BEC - sim 1, sim 2, sim 3
EBOCA
Ethics and Integrity Board oversight @ independence commitments to competence-employee Accountability
frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
The Carters signed an agreement with an effective annual interest rate of 7.740% Interest is payable semi-annually What was the stated rate?
=(1+.0774)^.5 =1.03798-1= =3.798% * 2 +7.6
Ruby Exports, a United States company, has a significant amount and number of accounts receivable denominated in foreign currencies. Ruby wants to mitigate its exchange risk and will likely use which of the following instruments to hedge its exposure? Forward contract to sell the foreign currency at a specific rate. Forward contract to buy the foreign currency at a specific rate. Futures contract to sell the foreign currency at a specific rate. Futures contract to buy the foreign currency at a specific rate.
!. forward contracts are used for relativce large transaction amts. A forward contract to sell a foreign currency at a specific price will hedge the risk that the currency collected in satisfaction of a receivable may have weakened in relation to the dollar at the settlement date. Forward contracts tend to be used for larger groups of transactions (such as a large volume of accounts receivable), while futures contracts hedge a specific transaction.
formula for effective annual interest rate
(1+ (stated rate /interest period))^2 the effective annual interest rate is equal to one plus the stated interest rate divided by the interest periods raised the power of the compounding periods. For semi-annual interest, divide the stated interest rate expression by 2 and square it. Subtract 1 and arrive at the effective annual rate
Control Activities
-Select and delope CA- mitigate risks - tech controls -policies, procedures, and rules that provide reasonable assurance that control objectives are met and risk responses are carried out
Expansionary monetary policy affects the economy through the following chain of events:
1- in increase in money supply 2- increase in money casues IR to fall 3)decrease in IR causes inccreases in desired investment and consumption 4( that then cause an increase in aggregate demand, and 5 causing real GDP and the price level to rise.
NI is higher using AC or VS when;? When production exceeds sales when sales exceeds production
1-absorb 2-variable As inventory increases, net income under absorption costing benefits from fixed manufacturing overhead that is recorded in inventory instead of recognition in cost of goods sold. Variable costing, however, bears the full cost of all fixed costs. Variable costing is less than absorption costing when inventory increased. Conversely, when sales exceeds production, inventory fall. As inventory falls, net income under absorption costing is reduced by cost of goods sold that includes fixed manufacturing overhead from prior periods that had been recorded in inventory. Absorption costing net income is less than variable costing net income.
CPI formula
100 x (cost of basket in current year/cost of basket in base year)
All of the following are considered operating/financial budgets, except the:? Sales budget. Production budget Cash budget. Capital budget
4 is correct Operating budgets describe the plan for revenue and expenses and the supporting schedules that go with them. sales material labor overhead production purchases and cash needed to purchase capital budgets plan for the purchase of capital assets, which will only affect the operating budget through their subsequent effect on expense via depreciation.
The system of user identification and authentication that prevents unauthorized users from gaining access to network resources is called a: e Network server. Network force field. Login ID and encryption. Firewall.
A firewall is a system of user id and authenticationprevents users from gaining acessess to network resources. A login ID is used to identify a user and a password authenticates that user. Encryption is used to protect data in transmission and in storage.
flexible budget
A flexible budget uses budgeted revenue and costs per unit, but it is adjusted based on actual units of output. A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.
Following are selected tasks from the job description of a staff accountant at Purft, Inc.: • Endorsement, coding, and recording of checks received for deposit Reconciliation of the accounts receivable sub-ledger to the general ledger Reconciliation of the accounts payable sub-ledger to the general ledger Reconciliation of investment and borrowing sub-ledgers to the general ledger Mailing of checks to vendors Recording of fixed asset transactions, including updates to the asset master file You have been asked to prepare a memorandum discussing the internal control issues relating to the selected tasks from the job description:
ARC Authorixzation or approval of transaction Recording/reporting related transactions custody of asets 1.he endorsement, coding, and recording of checks received for deposit- should not be combined with accounts recivable sub ledger recons becazsue opp for misapplication too incoorect accounts increases as one person hadnles the custody (coding) and record keeping of this end of rev cycle. In addition, the custody of accounts payable checks mailed to vendors should not be combined with the record-keeping function associated with reconciliation of accounts payable and various asset (fixed asset and investment) subsidiaries. Falsified transactions could go undetected for significant periods if checks are handled inappropriately and no adjustment is made to the underlying accounting record
An accounting information system AIS is distingusiehed from management information system MIS ......by the fact that
An accounting information system is a subsystem within a management information system.
Steering Committee
An executive-level committee to plan and oversee the information systems function.
Consider the market for sport utility vehicles. Suppose there is a large increase in the price of gasoline as well as an increase in the price of steel (an input in the production of sports utility vehicles). What is the predicted effect of these events on the equilibrium quantity and price of sport utility vehicles? o o o Equilibrium quantity will fall and equilibrium price will rise. Equilibrium quantity will rise and equilibrium price will fall. Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same. Equilibrium quantity may rise, fall, or stay the same and equilibrium price will rise.
As a result, a large increase in the price of gasoline would cause the demand curve for sport utility vehicles to shift left, leading to a decrease in both the quantity and price of sport utility vehicles. Steel is an input in the production of sport utility vehicles. An increase in input costs would cause the supply curve for sport utility vehicles to shift left, leading to a decrease in quantity and an increase in price. Both events cause equilibrium quantity to fall. However, the two events have an ambiguous effect on price. answer 3 is correct
Dolly Corporation has identified critical success factors and strategic goals that specifically relate to each dimension of its operations. The company has also determined measures that quantify the achievement of the strategic goals that it will capture and report monthly. This form of regular reporting and evaluation of performance is referred to as:
Balanced scorcard A balanced scorecard normally classifies activities of an organization into major headings and identifies the critical success factors and related strategic goals whose achievement will ensure meeting the requirements of those factors. Typically, there are both financial and non-financial measures that are evaluated regularly in a format that shows the dimensions of the business. The dimensions of the business are frequently human capital, customer service, internal business processes, and finance.
Which of the following inputs would be most beneficial to consider when management is developing the capital budget? Supply/demand for the company's products Current product sales prices and costs. Wage trends. Profit center equipment requests
Capital budgets are used for major capital, or investment, expenditures such as equipment. developing its capital budget, management would find the employee input associated with equipment requests from various profit centers most helpful. Departmental requests, appropriately justified, would provide key insights into the capital requirements of the business that are not otherwise known.
On June 30, Year 1 , a company is preparing the cash budget for the third quarter The collection pattern for credit sales has been 60% in the month of sale, 30% in the first month after sale, and the rest in the second month after sales Uncollectible accounts are negligible There are cash sales each month equal to 25% of total sales The total sales for the quarter are estimated as follows: July, $30,000; August, S15i000; September, S35i000 Accounts receivable on June 30, Year 1 were SIO,OOC What amount would be the projected cash collections for September? $30, 125 $37,250 $28,500 $21,375
Choice "1" is correct. Cash collections for the month of September are computed as follows using the fact pattern described above.
The use of standard costs in the budgeting process signifies that an organization has most likely implemented a. Flexible budget. Strategic budget. Static budget. Zero-based budget
Choice "1" is correct. Standard costs usually means that a flexible budget is being used. Standard costs per unit can be used to adjust the flexible budget to the actual volume. Choice "2" is incorrect. A strategic budget is long-term and does not use standard costs. Choice "3" is incorrect. Static budgets are the opposite of flexible budgets. Standard costs per unit would not be required, since a static budget addresses costs at one specific volume. Choice "4" is incorrect. A zero-based budget starts at zero. Everything must be justified.
Government economists are concerned with "full employment." Which of the following best defines the term "full employment"? e The level of employment when there is no cyclical unemployment. The level of employment when there is no normal unemployment. T he level of employment when everyone in the labor force is employed. The level of employment when cyclical unemployment equals normal unemployment.
Choice "1" is correct. The level of employment when there is no cyclical unemployment is the definition of "full employment." Cyclical unemployment occurs because of economic cycles (expansion and contraction).
Nadaf Exports trades exclusively in luxury Persian rugs that are shipped from the Middle East and sold throughout Europe and North America The company is trying to mitigate the transaction risks associated with settling transactions in United States dollars, Canadian dollars, and euros Nadaf Exports would likely use any of the following transaction risk mitigation techniques except? Entering into forward hedge contracts. Strategically adjusting the sales mix between North America and Europe based upon the exchange rate. Entering into futures hedge contracts Entering into currency option hedge contracts.
Choice "2" is correct. Increasing or reducing sales in foreign markets represents a restructuring technique normally associated with mitigation of economic risk. Choice "1" is incorrect. A forward hedge is an appropriate and likely technique to mitigate transaction risk. Choice "3" is incorrect. A futures hedge is an appropriate and likely technique to mitigate transaction risk. Choice "4" is incorrect. A currency option hedge is an appropriate and likely technique to mitigate transaction risk.
Evermore Corporation is computing its cost of using retained earnings for long-term financing under the CAPM model. The risk- free rate of return is 2%, and the market rate of return is 9%. Evermore's stock fluctuated 3% at the same time the market fluctuated 5%. The cost of retained earnings computed using the CAPM is:
Choice "2" is correct. The CAPM is used to compute the cost of retained earnings (kre) using the following formula: kre = Risk-free rate + Risk premium kre = krf +[beta × (km − krf)] krf = the risk-free rate of return beta = a measure of volatility equal to the change in market values to individual stock value km = the market rate of return required for investments of similar risk The facts of the problem, placed in the formula in columnar format, are as follows: Risk-free rate of return=2.00% Risk premium= Change in stock value 3.00% ÷ Change in market 5.00% Beta= .6 Market rate 9.00% Less Risk-free rate (2.00%) Rate differential × 7.00% Risk premium 4.2% Total cost of retained earnings (CAPM) 6.2% Choices "4", "3", and "1" are incorrect, per the above calculations.
The materials manager of a warehouse is given a new product line to manage with new inventory control procedures. Which of the following sequences of the COSO internal control monitoring-for-change continuum is affected by the new product line? -Control baseline but not change management. -both control baseline and change management --change management but not control baseline. -Neither control baseline nor change management.
Choice "2" is correct. The COSO identifies four stages of the change continuum beginning with control baseline, followed by change identification, change management, and then control validation/update. The control baseline is the starting point at which management can understand the design of the internal control system and whether controls have been put in place to accomplish the organization's internal control objectives. Change management occurs as needed adjustments to the internal control system are implemented. Because a new product line is now under the purview of the manager, this will affect not only the baseline but also the change management sequence.
Initially the nominal interest rate is 8 percent and the inflation rate is 6 percent. One year later, the nominal interest rate rises to 12 percent while the inflation rate rises to 10 percent It follows that the real rate of interest: Insufficient information given for an answer. Has remained the same. Has fallen Has risen.
Choice "2" is correct. The real interest rate equals the nominal interest rate minus the inflation rate. Thus, the real interest rate in the first year is: real interest rate = 8% − 6% = 2% and the real interest rate in the next year is: real interest rate = 12% − 10% = 2%.
A company obtained a short term bank loan of $500,000 at an annual interest rate of eight percent. As a condition of the loam the company is required to maintain a compensating balance of $100,000 in its checking account The checking account earns interest at an annual rate of three percent. Ordinarily, the company maintains a balance of $50,000 in its account for transaction purposes. What is the effective interest rate of the loan? 7.77% 8.56% 9.44% 8.50%
Choice "2" is correct. To calculate the effective annualized percentage cost of financing: Step 1 Calculate the actual finance charge: Actual interest (P × Rate × Time) Step 2 Subtract any interest earned (if any) on additional required compensating balance: $50,000 × .03 = $1,500 Net interest cost = 40,000 − 1,500 = $38,500 Step 3 Divide the difference (net interest) by the loan proceeds the company has use of: Additional compensating $500,000 − balance above normal balance = $450,000 38,500 ÷ 450,000 = 8.555% = 8.56% (Periodic Rates) Choices "1", "4", and "3" are incorrect, per the computations above.
In order to increase production capacity, Gunning Industries is considering replacing an existing production machine with a new technologically improved machine effective January 1 The following information is being considered by Gunning Industries -The new machine would be purchased for S160,000 in cash. Shipping, installation, and testing would cost an additional S30,ooo_ -The new machine is expected to increase annual sales by 20,000 units at a sales price of $40 per unit. -Incremental operating costs are comprised of S30 per unit in variable costs and total fixed costs of $40,000 per year. -The investment in the new machine will require an immediate increase in working capital of S35,000 -Gunning uses straight-line depreciation for financial reporting and tax reporting purposes - The new machine has an estimated useful life of five years and zero salvage value. -Gunning is subject to a 40 percent corporate income tax rate. Gunning Industries' net cash outflow in a capital budgeting decision would be- $195,000 $190,000 $225,000 $204,525
Choice "3" is correct ($225,000). Purchase price of new machine 160,000 Shipping, installation and testing cost 30,000 Required increase in working capital 35,000 Total 225,000
According to COSO, which of the following differences relevant to the risk-assessment process is most likely to exist between a large entity and a small entity? An owner-manager of a small entity will not normally learn about risks arising from external factors through direct contact with customers, suppliers, and other outsiders, whereas in large entities this process is part of the entity's primary way of identifying new risk The risk-assessment process in a small entity is more structured than in a large one because of the nature of some of the internal control components in a small entity The CEO of a small entity is more likely than the CEO of a large entity to be attuned to risks arising from internal factors through hands-on involvement with all levels of personnel. Risk assessment in a small entity, as opposed to that in a large entity, can be problematic to implement because the in depth involvement of the CEO and other key managers is a conflict of interest that must be addressed separately in the internal control assessment process
Choice "3" is correct. A CEO is much more likely to be familiar with individual people and processes within a small entity. Along with that familiarity will be an understanding of risks associated with internal factors. Larger entities are challenging to manage because a CEO is more likely to primarily work with direct reports (CFO, CIO, etc.) rather than working hands-on with all personnel, simply because of the scope of the operation.
Which of the following internal control procedures would prevent an employee from being paid an inappropriate hourly wage? Having the supervisor of the data entry clerk verify that each employee's hours worked are correctly entered into the system _ Using real-time posting of payroll so there can be no after-the-fact data manipulation of the payroll register Limiting access to employee master files to authorized employees in the personnel department. Giving payroll data entry clerks the ability to change any suspicious hourly pay rates to a reasonable rate.
Choice "3" is correct. Limiting access to employee master files to authorized employees in the personnel department will minimize the entry of and thus the processing with an inappropriate hourly wage (rate). Master files should be under the control of a data librarian so that only authorized personnel have access to those files.
Eco Corporation wants to use the Economic Order Quantity to determine its optimal inventory order amount. To compute this measure, Eco will need to know each of the following, except: e Cost per purchase order. Carrying cost per unit. Annual sales revenue. Insurance costs.
Choice "3" is correct. To compute the economic order quantity, take the square root of two times the annual sales (in units) times the cost per purchase order divided by the carrying cost per unit (an amount that frequently includes insurance costs). There is no need to know the annual sales revenue. Choice "1" is incorrect. Cost per purchase order is a required element of the economic order quantity formula. Choice "2" is incorrect. Carrying cost per unit is a required element of the economic order quantity formula. Choice "4" is incorrect. Insurance costs are normally a component of the carrying cost per unit and is a required element of the economic order quantity formula.
Which one of the following is an example of just-in-time being used for competitive advantage? Big Deal Car Manufacturer increases the number of its suppliers to be less dependent on just a few AJAX Cement Company has built a new, huge warehouse to store inventory Acme Company tells its maintenance department to intervene only if a machine breaks down BAC Company has decreased the number of job classifications to just a few
Choice "4" is correct. A benefit of just-in-time is a more efficient use of employees with multiple skills. Choice "2" is incorrect. Just-in-time considers inventory to be wasteful. Inventory space would likely be reduced, not expanded.
Due to a recession, the federal government wishes to stimulate the economy Which of the following actions would be most appropriate in this situation? -Increase government spending and decrease the discount rate. -Decrease both the discount rate and required reserve ratio. -Decrease government spending and increase consumer taxes -Decrease consumer taxes and increase government spendinJ
Choice "4" is correct. A decrease in consumer taxes increases the disposable income of consumers, shifting the aggregate demand curve to the right causing national output to rise. An increase in government spending also shifts the aggregate demand curve to the right, causing national output to rise. Choice "1" is incorrect. The Federal Reserve sets the discount rate, which is monetary policy rather than fiscal policy. Choice "2" is incorrect. The Federal Reserve sets both the discount rate and required reserve ratio. These are examples of monetary policies. Choice "3" is incorrect. Both of these actions shift the aggregate demand curve to the left, causing national output to fall.
A recession can be caused by: An increase in aggregate demand. A decrease in aggregate supply. A decrease in aggregate demand. Both a decrease in aggregate supply and a decrease in aggregate demand.
Choice "4" is correct. Both a decrease in aggregate supply and a decrease in aggregate demand can cause a recession. A recession is defined as a period of falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a decrease in aggregate supply.
Suppose real GDP is rising while the overall price level is falling This scenario results in: A leftward shift in the aggregate supply curve. A rightward shift in the aggregate supply curve. A leftward shift in the aggregate demand curve. A rightward shift in the aggregate demand curve.
DRAW graph x axis is price level y axis is real gdp Choice "2" is correct. If the aggregate supply curve shifts to the right, real GDP would increase and the price level would fall.
According to international; law, what is dumping?
Dumpin g occurs when the price charged for on exported goods is less then either the price charged in the domestic market or less then production costs For Alpha, the price to foreign customers is $59, which is less than the production cost of $60. So even though domestic customers are only paying $56, the fact that the foreign price of $59 is less than the production cost of $60 qualifies this as dumping.
An increase in the money supply leads to: A decline in interest rates, a decrease in investment and an increase in aggregate demand. A decline in interest rates, an increase in investment and an increase in aggregate demand. An increase in the money supply has no effect on interest rates or investment. An increase in interest rates, a decrease in investment and a decrease in aggregate demand.
Expnasionary monitary policy reseluts when fed increases the money supply Expansionary monetary policy affects the economy through the following chain of events:
monetary policy
Federal reserve policy that attempts to manage the economy by controlling the money supply and thus interest rates. It thus effects demand and output
Overhead Volume Variance
Fixed overhead costs are typically applied using a rate derived from budgeted fixed overhead costs and expected volume (the cost driver). When the actual volume produced differs from the amount used to calculate the fixed overhead application rate, there will be a variance. .A favorable variance occurs when the volume is higher than anticipated, which implies that more units were produced using the same amount of fixed resources. An unfavorable variance occurs when the volume is lower than anticipated, as fewer units were produced using a fixed amount of resources.
fiscal policy What does it affect
Government policy that attempts to manage the economy by controlling taxing and spending. DEmand, total output
Variable cost method
In using the variable cost method, only direct variable costs are assigned to products. Fixed overhead is expensed in the period, rather than being assigned to goods sold and inventory held. fixed overhead included in operating income
What is closed loop verification
It is a control that allows data entry personnel to check the accuracy of input data. This may be used instead of a redundant data check.
Jack, the owner of Ingunbury Products, with retail stores scattered throughout the country, seeks your advice on ways he might improve cash inflows to his company. In particular, he wants to know how a lockbox system and concentration banking work. As a senior accountant, draft a memo to Jack explaining the difference between a lockbox system and concentration banking and the benefits of each option.
Lock box -- -remit payments directly to bank instead of sending pmts to your accounts rec (a/r) dept -when remts recived by bank the bank immediately credits your account and send a report to a/r so ar can apply pmts to customer balances -Main benefit is cash is more readily avialbe and larger cash balances can be invested in interest bearing accts Concentration Bankling--- --alows each of your stores to deposit cash balance to local bank which are consolidated into a single account --cash is more readily avialbe and larger cash balances can be invested in interest bearing accts - compensating balances!!! . In addition, if Ingunbury is required to maintain compensating balances in order to avoid bank fees, concentration banking would meet that goal.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of the internal control integrated framework addresses an entity's timely reporting of identified internal control deficiencies?
Monitoring SOD Seperate and Ongoing evals on control effectivness D- Deficiencies- Communicate IC deficiencies in timely manner for corrective action
transfer pricing
Multidivisional and multinational firms use transfer pricing for coordination of divisional objectives, allocating internal resources, and maximizing after-tax profits, among other goals. Interdependencies of profit centers make the method and application of transfer pricing an important subject. Currently, most companies set transfer prices primarily to minimize overall corporate taxes. This approach ignores other important areas: management incentives among various divisions, allocation of production capacities, and guidance for future capital investment. It's legal to maintain two sets of transfer prices. Most people think of transfer pricing as a tax optimization issue, yet transfer prices also are management tools. They have important decision-making functions, valuing intermediate product so that regional managers may maximize the profit of the company as a whole.
info and communication
OIE Obtain and use information Internally communincate externally communicate
COSO 3 Objectives
Operations- Effective and effefeciency of entity operations and safegaurding assets reporting-reliability, timeliness, and accuracy of fs Complains- laws regs
technology risk- 4 types
SOFI
Selling Price Variance
SPV = (Actual selling price per unit - Budgeted selling price per unit) x Actual sold units (actual selling price - budgeted selling price) x actual units sold
SAFR
Specify Objectives (ORC) -Operating, reporting, complaince objectives -ID/analyze risk -assesing potential for fraud -asses changes in ic
5 focus areas of IT governance
Strategic Allignment= planning and communicating with it leaders about costs, reporting, and effects value delivery- ensure certain functions are accelerated when value prop is growing, and eliminating functions when value dec. resource management- org staff more effectivally risk managemnts- insitute formal risk framewokr which defins how it measures, accepts, manages risk. performance measrures- it balnce sore card
Under which of the following circumstances would an Activity-Based Costing system prove to be effective or useful? A Most costs are direct costs B Several product lines that share overheads C A single product D Several product lines, all having different overheads and resources
The correct answer is (B). Activity-Based Costing, or ABC, follows the idea that products consume activities. ABC's purpose is to assign costs to activities performed in an organization and then assign them to products according to each product's use of the activities. Activity-based costing is appropriate for selling, administrative, and general business functions as well as for manufacturing and revenue-producing service processes. ABC assigns costs of activities to products using both volume and non-volume-based cost drivers. It is evident that ABC finds application in situations where the same overheads are shared by several product lines, each acting as a different cost and profit center.
Corbin, Inc. can issue three-month commercial paper with a face value of $1 for $980,000. Transaction costs would be $1 ,200. The effective annualized percentage cost of the financing, based on a 360-day year, would be:
The cost to issue the commercial paper is the $20,000 original issue discount ($1 million − $980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to borrow $980,000 for 3 months. The 3-month quarterly interest cost is 2.16% (21,200 / 980,000). The annual interest cost is 8.65% (2.16% × 4).
diff between vc method and absorb cost method
The difference between variable and absorption costing is the manner in which fixed manufacturing costs are treated. Under variable costing, only variable costs are included in inventory and fixed costs are seubtracted as a period cost) In absorb cost the fixed costs are absorbed as inventory expenses. so ending inventory would create higher income under AC becasue not all fc were expensed absorb costing is GAAP
Clay co has excessive manufaturing capacity . a special job order josts includes moh fc- 21k vc-33k The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?
The minimum acceptable selling price should include only the incremental costs associated with the order: $33,000 variable costs + $7,750 external designers costs = $40,750. Note that this is a special order (won't affect regular sales) and there is idle capacity.
Son-Father-Grandfather Concept
The most recent files is called the son, the second most recent file is called the father, and the preceding file is called the grandfather. The backup process includes reading previous file, recording transactions being processed, and then creating a new updated master file. The periodic transaction files are stored separately. There are always at least 2 backup files that can be used to re-create a destroyed file
Which of the following standard costing variances would be least controllable by a production supervisor? Material usage. Overhead efficiency Labor efficiency. Overhead volume
The overhead volume variance is a function of the budgeted amount of overhead based on standard hours allowed compared with overhead applied, at a predetermined rate, to work-in-process. The production supervisor has little control over established standard and budgeted amounts.
How does inflation distort reported income? A. B. c. e D. Interest expense is not reflective of current borrowing rates. Depreciation is not reflective of current fixed-asset replacement costs. Wages are not reflective of current labor rates. Sales are not reflective of current product prices. Explanation
The price of assets will rise, thus the value of the asset has risen and dep is based on hiostorical cost Choice "B" is correct. Depreciation represents a method of reasonable and rational allocation of the historical cost of fixed assets to benefitting accounting periods. Depreciation is a method of allocation, not valuation. Inflation will cause the consumption of non-monetary assets accounted for as depreciation to be undervalued since the total value used as the basis for depreciation is the asset's historical cost, not an inflation adjusted amount.
Monetary policy •The Federal Reserve's open market operations will result in a (net) purchase of Treasury bills and bonds during the upcoming fiscal year. .What impacts will it have on (AD,MS, Cost of capital, impact on output)
The purchase of Treasury bills and bonds will be an expansionary monetary action expected by the Federal Reserve that should cause a rightward shift in the money supply curve and a corresponding increase for the demand for money. Because interest rates would decline, the firm's (industry) cost of capital would also decrease. Additionally, this expansionary monetary policy should lead to a rightward shift in the demand curve and an increase in future durable goods output.
Monetary policy -The Federal Reserve will lower the discount rate charged to member banks by five basis points for short-term loans. What impacts will it have on (AD,MS, Cost of capital, impact on output)
This expansionary monetary policy (lower discount rates) expected by the Federal Reserve will cause a rightward shift in the money supply curve and a corresponding increase for the demand for money. Because interest rates would decline, the firm's (industry) cost of capital would also decrease. Also, this expansionary monetary policy should lead to a rightward shift in the demand curve and an increase in future durable goods output.
Fiscal policy •There will be a reduction in overall U.S. government spending. What impacts will it have on (AD,MS, Cost of capital, impact on output)
This forecasted contractionary fiscal policy action (reduced government spending) will result in a leftward shift in the aggregate demand curve. This should further lead to a decrease in overall durable goods output for Giant Co. and its industry. There would be no impact on the money supply curve or the cost of capital (demand for money) because this is not a monetary policy action.
Fiscal policy •A slight reduction in consumer and corporate taxes will be implemented due to the expected approval of new tax legislation this year. What impacts will it have on (AD,MS, Cost of capital, impact on output)
This forecasted expansionary fiscal policy action (reduced taxes) will result in a rightward shift in the aggregate demand curve leading to a potential increase in the large appliance output for Giant and its industry competitors. There would be no impact on the money supply curve or the firm's cost of capital.
Bendernet Corporation budgeted production at 6,000 units and charged $42,000 to its factory overhead account. Bendernet applies variable overhead at $3.00 per direct labor hour and assumes that each unit takes one direct labor hour to produce. The company applied $40,000 of its overhead to work-in-process based on 5,000 hours. If the company actually required 5,500 hours to produce 5,000 units, what was the total overhead variance and to what extent did volume variances contribute to or offset that variance: Total overhead variance? Volume variance?
Total overhead variance= Amount of overhead applied- amount actually charged 40K-42K = (2k) under applied Volume variance=The volume variance is the difference between the amount applied and the budgeted fixed overhead plus standard hours allowed applied variable at the budgeted rate. Step 1.- derive rates (variable rate is given at $3)) 40k appplied based on 5000hrs 40k/5k=$8.00 (tatal rate per hour) Fixed rate =8-3= $5 2) budgeted fixed costs = 6000*1hr*5=30k 3)Budget variable costs =3*5000 hrs =15000 4) Budget Total MOH cost = 15k + 30K=45K Volume variance = Applied MOH-Budgeted =$5k-40k=5K Total overhead variance?= (2k) Volume variance?=(5k)
An investor with risk-averse behavior will seek to reduce risk by mixing investments in a portfolio with different or offsetting risks. This technique is most effective to reduce: e Unsystematic risk. Systematic risk. Non-diversifiable risk. Market risk.
Unsytematic risk (akak firm-specific risk or non-mk risk) can be reduced by diversification The terms systematic, market, and non-diversifiable risk are all synonymous and refer to risks that can not be mitigated by investment in different securities.
McLean Inc. is considering the purchase of a new machine that will cost $150,000. The machine has an estimated useful three years. Assume for simplicity that the equipment will be fully depreciated 307 40, and 30 percent in each of the three years, respectively The new machine will have a resale value at the end of its estimated useful life. The machine expected to save the company S85i000 per year in operating expenses. McLean uses a 40 percent estimated income tax and a 16 percent hurdle rate to evaluate capital projects. Discount rates for a 16 percent rate are as follows: Year 1 Year 2 Year 3 Pv 1 .862 .743 .641 PvoA .862 1.605 2.246 What is the net present value of this project? $9,432 $13,278 $15,842 $(35,454)
Year 0Year 1 Year 2 Year 3 Investment (150,000) Depreciation tax shield 18,000 24,000 18,000 Annual savings (after tax) 51,000 51,000 51,000 Salvage (after tax) 6,000 After tax cash flow (150,000) 69,000 75,000 75,000 Discount rate × 1.00 × .862 × .743 × .641 Present value (150,000) 59,478 55,725 48,075 Present value of cash flows 163,278 (59,478 + 55,725 + 48,075) Net present value 13,278
A large organization uses batch processing to process sales transactions. The system sorts sales transactions by customer number and performs edit checks when preparing invoices, processing payment information, recording journal entries, and updating customer account balances. Which of the following reports should be analyzed most frequently to ensure correct customer balances? A Exception reports with control totals. B A cash reconciliation report. C An accounts receivable aging report. D A report on the sales-price master file.
a Control Totals are an input control technique that totals all the key fields in an input record such as total sales value or total amount receivable from customers. These totals are then reconciled with data that is entered into the system. Any variations in these totals are reflected in reports known as exception reports. When viewed in conjunction, exception reports and control totals can immensely help in ensuring that the customer balances reflecting in the system are accurate.
Which of the following structures refers to the collection of data for all vendors in a relational data base? A Record B Field C File D Byte
a file A file in a relational database refers to the collection of data pertinent to a whole group, such as vendors. A record refers to data pertinent to a single transaction or entity, such as a vendor. A field refers to one portion of a record, such as a telephone number. A byte refers to a portion of a character, such as within one digit of a phone number.
Quality programs normally include a number of techniques to find and analyze problems. The technique commonly used to rank and analyze the individual and cumulative causes of defects is called a: e Control chart. Pareto diagram. Fishbone diagram. Value chain analysis.
a pareto --key word rank Pareto diagram represents an individual and cumulative graphical analysis of errors by type. Individual error types are represented on a histogram (bar graph), while the cumulative number of errors is presented on a line graph. The Pareto diagram is used to prioritize process improvement efforts.
inflation risk premium
a premium to compensate for anticipated inflation that is equal to the price change expected to occur over the life of the bond or investment instrument
CPI (Consumer Price Index)
an index of the cost of all goods and services to a typical consumer
Absorption Costing
assigns all 3 factors(direct material, direct labor, and both fixed and variable manufacturing overhead) to inventory Absorption costing (as the name implies) absorbs fixed overhead cost into the units produced. Those units placed in inventory can absorb some of the manager's cost and raise profits. This method encourages larger inventories.
Star Co. is a retail store specializing in contemporary furniture. The following information is taken from Star's June budget: Sales 540k Cost of goods sold 300k Merchandise inventory—June 1 150l Merchandise inventory—June 30 180k Accounts payable for purchases—June 85k Accounts payable for purchases—June 30 75k What amount should Star budget for cash disbursements for June purchases?
cash disbursements represent the actual cash outflows in a given period. In this question, the disbursements will come from two sources: actual purchases for inventory bought in June and cash payouts for purchases on credit from previous months. For the first component, actual purchases for inventory in June is derived by taking cost of goods sold and adding the change in merchandise inventory. $300,000 + $180,000 − $150,000 = $330,000. For the second component, a decrease in accounts payable of $10,000 (from $85,000 to $75,000) implies that the company paid its vendors for amounts owed from credit purchases. $330,000 + $10,000 = $340,000.
Demand for a product tends to be price inelastic if: People spend a large share of their income on the product. The product is considered a luxury item Few good complements for the product are available. f ew good substitutes are available for the product
chhoice "4" is correct. Demand for a product tends to be price inelastic if few good substitutes are available for the product. Even if price increases, consumers are unable to switch to substitute goods, because they don't exist.
As a matter of policy all correspondence to or from regulatory auditors received by the management of the Barclay Corporation is provided to the Barclay Corporation audit committee and the corporation's full board as needed. In assessing entity wide controls; management might conclude: The Board of Directors understands and exercises oversight responsibility related to financial reporting and related internal control. Management's philosophy and operating style support achieving effective internal control over financial reporting The company's organization structure supports effective internal control over financial reporting. Management and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control over financial reporting.
choice "1" is correct. Active engagement by an audit committee in representing the Board of Directors relative to all matters of internal and external audits is evidence of the board's understanding of their oversight responsibility over financial reporting. Choice "3" is incorrect. The organizational structure principle typically involves the appropriate alignment of reporting relationships to ensure that controls are not undermined (e.g., internal auditors should not report to the CFO).
Which of the following pricing policies results in establishment of a price to external customers higher than the competitive price for a given industry? A. B. C. D. Predatory pricing. Collusive pricing. Dual pricing. Transfer pricing.
competition colludes to all rasie prices and recive mutual profitability- Collusive pricing undermines competitive pricing and maintains prices to external customers at levels higher than they would be in a competitive market place Choice "A" is incorrect Predatory pricing strategies typically result in lower prices to external customers than competitive pricing Predatory pricing (below market or even below cost) is undertaken by larger organizations that can absorb losses and deliberately do so in an attempt to drive smaller, less capitalized, competitors from the market place
Change Control
conisders how managment smonitors and authorizes chnages to a variety of information technology matters including software application programs
An increase in the minimum wage: 1-Will move employers down the labor demand curve; causing the quantity of labor demanded to fall. . 2 Is likely to increase the supply of labor, as more people will be willing to work for the higher wage _ only ll. Only L Both I and ll. Neither I nor ll.
is correct; neither statement I nor statement II are correct. Statement I is incorrect, as an increase in the minimum wage will move employers up, not down, the labor demand curve, causing the quantity of labor demanded to fall. Statement II is incorrect, as an increase in the minimum wage leads to a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. It does not increase the supply of labor, only the quantity supplied of labor.
A bond with face value of $10,000 maturing in two years pays annual interest of 6 percent. The market interest rate at the time of issuance is 5 percent. The bond's price at the time if issuance is closest to:
ecause the bond pays a higher coupon rate than market rate, it will be issued at a premium to par. The bond's price can be calculated as follows: Year 1 payment: 600/1.05 = $571.43 Year 2 payment: (600 + 10,000)/(1.05)2 = $9,614.51 Total value: $571.43 + $9,614.51 = $10,185.94
Repatriation restrictions
exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country. These restrictions would affect the cash inflows expected from the investment.
Following is the cost structure gathered for the year: Direct labour: 50,000 Direct materials: 65,000 Manufacturing overheads: 20,000 Selling and distribution expenses: 14,000 Salary to accounts department: 7,000 Beginning work-in-process: 68,000 Ending work-in-process: 47,000 Beginning finished goods: 100,000 Ending finished goods: 110,000 Calculate the cost of goods manufactured. A $167,000 B $156,000 C $115,000 D $136,000
he correct answer is (B). The cost of goods manufactured covers direct labor, direct material, and manufacturing overheads. These are then adjusted for beginning work-in-process less ending work-in-process. In the given scenario, the cost of goods manufactured can be calculated as follows: Beginning work-in-process68,000 Add: Direct Material65,000 Add: Direct Labour50,000 Add: Manufacturing Overheads20,000 Less: Closing work-in-process47,000 Cost of goods manufactured 156,000
An increase in the demand and the supply for a product will cause which of the following? The equilibrium quantity to increase. The equilibrium quantity to remain unchanged. The equilibrium price to remain unchanged The equilibrium quantity to decrease. 11 1 1 &111 11 & 111
he equilibrium quantity will certainly increase, but the effect on price cannot be determined; it may increase, decrease, or remain unchanged.
According to the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, which of the following components of enterprise risk management addresses an entity's operating structure? Governance and culture Review and revision information communication, and reporting Performance
he governance and culture component of the Enterprise Risk Management Integrated Framework includes such foundational principles as: defines desired culture; exercises board oversight; demonstrates commitment to core values; attracts, develops, and retains employees; and establishes operating structure. Supporting principles are summarized in the mnemonic DOVES.
Bendernet Corporation budgeted production at 6,000 units and charged $42,000 to its factory overhead account. Bendernet applies variable overhead at $3.00 per direct labor hour and assumes that each unit takes one direct labor hour to produce. The company applied $40,000 of its overhead to work-in-process based on 5,000 hours. If the company actually required 5,500 hours to produce 5,000 units, what was the total overhead variance and to what extent did volume variances contribute to or offset that variance Total overhead variance ? Volume variance?
he total overhead variance is an unfavorable $2,000 (the overhead account has a $2,000 debit balance). The volume variance contributed a $5,000 unfavorable. Total overhead varianceThe total variance is the extent to which overhead was underapplied. Total overhead charged to the overhead account was $42,000, the amount applied was $40,000, the difference, $2,000, is the total unfavorable overhead variance. Volume varianceThe volume variance is the difference between the amount applied and the budgeted fixed overhead plus standard hours allowed applied variable at the budgeted rate. Derive ratesThe budgeted rates are derived from the $40,000 applied based on 5,000 hours. The total rate is $8.00 per hour ($40,000/5,000). The $3.00 variable rate is given, so the fixed rate must be $5.00. Fixed costs Budgeted fixed costs are the budgeted production of 6,000 units times 1 hour times the $5.00 rate or $30,000. Variable costsVariable overhead based on allowed hours is $3.00 times 5,000 or $15,000. The budget based on standard hours allowed is, therefore, $45,000 ($30,000 fixed plus $15,000 variable). Variance computationThe volume variance is the difference between the $45,000 allowed and the $40,000 actually applied, $5,000 underapplied. Expressed in tabular form, the computation is as follows: Budget @ standard hours allowed: Fixed 5.00 × 6,000 30,000 Variable 3.00 × 5,000 15,000 Overhead applied 45,000 Overhead applied: Fixed 5.00 × 5,000 25,000 Variable 3.00 × 5,000 15,000 0head applied 40,000 Net overapplied (underapplied) volume (5,000) Net overapplied (underapplied) overhead (2,000) Note that the volume variance is entirely comprised of differences between budgeted and applied fixed overhead.
Based on potential sales of 500 units per year, a new product has estimated traceable costs of 990,000 What is the target price to obtain a 15% profit margin on sales? 1 ,935 $2,277 $2,329 1 ,980
hoice "3" is correct. Since a 15% profit is desired, the cost of $990,000 would be 85% of sales. (Remember that profit + cost = sales.) Thus, sales are $1,164,700 ($990,000 ÷ 85%). $1,164,700 ÷ 500 units equals $2,329 per unit. Choice "2" is incorrect. The 15% margin should be based on sales, not on costs.
What is the real interest rate?
nominal interest rate - inflation rate
In using a process cost system, a production report is usually generated that fully accounts for all units and costs. The physical flow of units is fully accounted for by:
production report is normally formatted to prove units at the beginning of the period plus units transferred in are equal to the units transferred out plus ending inventory as follows: SampleProductionReport Units in process, beginning Units transferred in = Total units charged to department Units transferred out Units in process, ending = Total units to be accounted for
A U.S. parent company is reviewing the cash flows from its international subsidiaries. In addition to exchange rate risk, which of the following items would be a primary consideration in the company's cash flow analysis? e Default risk premium. Foreign trade deficit. Repatriation restrictions. American depository receipts.
repatriation restrictions exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country. These restrictions would affect the cash inflows expected from the investment. hoice "1" is incorrect. The default risk premium is the additional return that a lender requires from a borrower to compensate for the risk that the borrower may not be able to make interest or principal payments. This exists in most lending arrangements and is not specific to international transactions. Choice "2" is incorrect. A foreign trade deficit is relevant at a macro level and occurs when imports exceed exports. Choice "4" is incorrect. American depository receipts (ADRs) are securities of non-U.S. companies that trade in U.S. financial markets. Because they trade like regular shares of stock on U.S. exchanges and are denominated in U.S. dollars, they carry lower levels of risk than direct investments in foreign entities.
Consider the market for sport utility vehicles. Suppose there is a large increase in the price of gasoline as well as an increase in the price of steel (an input in the production of sports utility vehicles). What is the predicted effect of these events on the equilibrium quantity and price of sport utility vehicles? e Equilibrium quantity will fall and equilibrium price will rise. Equilibrium quantity will rise and equilibrium price will fall. Equilibrium quantity will fall and equilibrium price may rise, fall, or stay the same. Equilibrium quantity may rise, fall, or stay the same and equilibrium price will rise.
s a result, a large increase in the price of gasoline would cause the demand curve for sport utility vehicles to shift left, leading to a decrease in both the quantity and price of sport utility vehicles. Steel is an input in the production of sport utility vehicles. An increase in input costs would cause the supply curve for sport utility vehicles to shift left, leading to a decrease in quantity and an increase in price. Thus, combined, the two events have an unambiguous effect on the equilibrium quantity of sport utility vehicles. Both events cause equilibrium quantity to fall. However, the two events have an ambiguous effect on price. The first causes price to fall, and the second causes price to rise.
MOnitoring
sod
Electronic Data Interchange (EDI)
the computer-to-computer exchange of business documents from a retailer to a vendor and back. it is not a tool used specifically for collaboration between humans. Preevnt stock out costs
Variable Overhead Spending Variance
the difference between the actual variable overhead and the budgeted variable overhead based on actual hours used to produce the actual output. Budgeted variable overhead (94,000 DL hrs. × $8/hr.) =752,000 Actual variable overhead=740,000 Favorable variance-12,000
full employment
the level of employment reached when there is no cyclical unemployment cyclical=o
natural rate of unemployment
the normal rate of unemployment The rate of unemployment is the sum of frictional , structural , and seasonal unemployment or the rate of employment when the economy is at is potention output level
price elasticity of demand
the percentage change in quantity demanded relative --------------------------------------- the percentage change in price
otherr factor •The overall wealth of the U.S. middle class will experience a modest increase, while lower- and upper-class family wealth will remain virtually unchanged. What impacts will it have on (AD,MS, Cost of capital, impact on output)
this forecasted increase will cause a rightward shift in the demand curve and a potential increase in large appliance (durable goods) output for Giant and the industry. There would be no impact on the money supply curve or the firm's cost of capital.
seasonal unemployment
unemployment caused by seasonal changes in the demand for certain kinds of labor (holidays))
structural unemployment
unemployment that occurs when workers' skills do not match the jobs that are available or unemployed workers dont live weher jobs are located
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves result from decreases in real gdp and periods of recsions
Each of the following is a potential problem for a company that has implemented just-in-time inventory management, except A Weak Supplier relationships. B The actual lead time for material orders could be longer than expected. C Loss of quantity discounts could be more than the cost of handling and purchasing larger lots of inventory. D Increased Overtime Costs
ust-in-Time or JIT is a production strategy based on the philosophy that unused inventory is a waste of resources (i.e., does not add value). It reduces in-process inventories and associated carrying costs, resulting in improved returns. To facilitate JIT, strong relationships with the vendor are required so that both the lead time and quality are adhered to. This results in decreasing the number of suppliers and focusing on only those that can be relied upon. Therefore, JIT would improve supplier relationships as they would be based upon a sustained business with the supplier, meaning weak supplier relationships is not a potential problem for a company that has implemented just-in-time inventory management. Companies adopting a JIT inventory system rely heavily on their suppliers. The approved suppliers need to adhere strictly to the lead times and quality requirements of the buyer. However, both of them are prone to fluctuations and may adversely impact the company. Since JIT stresses placing frequent orders to reduce the on-hand inventory, the units ordered every time are low, leading to a loss of quantity discounts. Such losses may exceed savings of the handling costs. JIT might lead to completing orders within a reduced amount of time where workers will have to work beyond normal hours to fill the order, which will increase overtime costs.
under sox Internbal control must be evaluted...?
within 90 days prio rto the report
