BUS101 - Module 3 - Week 2 - Accounting and Finance Outcomes

Given sales revenue of $600,000 and break-even sales of $500,000 what is the Margin of Safety?

$100,000

What is the breakeven sales revenue in USD when fixed costs are $80,000 and contribution margin is $30,000?

$110,000

You have a small business selling hand-knit scarves through the internet. You sell each of your scarves for $35. Your variable expenses are as follows for one scarf:ItemAmountYarn/Materials$15Packaging$3Shipping$5What is your contribution margin for selling one scarf?

$12

The Sabian company manufactures cymbals and sells them to colleges for marching bands. This last quarter, Sabian sold $500,000 with variable costs of $200,000 and fixed costs of $150,000. What was Sabian's contribution margin?

$150,000

You have a small internet business selling hand-knit hats. You sell each of your hats for $35. Your variable expenses are as follows for one hat: ItemAmountYarn/Materials$15Packaging$3Shipping$5 What is your contribution margin for selling 15 hats?

$180

The No Doze Cafe coffee shop sells 50 different types of coffee to its patrons. It costs $4 for a cup of coffee. Each day it sells on average 500 cups of coffee. On the weekends it sells closer to 1000 cups of coffee. Here is a breakdown of the shop's expenses per cup of coffee:

$2.00

The No Doze Cafe coffee shop sells 50 different types of coffee to its patrons. It costs $4 for a cup of coffee. Each day it sells on average 500 cups of coffee. On the weekends it sells closer to 1000 cups of coffee. Here is a breakdown of the shop's expenses per cup of coffee: Variable CostsItemAmountCoffee/Water$1.50Paper Cup$0.30Sweetener$0.20 Fixed CostsItemAmountLabor$100/day per employeeStore Space Rent$800/month What is the contribution margin for the shop selling one cup of coffee on an average day?

$2.00

Given sales revenue of $500,000, variable costs of $200,000, and fixed expense of $50,000 what is the Margin of Safety?

$250,000

If the margin of safety is $200,000, fixed expenses are $50,000 and sales revenue is $500,000, what are variable costs?

$250,000

Whether a business calculates break-even in terms of dollars or units, the first step is to calculate the contribution margin or the portion of revenue that can be used to cover fixed costs. Let's say you're an entrepreneur who makes belts out of recycled bicycle tires. If your variable costs per belt are $5 and you sell your belts for $35, what is the contribution margin?

$30

Tom's Hardware has a sales revenue of $150,000 and it's break-even sales are $120,000. Therefore, the margin of safety will be:

$30,000

If ACTII Costumes has a current ratio of 12:1, its liabilities total $40,000, and its cash and accounts receivable total $140,000, how much inventory do they have?

$340000

When 10,000 units are produced and the sales price is $60 per unit, what are the variable costs if the contribution margin is $20?

$400,000

Sales revenue of $110,000 will achieve breakeven when the contribution margin is $30,000 and the fixed costs are:

$80000

Achieving break-even is fine as an initial or interim goal, but most businesses and entrepreneurs would prefer to have a margin of safety. Let's assume your start a pie-making business as a side hustle, generating $21,000 in revenue and incurring of $6,300 in variable costs and $6,000 in fixed costs. What is your margin of safety?

$8700

The contribution margin ratio expresses the contribution margin as a percentage of sales. Using the data from the prior question—$5/belt variable costs and $35/belt sales price—what is the contribution margin ratio?

0.86

How many sections are included in the Sarbanes Oxley (SOX) Act?

11

Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its current (or working capital) ratio?

12: 1

A company's inventory turnover ratio shows the number of times its average inventory is sold during a period, where a higher inventory turnover is generally considered to be better. Pulling a COGS of $5,000 from the income statement and calculating average inventory of $300 based on January 1 and December 31 balance sheet data, what is the inventory turnover?

16.67

The acid-test is another liquidity ratio that is of particular interest to those who are considering a business' request for a short-term loan or credit. Let's say your $2,000 current asset balance includes $200 in cash, $500 in accounts receivable (net), $300 in a money market account, $700 in supplies and $300 in prepaid insurance. Your current liabilities are $500. What is your current ratio?

2:1

Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its quick ratio?

3.5: 1

Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its quick ratio?

3.5:1

The Golden Braid Bookstore currently has $340,000 in cash, $280,000 in inventory, and $40,000 in accounts receivable. The company also has $65,000 in accounts payable, and $15,000 in other current liabilities. What is its quick ratio?

4.75:1

Parker Lane Cafe currently has $160,000 in cash, $380,000 in inventory, and $40,000 in accounts receivable. The company also has $40,000 in accounts payable, and $10,000 in other current liabilities. What is its quick ratio?

4: 1

The current ratio is a liquidity ratio that serves as an indicator of a company's short-term debt-paying ability. Let's assume your belt company's month-end balance sheet lists $2,000 in current assets, $5,000 in total assets, $500 in current liabilities and $1,000 in total liabilities. What is your current ratio?

4:1

Given fixed costs of $100,000 and contribution margin of $20 per unit. How many units are needed to break even?

5000

Lid On It hat shop had $1.55 million in annual sales. During the same period its cost of goods sold was $620,000 and held average inventory of $100,000. What is the inventory turnover?

6.2

Extotech has sales of $50 million, cost of goods sold for the same period of $15 million, and average inventory of $250,000. What is Exotech's inventory turnover?

60

The Golden Braid Bookstore currently has $340,000 in cash, $280,000 in inventory, and $40,000 in accounts receivable. The company also has $65,000 in accounts payable, and $15,000 in other current liabilities. What is its current (or working capital) ratio?

8.25 :1

In order to manage costs effectively (and to calculate the break-even point), a business owner or manager needs to be able to distinguish between fixed and variable costs. Which of the following statements accurately illustrates a fixed or variable cost?

A bakery would consider the cost of flour, yeast, sugar, and other ingredients a variable cost.

Each financial statement has a specific use and financial components. Which of the following best describes the use and financial information included on a balance sheet?

A balance sheet is a point in time reflection of assets, liabilities, and owner's equity used to assess the profitability of a business

Financial accounting information is used by both internal and external audiences. Which of the following best describes external users and use?

A bank officer considering a business loan application

Which of the following best describes the use and financial information included on a statement of cash flows?

A statement of cash flows reports the change in revenue and expenses over a period of time and is considered an indication of owner/manager expertise

Which of the following best describes the use and financial information included on a statement of owner's equity?

A statement of owner's equity reports the change in retained earnings between two dates and reflects the net change in the owner's investment (equity value) in the business

The voluntary organization that provides standards for auditor independence, and integrity and objectivity in the accounting profession is:

AICPA.

Define accounting, and explain its role as a form of business communication

Accounting in Business In short, accounting is the language of business—all business. Accounting represents all of the financial transactions of a business in a format that can be interpreted and understood by both internal and external stakeholders.

Which of the following best describes the use and financial information included on a income statement?

An income statement reports a business's revenue and expenses over a period of time and reflects the profitability of the business.

Which report from The KSY Manufacturing Company will have the necessary information to calculate its Current Ratio?

Balance Sheet

Calculate the break-even point, where profit will be equal to $0, using information from financial statements

Break-Even Point Businesses, both large and small, are concerned with determining the point at which their revenues exceed their expenses and they begin to make a profit. The point at which revenue equals expenses (and profit is therefore $0) is called the break-even point.

When income is equal to expenses, a business is at:

Break-even.

When a business owner states that he or she is operating at a break-even point, we know that:

Business revenues are equal to total costs, including fixed and variable costs.

According to GAAP, businesses are required to prepare four financial statements. Which of the following statements accurately summarizes the required statements and the relationship between the statements?

Businesses are required to prepare an income statement, balance sheet, statement of cash flows, and statement of owner's equity, in that order, since the calculations for one are inputs for the next.

Break-even determines the point when ________ covers fixed expenses.

Contribution Margin

Employees of a firm who perform managerial accounting functions are often referred to as:

Cost Accountants

________ perform managerial accounting functions.

Cost Accountants

Which of the following best describes users and uses of managerial accounting information?

Department managers developing their budgets and business plans for the next year

Discuss the importance of ethical practices in accounting and the implications of unethical behavior

Ethical Practices in Accounting Certified public accountants (CPAs) and certified management accountants (CMAs) are bound to the Code of Ethics established by their licensing bodies. Generally accepted accounting principles (GAAP) and the Financial Accounting Standards Board (FASB) have established practices designed to ensure that the financial status of a company is "fairly and accurately" presented. Legislation such as the Sarbanes-Oxley Act has been passed by Congress to strengthen the emphasis on ethical practices in accountancy. Although stories of unethical conduct by companies such as Enron, WorldCom, and HP have made headlines, the overwhelming majority of individuals working as internal or external accountants follow the code of ethics and work hard to ensure that the information provided to stakeholders is fair and accurate.

Information needed by external entities in order to evaluate business performance is provided by:

Financial Accountants

Use financial statements to calculate basic financial ratios to measure the profitability and health of a business

Financial Ratios Financial ratios allow business to represent the relationships between components of their financial operations as ratios. Financial ratios are used to measure a firm's financial health in four areas: liquidity, long-term solvency, profitability tests, and the market. These ratios can be used to compare the company's performance across periods (months, quarters, years) or to similar companies within the same industry.

Accounting is referred to as the language of business. In reality, accounting information is communicated in multiple languages, including:

Financial, managerial, and tax.

Which department at Walmart will not use accounting as a form of business communication:

Fitting Room

The formula for calculating the break-even point is:

Fixed costs divided by the contribution margin per unit

The four accounting statements required by GAAP are prepared in a certain order. What is the order?

Income Statement, Statement of Owner's Equity, Balance Sheet, Statement of Cash Flows.

Which of these financial statements explains the changes in a business during a period of time?

Income statement, statement of owner's equity

A business producing packaged food products would have the following variable costs:

Ingredients

Details for account balances found on one of the four accounting statements may be found on another of the four statements. This is known as:

Inter-Connectivity.

Persons outside the company use its financial information for which of the following decisions?

Invest in the business

Which of the following statements are true about the contribution margin ratio?

It shows how much profit a company will make on each dollar of sales.

Identify key financial statements and their components, and explain the primary use of each type of financial statement

Key Financial Statements When businesses present their financial condition to external stakeholders, taxing authorities, investors, and the general public, the most common format for this information is one of four key financial statements. These four statements are the Balance Sheet, Income Statement, Statement of Owners Equity, and Statement of Cash Flows. These four statements, although representing different facets of the company's finances, are all interconnected and create a birds-eye view of the company's financial position.

________ focuses on a range of topics, from production planning to budgets of raw materials.

Managerial accounting

________ provides individuals within an organization with the financial information needed to make good business decisions.

Managerial accounting

Accounting is used to communicate financial information to both internal audiences and external audiences. External users are:

People outside of the business like investors

Accounting is used to communicate financial information to both internal audiences and external audiences. Internal users are:

People within the business like production managers

In a manufacturing operation fixed costs necessary to keep the operation going include:

Rent

Passed by Congress in 2002, the Sarbanes-Oxley Act was designed to address the investing public's lack of trust in corporate America. Which of the following statements best summarizes the impact of SOX on accounting practices?

SOX clarifies and enforces auditor independence and places increased accountibility on a company's senior executives and management

This legislative bill contains 11 sections including more severe penalties for fraudulent financial reporting, and increased requirements for transparency. The bill is:

Sarbanes Oxley (SOX).

The purpose of this legislation is to reduce unethical corporate behavior, protect investors from the possibility of fraudulent accounting activities by corporations, and decrease the likelihood of future corporate scandals. It is the:

Sarbanes-Oxley Act (SOX).

The American Accounting Association refers to accounting as the process of identifying, measuring, and communicating economic information. Accounting is also referred to as:

The Language of Business

A lack of due diligence, "creative" accounting and outright fraud has tarnished the reputation of accounting professionals and eroded the public's trust in corporations. Which of the following might be the most effective in eliminating unethical accounting practices?

The Sarbanes Oxley Act (SOX)

When a business owner is asked how the business is doing and she replies, "We are breaking even" what does this actually mean?

The revenue earned and costs incurred for a period are equal.

Ingredients consumed in the manufacture of packaged food products are considered:

Variable Cost

Employees who come forth with incriminating information are protected in the Sarbanes Oxley (SOX) by which provision?

Whistleblower protections

Unethical practices in financial reporting have cost:

accountants their professional reputation.

The ________ for a given point in time can be calculated using the balance sheet.

accounting equation

The balance sheet shows which type of account?

assets

The accounting equation is:

assets − liabilities = owner's equity

The accounting equation is the foundation for the double-entry accounting system accepted as the most accurate and reliable method of recording a business' financial transactions. The equation is expressed as:

assets-liabilities= owner or shareholder's equity

The ________ provides a snapshot of the company's financial position at a specific point in time.

balance sheet

The accounting equation for a given point in time can be calculated using which financial statement?

balance sheet

The statement of owner's equity provides users of the financial statements with a reconciliation of the company's ________ and ________ equity accounts.

beginning, ending

Accurate reporting is critical to the accounting profession because many important financial and business decisions are based on financial reports. As such, unethical accounting practices can result in:

civil lawsuits.

The formula for contribution margin ratio is:

contribution margin per unit divided by sales price per unit.

Financial ratios allow a business, potential creditor or investor to:

determine the health of a company individually and and relative to similar businesses or alternate investment options

The main purpose of the statement of cash flows is to report on the cash receipts and cash disbursements of an entity:

during an accounting period.

The acid-test (quick) ratio is different from the current ratio in that it:

emphasizes assets that are quickly and reliably turned into cash.

What sort of information is provided by the accounting process?

financial data

Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. At the end of the first quarter (three months of business), Eliza wants to see if she has made a profit so she makes an appointment to meet with her accountant. When she gets to the appointment, her accountant will review which of the following financial statements with Eliza?

income statement

The ________ shows the income and expenses of a company over a period of time.

income statement

The four financial statements a company is required to prepare according to GAAP are:

income statement, balance sheet, statement of cash flows, and statement of owner's equity.

Accounting allows businesses to communicate information about a company's financial performance to the following groups of users:

internal users, external users, and the government

A company's ability to pay its debts is measured by:

liquidity ratio.

In a manufacturing operation a variable cost necessary to produce the finished product includes:

parts.

Financial accountants:

provide information to external entities that allows them to evaluate business performance.

Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. There is an accounting firm located just down the street and Eliza is paying them to do all of her accounting. At the end of the first quarter (three months of business), Eliza has several questions about how things are going. If she wants to understand how much total cash has come into the business this quarter, then she should look at the ________ that her accountant has prepared.

statement of cash flows

Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. There is an accounting firm located just down the street and Eliza is paying them to do all of her accounting. At the end of the first quarter (three months of business), Eliza has several questions about how things are going. If she wants to understand how much money she has put into the business so far, then she should look at the ________ that her accountant has prepared.

statement of owner's equity

The ________ provides users of the financial statements with a reconciliation of the company's beginning and ending equity accounts.

statement of owner's equity

The net income from the income statement will be used in the:

statement of retained earnings (or owner's equity)

Financial accounting is utilized by ________ in order to make investment decisions:

stockholders and creditors

Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. There is an accounting firm located just down the street and Eliza is paying them to do all of her accounting. At the end of the first quarter (three months of business), Eliza has several questions about how things are going. If she wants to understand how much debt the business has right now, then she should look at the ________ that her accountant has prepared.

the balance sheet

The accounting equation represents the relationship between assets, liabilities, and:

the owner's equity of a business

Although a business has had record sales it is having a hard time paying the bills each month. As a manager you are uncertain why this is occurring and ask the financial accountant to explain this situation to you. When the accountant comes to your office they will bring which of the following financial statements as supporting documentation?

the statement of cash flows

Which of the following allows a manager to understand why the business has had record sales, yet is having a hard time paying the bills each month:

the statement of cash flows

The cost to taxpayers is estimated at billions of dollars for:

unethical practices in financial reporting.