delivery?
Operational efficiency Can outsourcing free up internal resources for other priorities?
Comparative pricing How do external vendor rates compare to internal costs for identical services?
Analysis of the Print Jobs
Let’s break down the cost comparison for each print job
Zone Map
Internal cost = $4.23.
Cheapest vendor = Printing, Inc., at $4.00.
Outsourcing is cheaper for this job.
Agenda Packet
Internal cost = $23.18.
Cheapest vendor = Printing, Inc., at $22.00.
Outsourcing is cheaper for this job.
Budget Cover
Internal cost = $840.00.
Cheapest vendor = ABC Printing, at $624.30.
Outsourcing is significantly cheaper for this job.
Employee Benefit Brochure
Internal cost = $6.14.
Cheapest vendor = ABC Printing, at $4.90.
Outsourcing is cheaper for this job.
Conclusion Based on Analysis
Across all four print jobs, the lowest - cost external vendor always beats the Internal Print Shop's
costs.
From a budgetary perspective, outsourcing is feasible as it offers cost savings across all jobs.
Why Not A, C, or D?
Option A (Keep printing in - house) Incorrect, as in - house costs are consistently higher than the
cheapest external vendor.
Option C (Outsourcing is necessary) Incorrect, as feasibility doesn’t mean necessity; internal printing
is still an option if other factors (like quality or control) outweigh costs.
Option D (Award contract to ABC Printing) Incorrect, since the best vendor depends on the job (e.g.,
Printing, Inc. is cheaper for Zone Map and Agenda Packet).
The table compares the costs of four printing jobs performed by an "Internal Print Shop" versus three
external vendors (Ace Printing, ABC Printing, and Printing, Inc.). Each vendor's pricing varies by print
job type. The task is to evaluate whether outsourcing (hiring external vendors) is a reasonable
alternative to keeping the work in - house.
Key Considerations in Outsourcing
According to governmental accounting principles and budgeting practices outlined by the
Association of Government Accountants (AGA), the decision to outsource should consider
Cost - effectiveness Does outsourcing reduce costs without compromising quality or service delivery?
Operational efficiency Can outsourcing free up internal resources for other priorities?
Comparative pricing How do external vendor rates compare to internal costs for identical services?
Analysis of the Print Jobs
Let’s break down the cost comparison for each print job
Zone Map
Internal cost = $4.23.
Cheapest vendor = Printing, Inc., at $4.00.
Outsourcing is cheaper for this job.
Agenda Packet
Internal cost = $23.18.
Cheapest vendor = Printing, Inc., at $22.00.
Outsourcing is cheaper for this job.
Budget Cover
Internal cost = $840.00.
Cheapest vendor = ABC Printing, at $624.30.
Outsourcing is significantly cheaper for this job.
Employee Benefit Brochure
Internal cost = $6.14.
Cheapest vendor = ABC Printing, at $4.90.
Outsourcing is cheaper for this job.
Conclusion Based on Analysis
Across all four print jobs, the lowest - cost external vendor always beats the Internal Print Shop's
costs.
From a budgetary perspective, outsourcing is feasible as it offers cost savings across all jobs.
Why Not A, C, or D?
Option A (Keep printing in - house) Incorrect, as in - house costs are consistently higher than the
cheapest external vendor.
Option C (Outsourcing is necessary) Incorrect, as feasibility doesn’t mean necessity; internal printing
is still an option if other factors (like quality or control) outweigh costs.
Option D (Award contract to ABC Printing) Incorrect, since the best vendor depends on the job (e.g.,
Printing, Inc. is cheaper for Zone Map and Agenda Packet).
QUESTION 2 OF 5
The ratios used to determine an organization's ability to meet its creditor's demands are
Correct Answer: B
What Are Liquidity Ratios?
Liquidity ratios are financial metrics used to measure an organization’s ability to meet its short - term
financial obligations as they come due. These ratios assess whether the organization has sufficient
liquid assets (like cash, receivables, or short - term investments) to cover its current liabilities (debts
or obligations due within a year).
Why Are They Relevant to Creditors?
Creditors care deeply about an entity's ability to repay its debts in a timely manner. Liquidity ratios
provide a snapshot of the organization's financial health and give insight into its capacity to meet
short - term demands. They are essential tools in evaluating whether a government entity (federal,
state, or local) or any other organization can pay its creditors without needing to secure additional
financing or liquidate long - term assets.
Common Liquidity Ratios
The most commonly used liquidity ratios are
Current Ratio This measures the organization’s ability to pay off its current liabilities with current
assets.
Formula Current Assets ÷ Current Liabilities
Quick Ratio (Acid - Test Ratio) A stricter version of the current ratio, it excludes less liquid assets (like
inventory) to assess the organization’s immediate ability to pay short - term debts.
Formula (Current Assets - Inventory) ÷ Current Liabilities
Cash Ratio Focuses only on the most liquid assets, such as cash and cash equivalents.
Formula Cash + Cash Equivalents ÷ Current Liabilities
How Do Liquidity Ratios Apply to Governmental Accounting?
In governmental accounting, liquidity ratios are crucial for determining whether a governmental
entity has the financial flexibility to manage short - term obligations like accounts payable, payroll,
and other operating costs. For example
State and local governments use liquidity ratios to show stakeholders their ability to sustain
operations without financial strain.
Government - wide financial statements (under GASB standards) often emphasize liquidity to
demonstrate fiscal health to bondholders and credit rating agencies.
Why Not Other Ratios?
A . Budgetary Cushion Ratios These focus on the organization’s ability to withstand revenue
shortfalls and maintain budgetary reserves, not specifically on meeting creditor demands.
C . Debt Burden Ratios These measure the overall burden of debt on the organization but don’t
directly address short - term liquidity or solvency.
D . Turnover Ratios These evaluate operational efficiency (e.g., how quickly assets like inventory are
converted into revenue), which doesn’t directly relate to creditor demands.
Liquidity ratios are financial metrics used to measure an organization’s ability to meet its short - term
financial obligations as they come due. These ratios assess whether the organization has sufficient
liquid assets (like cash, receivables, or short - term investments) to cover its current liabilities (debts
or obligations due within a year).
Why Are They Relevant to Creditors?
Creditors care deeply about an entity's ability to repay its debts in a timely manner. Liquidity ratios
provide a snapshot of the organization's financial health and give insight into its capacity to meet
short - term demands. They are essential tools in evaluating whether a government entity (federal,
state, or local) or any other organization can pay its creditors without needing to secure additional
financing or liquidate long - term assets.
Common Liquidity Ratios
The most commonly used liquidity ratios are
Current Ratio This measures the organization’s ability to pay off its current liabilities with current
assets.
Formula Current Assets ÷ Current Liabilities
Quick Ratio (Acid - Test Ratio) A stricter version of the current ratio, it excludes less liquid assets (like
inventory) to assess the organization’s immediate ability to pay short - term debts.
Formula (Current Assets - Inventory) ÷ Current Liabilities
Cash Ratio Focuses only on the most liquid assets, such as cash and cash equivalents.
Formula Cash + Cash Equivalents ÷ Current Liabilities
How Do Liquidity Ratios Apply to Governmental Accounting?
In governmental accounting, liquidity ratios are crucial for determining whether a governmental
entity has the financial flexibility to manage short - term obligations like accounts payable, payroll,
and other operating costs. For example
State and local governments use liquidity ratios to show stakeholders their ability to sustain
operations without financial strain.
Government - wide financial statements (under GASB standards) often emphasize liquidity to
demonstrate fiscal health to bondholders and credit rating agencies.
Why Not Other Ratios?
A . Budgetary Cushion Ratios These focus on the organization’s ability to withstand revenue
shortfalls and maintain budgetary reserves, not specifically on meeting creditor demands.
C . Debt Burden Ratios These measure the overall burden of debt on the organization but don’t
directly address short - term liquidity or solvency.
D . Turnover Ratios These evaluate operational efficiency (e.g., how quickly assets like inventory are
converted into revenue), which doesn’t directly relate to creditor demands.
QUESTION 3 OF 5
Performance measurement assists management in
Correct Answer: B
QUESTION 4 OF 5
The value, in current dollars, of a sum of money to be received in the future describes
The value, in current dollars, of a sum of money to be received in the future describes
A payback value.
B. present value.
C. annuity value.
D. future value.
Correct Answer: B
QUESTION 5 OF 5
A city decides to invest in a new piece of equipment and wants to know how long it will take to recover the amount invested by using the payback analysis technique. The city uses the following assumptions in its analysis The cost of the equipment is $500,000. The equipment will generate $200,000 in revenue per year. The variable costs of operating the equipment will be $100,000 per year. The depreciation on the equipment will be $20,000 per year. How long will it take the city to recover the amount invested in the new equipment?
Correct Answer: C
Question 1 of 5