ACCT 5315 Test 1
structural cost drivers
choices about size and scope of resources needed in delivering products (made infrequently)
organizational cost drivers
choices concerning the organization of activities and the involvement of persons
step costs
constant over a narrow range of cost driver activity but increase in steps as activity increases
Step cost: Y = a(i)
constant over a narrow range of cost driver activity but increase in steps as activity increases.
mixed costs
contain fixed and variable cost elements. They increase, but not in direct proportion to increases in activity cost drivers
variable costs
increase in proportion to increases in activity cost drivers
strategic cost management
making decisions concerning specific cost drivers within a business strategy
internal control systems
policies that ensure a company's objectives are met with regard to: 1. efficiency of operations, 2. reliability of financial reports, and 3. compliance with law.
relevant range
portion of the range associated with the fixed cost of the current or expected capacity.
Discretionary fixed costs (managed fixed costs)
set at a fixed amount each period at the discretion of management.
activity cost driver
specific activities performed to serve customer needs
cost driver analysis
study of factors that cause or influence costs
value chain analysis
study of value-producing activities, stretching fro basic raw materials to the final consumer of a product or service.
cost estimation
the determination of the relationship between activity and cost
ethics
the moral quality of a course of action that can injure or benefit people.
cost behavior
the relationship between cost and quantity of cost driver
corporate governance
the system of policies that affect the way a company is directed and controlled
marginal cost
the varying increment in total cost
fixed costs
total costs - variable costs
All of the following are potentially dilutive in computing diluted EPS except: -Employee stock options -Convertible preferred stock -Convertible bonds -Warrants -All of the above are dilutive securities
All of the above are dilutive
The 2013 balance sheet of Microsoft Corp. reports total assets of $142,431 million, operating liabilities of $47,242 million, and total shareholders' equity of $78,944 million. Microsoft 2013 nonoperating liabilities are: -$63,487 million -$16,245 million -$95,189 million -$31,702 million -There is not enough information to calculate the amount.
$16,245 million
Tickets Today contracts with the producer of Riverdance to sell tickets online. Tickets Today charges each customer a fee of $6 per ticket and receives $15 per ticket from the producer. Tickets Today does not take control of the ticket inventory. Average ticket price for the event is $150. How much revenue should Tickets Today recognize for each Riverdance ticket sold? -$6 because the $15 from the producer is similar to a negative cost of goods sold -$150 because the $135 is cost of goods sold paid to the Riverdance producer -$21 because both the fee from the customer and the producer are earned -$156 because the $135 is cost of goods sold paid to the Riverdance producer -None of the above
$21 because both the fee from the customer and the producer are earned
Least-Squares Regression (aka Simple Regression)
*A mathematical technique to fit a cost-estimating equation to observed data. Accomplished with: excel, stat software, advanced calculators and calculations *Minimizes the sum of all squared vertical deviations between individual observations and the cost-estimating line *Superior to the high-low and scatter diagram methods (uses all data pts & does not rely on subjectivity) *Statistical measures are available to determine how well the equation fits the line (R squared)
Relevant Range
*A portion of a range of activity associated with the fixed cost of the current or expected capacity *A normal range of activity in which a company expects to operate, where the fixed costs remain linear, i.e., total cost remains the same
Managerial Acctg - Reporting
*Detail is based on mgmt needs *Reports oriented to future costs and decisions *Reporting periods based on need
Financial Acctg - Reporting
*Highly aggregated, little detail *Reports on historical costs and past decisions *Long reporting periods
Financial Acctg
*Information for internal and external users *Not timely enough for managing daily activities
Managerial Acctg
*Information for internal users *Reports are prepared as needed for making timely decisions
Financial Acctg - External Standards
*Must adhere to external reporting standards *Emphasis on objective data - measured in financial terms
Managerial Acctg - External Standards
*No external standards imposed *Measurement expresses in financial and non-financial terms, such as time and quality
Mattel Inc.'s 2013 financial statements show operating profit before tax of $1,168,103 thousand, net income of $903,944 thousand, provision for income taxes of $195,184 thousand and net nonoperating expense before tax of $68,975 thousand. Assume Mattel's statutory tax rate for 2013 is 37%. Mattel's 2013 tax shield is: -$43,454 thousand -$25,521 thousand -$264,159 thousand -$238,638 thousand -None of the above
-$25,521
Three cost drivers
1. Structural, 2. organizational, 3. activity
IMA's 4 standards of ethical conduct
1. competence 2. confidentiality 3. integrity 4. credibility
3 themes of strategic cost management
1. strategic position analysis 2. cost driver analysis 3. value chain analysis
four basic cost behavior patterns
1. variable, 2. fixed, 3. mixed, 4. step
In fiscal 2013, Snap-On Inc. reported a statutory tax rate of 35.00%, an effective tax rate of 31.68% and a tax rate on net earnings attributable to Snap-On Inc. of 32.30%. Income before income tax for 2013 was $526.2 million. What did Snap-On report as tax expense (on its income statement) in 2013? -$166.7 million -$170.0 million -$136.5 million -$184.7 million -None of the above
166.7 Million
The fiscal year-end 2014 financial statements for Staples, Inc. report revenues of $23,114,263 thousand, net operating profit after tax of $779,262 thousand, net operating assets of $6,752,490 thousand. The fiscal year-end 2013 balance sheet reports net operating assets of $6,920,568 thousand. Staples' 2014 net operating profit margin is: -29.2% -11.5% -3.4% -12.7% -There is not enough information to calculate the ratio.
3.4%
Selected ratios follow for Baker Hughes Inc. for the year ended December 31, 2013 (in millions). RNOA PM NOPM AT FL 5.94% 4.90% 5.59% 0.82 1.57 What is the company's return on equity (ROE) for the year? -7.20% -7.65% -6.31% -3.83%
6.31%
The 2013 financial statements of The New York Times Company reveal average shareholders' equity attributable to controlling interest of $752,618 thousand, net operating profit after tax of $97,898 thousand, net income attributable to The New York Times Company of $65,105 thousand, and average net operating assets of $ 402,427 thousand. The company's return on equity (ROE) for the year is: -8.7% -13.0% -16.2% -24.3% -There is not enough information to calculate the ratio.
8.7%
Which of the following is not one of Porter's five forces that determine a company's competitive intensity? -Supplier power -Threat of substitution -Ability to obtain financing -Threat of entry
Ability to obtain financing
Which of the following are relevant in an analysis of a company's business environment? -Financing -Labor -Buyers -Governance -Correct -All of the above
All of the Above
Which of the following items create risk related to revenue recognition? -Bonuses tied to sales goals -Long-term construction contracts -Multiple element sales contracts -Consignment goods -All of the above
All of the Above
Opportunity Costs
Any benefit forgone as a result of rejecting one alternative in favor of another Always relevant when making decisions among competing alternatives
A mortgage bond differs from a debenture in that mortgage bonds: -Are issued for amounts over $1,000,000 -Are short-term with maturities of less than 270 days -Are secured by property -Are paid back over the term of the loan
Are secured by property
As inventory and property plant and equipment on the balance sheet are consumed, they are reflected -As a revenue on the income statement -As an expense on the income statement -As a use of cash on the statement of cash flows -On the balance sheet because assets are never consumed -Both B and C because the financial statements articulate
As an expense on the income statement
How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160? -It would increase noncash assets by $400 and increase equity by $400 -It would decrease noncash assets by $160 and decrease equity by 160 -It would increase cash by $400 and increase equity by $400 -Both A and B, above happen simultaneously -None of the above
Both A and B, above happen simultaneously
Which of the following items is NOT found on a balance sheet? -Property, plant and equipment -Non-owner Financing -Cost of Goods Sold -Stockholders' Equity -Sales
COGS Sales
Expected credit loss is calculated as: -Chance of default X Long-term Debt -Chance of default X Z-Score -Chance of default X Loss given default. -Chance of default X Market value of Equity
Chance of default X Loss given default.
Variable Costs
Change in total cost in direct proportion to changes in volume
Step Costs
Constant within a narrow range of activity, but shift to a higher level when activity exceeds the range
Mixed Costs
Contain a fixed and variable cost element; sometimes called semi-variable costs
The variable Market Value of Equity divided by Total Liabilities in the Altman Z-Score measures which of the following concepts? -Current level of profitability -Current level of net operating assets -Current level of leverage -Current level of efficiency
Current level of leverage
Which of the following concepts is not captured by one of the variables in Altman's Z-Score? -Current level of profitability -Current level of net operating assets -Current level of liquidity -Current level of efficiency
Current level of net operating assets
The variable EBIT divided by Total Assets in the Altman Z-Score measures which of the following concepts? -Current level of profitability -Current level of net operating assets -Current level of liquidity -Current level of efficiency
Current level of profitability
Disposal Value vs. Salvage Value
DISPOSAL VALUE Amount of cash an old asset can be sold for at the time the new asset is purchased Relevant cash inflow (Obtained only if the replacement alternative is accepted) SALVAGE VALUE Amount of cash an asset will bring at the end of its useful life if held to that time
Fixed Costs
Do not change in response to a change in activity volume
A customer's prepayment for services not yet rendered is initially recorded as unearned revenue (a liability). Then, at the end of the accounting period, the unearned revenue is moved from the balance sheet to the income statement. This is an example of the revenue recognition principle. T or F
False
According to the revenue recognition principle, companies are required to record revenue when cash is received as this provides the most objective evidence for the auditors. T or F
False
Bed Bath and Beyond has a return policy which states that the customer "may return a purchase for a refund, merchandise credit, or exchange to any of our stores nationwide or to our returns processing center". The company can report revenue on the full amount as soon as the merchandise is sold. T or F
False
For an item to be classified as extraordinary, it needs to be both unusual and infrequent. However, there is an exception for material items - for one-time items that are extremely large, firms have the option of classify these items as extraordinary to provide better information to investors. T or F
False
Retained earnings articulate across time which means that last period's retained earnings plus current period net income (or loss) is equal to the current period's retained earnings T or F
False
The statement of cash flows has two main sections: cash flows from operating activities and cash flows from investing activities. T or F
False
Net working capital = Current assets + Current liabilities T or F
False -Net Working Capital = Current assets- current liabilities
Irrelevant Costs
Future costs that DO NOT differ among competing decision alternatives
Relevant Costs
Future costs that differ among competing decision alternatives ONLY RELEVANT COSTS ARE USED IN DECISION MAKING.
Texas Company currently has a current ratio of 0.9. The company decides to borrow $1,000,000 from First Stone Bank for a period of nine months. After the borrowing Texas's current ratio will be: -Greater than 0.9 -0.9 -Less than 0.9 -Unable to determine without more information
Greater than 0.9
An accrual of wages expense would produce what effect on the balance sheet? -Increase liabilities and decrease earned capital -Decrease liabilities and increase earned capital -Increase expenses and increase liabilities -Increase assets and increase liabilities -Decrease assets and decrease liabilities
Increase liabilities and decrease earned capital
Commercial paper is issued with maturities that do not exceed 270 days because: -Companies do not want to pay high interest rates. -It exempts the borrowing from SEC regulation. -Usually the collateral consists of short-term assets -Companies use it to fund working capital needs.
It exempts the borrowing from SEC regulation
Assets are recorded in the balance sheet in order from: -Market Value -Historic Value -Liquidity -Maturity -None of the above
Liquidity
Which of the following groups would likely not be interest in the financial statements of a large public company such as Berkshire Hathaway? -Shareholders -Employees -Competitors -Taxing agencies -None of the above
None of the above
Which of the following are included in current assets? -Prepaid rent -Taxes payable -Common stock -Automobiles -None of the above
Prepaid rent
A letter of credit: -Ensures a company that funds will be available when needed -Is analogous to a credit card that companies can draw on as needed -Is a representation that a company has a high credit rating -Provides a guarantee of payment from the buyer, reducing the credit risk to the seller
Provides a guarantee of payment from the buyer, reducing the credit risk to the seller
A company's net cash flow will equal its net income... -Almost always -Rarely -Occasionally -Only when the company has no investing cash flow for the period -Only when the company has no investing or financing cash flow for the period
Rarely
All of the following ways can diminish accounting quality, except: -Unintentional errors -Deliberate management intervention -Reliable numbers that are predictive -Pro forma disclosures -All of the above can diminish accounting quality
Reliable number that are predicted
Sunk Costs
Result from past decisions that cannot be changed. These costs are NEVER relevant. EX: Sunk costs in decisions to replace a machine: >Cost of old machine >Book value of old machine Also, these costs can cause ethical dilemmas, such as Managers often avoid disposing of old assets (disposing may create a loss on the income statement, making the manager's performance look bad)
Which of the following is included as a components of stockholders equity -Buildings -Retained earnings -Prepaid property taxes -Accounts payable -Dividends
Retained earnings
The Ratio of net income to equity is also known as: -Total net equity ratio -Profit margin -Return on equity -Net income ratio -None of the above
Return on Equity
Many companies have cyclical operating cash needs due to: -Mergers and acquisitions -The seasonality of sales -Delays in customer payments -Refinancing of deb
The seasonality of sales
A company with outstanding in-the money employee stock options will report a diluted EPS that is lower than basic EPS. T or F
True
According to GAAP revenue recognition criteria, in order for revenue to be recognized on the income statement, it must be earned and realized (realizable). T or F
True
Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of maturity T or F
True
Employee severance costs, as part of board-approved restructuring plans, are reported in the income statement even if the actual payment for these costs occurs in subsequent periods. T or F
True
In addition to purchased assets like inventories and equipment, companies also may report on their balance sheets intangible assets such as the value of a brand name. T or F
True
Income tax expense is not recorded at the amount owing to the tax authorities even if this is the most objectively measured amount. T or F
True
R&D expense is treated as an operating expense, not a capital expenditure, unless the R&D assets acquired have an alternative future use. T or F
True
The two factors that enhance the quality of accounting information are reliability and relevance. T or F
True
Under accrual accounting principles, the cost of inventory should be reported as an expense in the income statement when it is sold, regardless of when it was purchased. T or F
True
When a company reports a deferred tax asset it means that the company will receive a tax benefit in the future. T or F
True
High-Low Cost Estimation
Use data from two time periods; a high activity period and a low activity period.
variable cost: Y = bX
Y (Y axis) = total cost, b = variable cost per unit (slop of the cost function), X (X axis) = total activity
Y = a + bx Total Cost Equation
Y = Total Cost Equation a = Total Fixed Cost b = Var Cost per Unit x = # of units
total costs
Y = a + b(X)
fixed cost: Y = a
Y = total cost, a = total fixed costs. The slope is zero because fixed costs do not change with activity
mixed costs: Y = a + bX
Y = total cost, a = total fixed costs. b = variable cost per unit, X = total activity. Contain both fixed and variable costs. They increase but not in relation to increases in activity cost drivers.
enterprise risk management (ERM)
a process, effected by an entity's board of directors and management, applied across the company, managing risk and providing reasonable assurance of achieving objectives.
strategic position analysis
an examination of an organization's basic way of competing to sell products or services
Sarbanes-Oxley Act of 2002 (SOX)
deals with issues pertaining to the relationship
variable costs per unit
difference in total costs/difference in activity
fixed costs
do not respond to changes in activity cost drivers within a period or range.
committed fixed costs (capacity costs)
fixed costs required to maintain current service or production capacity or to fill previous legal commitments.