BEC - Becker

What is the likely effect of a decrease in the money supply on interest rates, real GDP, and overall price level?

A decrease in the money supply leads to an increase in interest rates. As interest rates risk, the cost of capital increases, leading to a decline in investment spending and a shift left in the aggregate demand curve. As the aggregate demand curve shifts left, real GDP and the overall price levels fall. Thus, a decrease in the money supply leads to: 1. An increase in interest rates 2. Decrease in real GDP 3. Decrease in price level

For the purpose of service on the audit committee, what qualifies an individual for classification as a financial expert?

A financial expert qualifies through education, past experience as a public accountant, or past experience as a financial officer for an issuer. Knowledge of the financial expert should include: 1. Understanding of GAAP 2. Experience in preparation or auditing of financial statements for comparable issuers 3. Application of GAAP 4. Experience with internal controls 5. Understanding of audit committee functions

What is the formula for computing the annual percentage rate for quick payment discounts?

(360 / Pay period - Discount Period) X (Discount % / 1- Discount %)

What methods can be used to speed collections?

- Customer screening - Prompt billing - Payment discounts - Expedite deposits - Concentration banking - Factoring accounts receivable

Explain how price multiples are used in valuation and list four price multiple ratios used for stock valuation.

A price multiple represents a ratio of a stock's market price to another measure of fundamental value on a per-share basis. Investors use price multiples to determine the intrinsic value of stock and ultimately to decide whether the stock is undervalued nor not. P/E Ratio Price to Sales Ratio Price to Cash Flow Ratio Price to Book Ratio

What is the formula for after-tax cash flow?

(1 - Tax Rate) x Pre-tax Cash Flows

What is the formula for sales volume variance?

(Actual Sold Units - Budgeted Sold Units) * Standard contribution margin per unit

What are 3 types of disaster recovery?

1. Disaster recovery service 2. Internal disaster recovery 3. Multiple data center backups

List and define the phases of a typical business cycle

1. Expansionary phase 2. Peak 3. Contractionary phase 4. Trough 5. Recovery phase

List 4 primary factors that drive globalization

1. Improvements in transportation 2. Technological advancements 3. Deregulation of international financial markets 4. Organizational/operational options for international business

List the elements of PDCA.

1. Plan 2. Do 3. Check 4. Act

What approaches can management take to select the desired rate of return for a project?

1. Use WACC 2. Assign a target rate for new projects 3. Recommend that the discount rate be related to the risk of the project

How is A/P Turnover and days of payables outstanding calculated?

A/P Turnover = COGS / Average AP Days in Payables = Ending A/P / (COGS/365)

How is A/R Turnover and days sales in accounts receivable calculated?

AR Turnover = Sales (net) / Average AR Days in AR = Ending A/R / (Sales (net) / 365)

Describe BPR and explain how it is different from Business Process Management (BPM)

BPR represents the techniques used by an organization to help rethink how work should be done to significantly improve customer satisfaction and service, reduce operating costs, and enhance competitiveness. BPR seeks radical change, while BPM seeks incremental change.

What are the three principles associated with (existing) control activities component of the COSO Internal Control Integrated Framework?

CAT P 1. Select and develop Control Activities 2. Select and develop Technology controls 3. Deploy through Policies and Procedures

What is the current ratio formula?

Current Ratio = Current Assets / Current Liabilities

What is the times interest earned formula?

EBIT / Interest expense Income before interest and taxes / Interest Expense

How is GDP calculated under the expenditure approach?

GICE Government Purchases + Gross Private Domestic Investment + Personal Consumption Expenditures + Net Exports

SOX includes certain enhanced conflict-of-interest provisions. These provisions include:

Prohibitions on personal loans to executives, with some exceptions.

SOX includes provisions for disclosure of transactions involving management and principal stockholders. These include:

Reporting by persons with ownership of 10% or more. Statements are filed at the time of registration, when a person achieves 10% ownership, and when there has been a change in ownership.

The formula for computing a depreciation tax shield is:

Tax rate * depreciation deduction

The SOX Act includes provisions for audit committee disclosures. Those disclosures include:

The issuer must disclose the existence of a financial expert on the committee or the reasons why the committee does not have a member who is a financial expert.

What is the cost of retained earnings (kre) under bond yield plus risk premium (BYRP)

kre = pre-tax cost of debt + Market Risk Premium

List the financial budgets included in the master budget

- Cash Budget - Pro-Forma Financial Statements

Explain the sections of the cash budget

-Cash Available: Consists of cash balances and cash collections from sales -Cash Disbursements: Cash outlays associated with purchases and operating expenses -Financing: Primarily involves using a line of credit to maintain minimum cash balances

List the primary factors that shift short-run aggregate supply

-Changes in input (resource) prices -Supply Shocks

List the primary factors that shift aggregate demand

-Changes in wealth -Changes in real interest rates -Changes in expectations about future economic outlook -Changes in exchange rates -Changes in governmental spending -Changes in consumer taxes

What methods can be used to delay disbursements?

-Defer payments -Drafts -Line of credit -Zero-balance accounts

List the operating budgets included in the master budget.

-Sales Budget - Production Budget -Direct Materials Budget -Direct Labor Budget -Overhead Budget -COGS budget -SG&A Budget

What are the limitations of ROI?

-short term focus -disincentive to invest

What are the 5 steps in the theory of constraints?

1) identify the bottle neck or binding constraints 2) optimize the use of the constraint 3) subordinate everything else to the constraints 4) evaluate the binding constraints 5) repeat the process

Within the context of enterprise risk management, identify the 5 common risk responses.

1. Accept 2. Avoid 3. Pursue 4. Reduce 5. Share

The SOX act requires certain disclosures in periodic reports. Those disclosures include:

1. All adjusting entries identified by the public accounting firm reporting on the financial statements. 2. The financial statements disclose all material off-balance sheet transactions including operating leases, contingent obligations, and relationships with unconsolidated subsidiaries. 3. Pro forma financial statements shall include all relevant information and shall not include misleading or untrue info.

The SOX act defines the responsibilities of the audit committee of an issuer as including:

1. Appointment of the auditor 2. Compensation of the auditor. 3. Oversight of the auditor. a. Resolve disagreements between management and the auditor b. The auditor reports directly to the audit committee.

List Porter's five external forces that affect the competitive environment and profitability of a firm.

1. Barriers to market entry 2. Market competitiveness 3. Existence of substitutes 4. Bargaining power of the customers 5. Bargaining power of the suppliers

What are the 3 general stages in which capital investment cash flows are recognized?

1. Cash flows at inception of project 2. Operating CF 3. CF From disposal of project

What are the six reasons organizations constantly improve or replace information systems?

1. Change in business needs 2. Technological advancements 3. Improvements in business processes 4. Competitive advantages 5. Productivity gains 6. System age and need for replacement

What are the 3 types of off-site location?

1. Cold Site 2. Warm Site 3. Hot site

List the motivations for developing international business operations

1. Comparative advantage: Creating economic advantage through specializations 2. Imperfect Markets: Work around resource or legal barriers to trade 3. Product cycle: Establishment of foreign subsidiaries to more efficiently capitalize on foreign demand for domestic products

What are the 3 categories of IT strategy?

1. Corporate-Level Strategy: Encompasses new business opportunities, the closing of old business units, and the allocation of resources among departments 2. Business-level strategy: Functions within the broader aims of the corporate strategy. This level of strategy is typically not found in small businesses. 3. Functional-level strategy: involves establishing strategies for marketing, manufacturing, IT and finance

What are the 5 basic competitive strategies, and what do the main components mean?

1. Cost leadership focused on a broad range of buyers 2. Cost leadership focuesd on a narrow range of buyers 3. Differentiation focused on a broad range of buyers 4. Differentaition focused on narrow range of buyers 5. Best Cost Provider Cost Leadership: Lowest overall costs Differentiation: Unique features that create loyalty/value Best Cost: Low cost leader among rivals and unique features

Title VII of the SOX act considers what topics?

1. Criminal penalties for altering documents 2. Statute of limitations for securities fraud 3. Whistle-blower protection 4. Criminal penalties for securities fraud

List the 5 business process management activities.

1. Design 2. Modeling 3. Execution 4. Monitoring 5. Optimization

Title IV of SOX, Enhanced financial Disclosures, includes the following topics:

1. Disclosures in periodic reports 2. Enhanced conflict-of-interest provisions 3. Disclosures of transactions involving management and principal stockholders 4. Management assessment of internal controls 5. Certain exemptions 6. Code of ethics for senior financial officers 7. Disclosure of audit committee financial expert 8. Enhanced review of periodic disclosures by issuers

The SOX Act defines the criteria for the independence of audit committee members for issuers as including the following characteristics:

1. Each member is a board member, but otherwise independent from the issuer. 2. AC members cannot accept any consulting, advisory, or other compensation other than pursuant to their roles on the board. 3. Audit committee members may not be an affiliated person (influence financial decisions) of the issuer or any subsidiary.

List the benefits of process management

1. Efficiency 2. Effectiveness 3. Agility

Identify 3 inherent risks of international business operations

1. Exchange rate fluctuation 2. Operating in foreign economies 3. Political risk

What are three types of backups to perform and recover lost data?

1. Full Backup 2. Incremental Backup: Backs up changes 3. Differential backup: Backs up changes since last full backup

What are the four primary types of business combinations an entity can use to expand its operations?

1. Horizontal Combination: Occurs when companies in the same industry join together 2. Vertical Combination: Involves the combination of companies at different states of the production process 3. Circular combination: Occurs when different business units with relatively remote connections come together under single management 4. Diagonal Combination: Occurs when a company that engages in an activity integrates with another company that provides ancillary support for that primary company.

What are the 3 categories of IT risk

1. IT Benefit / Value enablement Risk: Missed opportunities to use technology to improve business processes 2. IT program and project delivery risk: Contribution of IT to new or improved business solutions 3. IT operations and service delivery risk: All aspects of performance of IT systems and services

What are the six steps in the IT risk assessment process?

1. Identify threats 2. Evaluate the probability that the threat will occur 3. Evaluate the exposure in terms of potential loss 4. Identify the controls that could guard against threats 5. Evaluate the costs and benefits of implementing controls 6. Implement controls that are determined to be cost-effective

Changes in equilibrium cause demand and supply curves to shift, and new equilibrium price and quantity result. In general, what effects do the following shifts in demand and supply curves have? 1. Shift right in demand curve 2. Shift left in demand curve 3. Shift right in supply curve 4. Shift left in supply curve

1. Increase in demand, causing an increase in price and quantity 2. Decrease in demand, causing a decrease in price and quantity 3. Increase in supply, causing an increase in price and decrease in quantity 4. Decrease in supply, causing an increase in price and decrease in quantity

What are the 3 types of programmed controls?

1. Input controls 2. Processing controls 3. Output controls

What methods are used by multinational firms to conduct international business?

1. International trade 2. Licensing 3. Franchising 4. Joint ventures 5. Direct foreign investment 6. Global sourcing

What characteristics should a password management policy address?

1. Length: Longer is better. Greater than 7 characters, many standard is 8. 2. Complexity: Passwords should feature three of the following: uppercase, lowercase, numeric, and ASCII characters 3. Age: NSA recommends that passwords are changed every 90 days. Admin passwords more frequently 4. Reuse: NSA recommends that password reuse of the previous 24 passwords be restricted.

SOX includes provisions for management assessment of internal controls. Those provisions include a report showing:

1. Management's assertion that it is responsible for adequate internal control structure. 2. Management's conclusions regarding its assessment of the effectiveness of the internal control structure and procedures for financial reporting 3. The auditors attestation regarding management's assessment of internal control.

What are the primary types of transactions available to an entity to expand its operations?

1. Merger: Two ore more entities combine to form a single corporation 2. Acquisition: Acquisition of one new company by another. Only the acquirer remains after combination. 3. Tender Offer: A company makes an offer directly to shareholders to buy the outstanding shares of another company at a specified price 4. Purchase of Assets: Transaction occurs when a portion of the selling company's assets are purchased by the acquiring company

What are the two principles associated with the monitoring component of the COSO Internal Control Integrated Framework?

1. Ongoing and Separate Evaluations 2. Communication of deficiencies

List the three ways the Federal Reserve could increase the money supply

1. Open Market Operations: Purchase government securities on the open market 2. Changes in the Discount Rate: Lower the discount rage 3. Changes in the reserve ratio: Lower the required reserve ratio

What are the attributes and basic competitive strategies of monopoly?

1. Positive economic profit in the long run 2. A single firm with a unique product 3. Significant barriers to entry 4. The ability of the firm to set output and prices 5. No substitute products 6. Strategies include ignoring market share and focusing on profitability from production levels that maximize profits.

What are the attributes and basic competitive strategies of oligopoly?

1. Positive economic profit in the long run 2. Relatively few firms with differentiated products 3. Fairly significant barriers to entry 4. Strongly interdependent firms 5. Kinked demand curve (firms match price cuts but ignore price increases) 6. Strategic plans focus on enhancing market share and call for the proper amount of advertising and ways to adapt to price and volume changes.

Name the 3 most frequent objectives of an entity's cost accounting system

1. Product Costing (inventory and COGS / manufactured) 2. Efficiency Measurements (comparison to standard) 3. Income determination (profitability)

What are the four types of computer security policies?

1. Program-level policy 2. Program-framework policy 3. Issue-specific policy 4. System-specific policy

Title III of the SOX act, corporate responsibility, includes four topics pertaining to financial reporting. What are they?

1. Public company audit committees 2. Corporate responsibility for financial reports 3. Improper influence on conduct of audits 4. Forfeiture of certain bonuses and profits

The SOX Act requires that an issuer's audit committee establish a complaint procedure that includes:

1. Receipt, retention, and treatment of complaints received by issuers regarding: a. Accounting b. Internal Controls c. Auditing 2. Confidential or anonymous submissions by employees of issuers regarding questionable accounting or auditing matters.

The SOX Act imposes certain financial penalties on officers who are responsible for material misstatements resulting from their misconduct. Penalties include:

1. Refund to the issuer of any bonus or other incentive-based or equity-based compensation during the 12-month period following the first public issuance of the financial document. 2. Refund any profits realized from the sale of securities of the issuer during the 12-month period following the first public issuance of the financial document.

What are the primary types of divestitures an entity can use to dispose of a component or a business activity?

1. Sell-off: Outright sale. 2. Spin-off: Creates a new, independent company by separating a subsidiary business from parent company. 3. Equity Carve-out: When a subsidiary is made public through an IPO, creating a new publicly listed co.

How are technology and an entity's objectives interconnected?

1. Strategic Alignment: Linking business and IT so they work well together 2. Value Delivery: Making sure that the IT department does what is necessary to deliver the benefits promised at the beginning of a project or investment 3. Resource Management: For example, organizing staff more efficiently, by skills rather than by line of business. 4. Risk Management: Instituting a formal risk framework that adds rigor to how IT measures, accepts, and manages risk 5. Performance Measurement: Putting structure around measuring business performance

What are the four general types of risks associated with information technology systems?

1. Strategic risk includes the risk of choosing the inappropriate technology 2. Operating risk includes the risk of doing the right things the wrong way 3. Financial risk includes the risk of having financial resources lost, wasted, or stolen 4. Information risk includes the risk of loss of data integrity, incomplete transactions, or hackers

What are the 6 principles of technology-drive strategy development?

1. Technology is a core input to the development of strategy. 2. Strategy development must be a continual process 3. Innovative, emerging business opportunities must be managed separately and differently from core business. 4. Technology has the power to change long-held business assumptions. 5. Technology must be managed to create innovation in existing businesses and to create new markets and products with emerging technologies. 6. IT should be focused on customer priorities, internal efficiencies, and maximization of advantages of the entity.

What are the 3 common motivations for holding cash?

1. Transaction Motive: concerns having enough cash to meet payments arising from the ordinary course of business 2. Speculative Motive: concerns having enough cash to take advantage of temporary opportunities 3. Precautionary Motive: concerns having enough cash to maintain a safety cushion so that unexpected needs may be met.

Identify three categories of exchange rate risk.

1. Transaction risk (exposure) 2. Economic risk (exposure) 3. Translation risk (exposure)

Supply chain management is concerned with what four characteristics of every sale?

1. What: Goods received should match goods ordered 2. When: Goods received should be delivered by the date promised 3. Where: Goods should be delivered to the location requested 4. How much: The goods should cost the lowest possible

What are the attributes and basic competitive strategies of pure (perfect) competition?

1. Zero economic profit in the long run 2. A large number of suppliers and customers acting independently 3. Very little product differentiation 4. No barriers to entry 5. Firms are price-takers 6. Strategies include maintaining market share and responsiveness of sales price to market conditions

What are the attributes and basic competitive strategies of monopolistic competition?

1. Zero economic profits in the long run 2. Numerous firms with differentiated products 3. Few barriers to entry 4. The ability of firms to exert some influence over the price, but have more control over the quantity produced 5. Significant non-price competition in the market 6. Strategic plans include maintaining the market share but also including a plan for enhanced produce differentiation

What is the definition of an option?

A contract that entitles the owner to buy (call option) or sell (put option) a stock at a given price within a stated period of time.

What are the characteristics of a depression?

A depression is a very severe recession. A depression is characterized by a sustained period of falling real GDP and high rates of unemployment.

Define flexible budget

A flexible budget is a budget that can be adjusted to any activity level; it shows how costs vary with production volume. Budgeted Total Costs = (Variable Cost per unit x activity level) + fixed costs Fixed costs in total are constant over the relevant range of activity level.

How is a futures hedge transactions used to mitigate exchange rate risk on accounts payable or accounts receivable applications?

A futures hedge contract is used to buy a foreign currency at a specific price and time (when the accounts payable is due) in order to mitigate the risk of a weakening domestic currency.

Differentiate between line of credit and letter of credit.

A line of credit is a revolving loan with a bank that is for a defined term and renewable prior to or upon expiration. Letter of credit is a third-party guarantee (usually a bank) of obligations incurred by a company. A letter of credit is a type of external credit enhancement.

Define Electronic Fund Transfer systems

A major form of electronic payment for banking and retailing industries. EFT uses a variety of technologies to transact, process, and verify money transfers and credits between banks, businesses, and consumers. The Federal Reserve wire system is used very frequently in EFT to reduce the time and expense required to process checks and credit transactions

Define a master budget

A master budget documents specific short-term operating performance goals for a period of time, normally one year or less. The plan generally includes an operating (non financial) budget as well as a financial budget.

How does a money market hedge work?

A money market hedge uses international money markets to plan to meet future currency requirements by either investing internationally in a manner that matches investment maturities with settlement of foreign payables, or borrows against foreign receivables in a manner that matches the maturity of borrowings with the collection of receivables.

How is a recession defined?

A period during which real GDP (national output) is falling for at least two consecutive quarters. Recessions are characterized by falling real output (negative real GDP growth) and rising unemployment.

How should management approach a sell or process further decision?

A sell or process further decision is made by comparing the incremental cost and the incremental revenue generated after the split-off point. -If the incremental revenue exceeds the incremental cost, process further.

What is a firewall?

A system, both hardware and software, of user identification and authentication that prevents users from gaining access to network resources.

Define ABC costing

ABC is a costing theory that assumes that resource-consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed. ABC systems often divide costs into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.

Name the types of spoilage and indicate the appropriate accounting treatment

Abnormal: Charge to income of the current period Normal: Increase the cost of the product produced (inventory)

What are access controls?

Access controls limit access to documentation, data files, programs, and computer hardware to authorized personnel. Examples include locks, passwords, user identification codes, assignment of security levels, callbacks on dial-up systems, the setting of file attributes, and the use of firewalls.

Within the context of enterprise risk management, what is the meaning of actual residual risk?

Actual residual risk is the risk remaining after management has taken action.

What are the advantages and disadvantages of long-term financing?

Advantages: - Decreased interest rate risk - Increased capital availability Disadvantages: - Decreased liquidity - Decreased profitability - Increased financing costs

What are the advantages and disadvantages of short-term financing

Advantages: - Increased liquidity - Increased Profitability - Decreased financing costs Disadvantages: - Increased interest rate risk - Decreased capital availability

Define and describe the purpose of ERP

An ERP is a cross-functional enterprise system that integrates and automates the many business processes and systems that must work together in various functions of a business.

How does the principles-based approach support an effective system of internal control under the COSO framework?

An effective system of internal control requires the use of judgement in determining the sufficiency of controls, applying the proper controls, and assessing the effectiveness of the system of internal controls. The principles-based approach of the COSO framework emphasizes the importance of management judgement.

How are investment decisions made using IRR?

An investment should be made when the IRR exceeds the hurdle rate.

What is the equation for the direct materials usage budget?

Beg. Inventory at cost + purchases at cost - ending inventory at cost ------------------------------- DM materials usage (cost of materials used)

What is the equation for the direct labor budget?

Budget production (in units) x Hours required to produce each unit ------------------------ Total Number of hours needed x Hourly Wage ------------------------- Total Wages

Determine the traditional overhead rate

Budgeted MOH / Estimated Cost Driver

Describe the two alternative ways to calculate the volume variance

Budgeted fixed overhead - Applied fixed overhead (Actual production in units - Budgeted production in units) * Per unit standard fixed overhead rate

What is the definition of a business cycle?

Business cycles are defined as the risk and fall of economic activity relative to its long-term growth trend. Business cycles consist of economic fluctuations that vary in duration and severity. Some cycles are quite mild; others are characterized by large increases in unemployment and/or inflation.

Define and describe the purpose of BPR.

Business process re engineering is the analysis and design of business processes and information systems to achieve significant performance improvements. The purpose of BPR is to simplify the system, make it more effective, and improve the entity's quality and service.

The SOX Act assigns the following corporate responsibilities regarding internal controls that must accompany financial reports:

CEO and CFO must certify the following: 1. Officers are responsible for establishing and maintaining internal controls 2. Internal control is designed to ensure that material info is provided to internal and external users. 3. Internal controls have been evaluated within 90 days prior to the report. 4. The officer's conclusions regarding internal control effectiveness as of the evaluation date.

What is the contribution margin ratio formula?

CM Ratio = Contribution Margin / Revenue

What are the components of the Committe of Sponsoring Organizations' (COSO) Internal Control Integrated Framework?

CRIME Control Environment Risk Assessment Information and Communication Monitoring Existing Control Activities

Name the currency option hedge used to mitigate transaction exposure to exchange rate risk for payables. Name the currency option hedge used to mitigate transaction exposure to exchange rate risk for receivables.

Call option: Option to buy a foreign currency (for currency hedge) at a pre-negotiated price; mitigates payable exchange rate risk. Put Option: Option to sell a foreign currency (for currency hedges) at a pre-negotiated price; mitigates receivable exchange rate risk.

What is the cash conversion cycle formula?

Cash conversion cycle = Days in inventory + Days in A/R - Days of payables outstanding

What is the formula for operating cash flow?

Cash flow from operations / Ending current liabilities

What effect do the following forms of government intervention have on market operations? 1. Price ceilings 2. Price floors

Ceilings: A price is established below the equilibrium price, prices are artificially low, and more quantity is demanded the supply is available. Market shortage. Floors: A price is established above the equilibrium price, prices are artificially high, and less quantity is demanded than is available. Market surplus.

Explain the relationship between interest rates and money supply

Changes in the money supply directly affect interest rates through the money market. An increase in the money supply shifts the money supply curve to the right, causing interest rates to fall. A decrease in the money supply shifts the curve to the left and causes interest rates to rise.

What is a decision support system?

Computer-based information systems that provides interactive support for managers during the decision-making process. A DSS is useful for developing information directed toward making particular decisions

Define controllable margin

Controllable margin represents the difference between the contribution margin (Revenue - Variable costs) and controllable fixed costs (those costs managers can impact in less than a year)

Title XI of XOS considers what topics?

Corporate Fraud Accountability: 1. Tampering with a record or impeding an official proceeding 2. Temporary freeze of authority for the SEC 3. Authority of the SEC to prohibit persons from serving as officers or directors 4. Retaliation against informants

Identify four methods for valuing tangible assets (PP&E)

Cost Method: The value of the asset is the original price paid Market Value Method: The value is determined based on replacement cost or Net Realizable Value Appraisal Method: A professional determines the value Liquidation Method: The amount the company would get upon sale in an active market

List and define the types of responsibility segments (or Strategic Business Units - SBU's) that are used to establish business performance measures.

Cost SBU: Managers are held responsible for controlling costs Revenue SBU: Managers are held responsible for generating revenue Profit SBU: Managers are held responsible for producing a target profit Investment SBU: Managers are held responsible for ROI.

What is the disadvantage of disaster recovery and business continuity plans?

Cost and effort required to implement the plan

Define cross elasticity of demand and demonstrate how it is calculated

Cross elasticity of demand (or supply) represents the % change in the quantity demanded (or supplied) of a good due to the price change of another good. % change in number of units X demanded (supplied) / % price change in Y

Define currently attainable standards

Currently attainable standards represent costs that result from work performed by employees with appropriate training and experience but without extraordinary effort.

Explain how discounted cash flow analysis is used in valuation and list several DCF absolute models used.

DCF analysis attempts to determine the intrinsic value of a stock by determining the present value of its expected future cash flows. Once the DCF stock price is determined, it is compared with the stock's market value to determine whether it is undervalued, fairly valued, or overvalued. Dividend Discount Model Free cash flow to the firm Free cash flow to equity Residual Income

Identify the direct Labor variances

DL Rate Variance: (AR-SR) * AH DL Efficiency Variance: (AH-SH) * SR

Identify the direct materials variances

DM Price Variance: (AP-SP) * AQ DM Quantity Variance: (AQ-SQ) * SP

Identify the five principles supporting the governance and culture component of enterprise risk management.

DOVES 1. Defines desired culture 2. Exercises board Oversight 3. Demonstrates commitment to core Values 4. Attracts, develops, and retains capable individuals (Employees) 5. Establishes operating Structure

Distinguish between diversifiable and non-diversifiable risk

DUNS Diversifiable Risk Unsystematic Risk (Nonmarket/firm specific) Nondiversifiable Risk Systematic Risk (Market)

What is the operating cycle formula?

Days in inventory + Days in A/R

Define a debenture and a distinguishing characteristic of a subordinated debenture.

Debenture: Unsecured obligation of issuing company Subordinated debenture: A Bond issue that is unsecured and ranks behind senior creditors in a bankruptcy or liquidation scenario

Why do creditors use debt covenants in lending agreements, and how could this impact the issuer?

Debt covenants are stipulated in lending agreements to protect the creditor's interest by limiting or prohibiting certain actions of the debtors that may be harmful to the creditor's interests. Debt covenants are disadvantageous to the debtor, as they may restrict certain management activities.

What are the causes of demand-pull inflation and cost-push inflation?

Demand Pull: Caused by increases in aggregate demand. Increases in government spending, decreases in taxes, increases in wealth, and increases in money supply. Cost-Push Inflation: Caused by reductions in short-run aggregate supply. Increase in oil prices, increase in nominal wages, etc.

Define demand flow.

Demand flow manages resources using customer demand as the basis for resource allocation. Demand flow contrasts with resource allocations based on sales forecasts or master scheduling.

Distinguish between digital signatures and e-signatures

Digital signatures use asymmetric encryption to create legally binding electronic documents. E-signatures are an alternative mechanism for accomplishing the same objective. It is a cursive style imprint of a person's name that is applied to an electronic document and is also legally binding.

Compare and contrast the direct method and step-down method for allocating service costs in ABC.

Direct Method: each service department's total costs are directly allocated to the production departments without recognizing that the service departments themselves may use the services from other service departments. Step-Down method: a sequential approach is used to allocate service department costs to production departments as well as to other service departments.

What is a disaster recovery and what is the difference between a hot site and a cold site?

Disaster recovery consists of plans for continuing operations in the event of destruction of not only programs and data but also processing capability. A hot site is an off-site location that is equipped to take over a company's data processing. A cold site is an off-site location that has all of the electrical connections and other physical requirements f or data processing but does not have the actual equipment.

Identify functions that should be segregated in an IT department

Duties of systems analyst, computer programmers, and computer operators.

What is e-commerce?

E-Commerce involves electronic consummation of exchange transactions. E-commerce normally implies the use of the internet but a private network can also be used.

What are the five principles associated with the control environment component of the COSO Internal Control Integrated Framework?

EBOCA 1. Commitment to ethics and integrity 2. Board independence and oversight 3. Organizational Structure 4. Commitment to competence 5. Accountability

Define economic value added (EVA). How does EVA differ from residual income

EVA measures the excess of income after taxes earned by an investment over the rate of return defined by the company's WACC. EVA differs from RI in the following ways: - WACC must be used to calculate EVA - The income and investment numbers used to calculate EVA are generally adjusted to produce a more accurate analysis of economic profit

An issuer periodic report containing financial statements filed with the SEC must include the following written certifications:

Each certified financial report must include a written statement: 1. That the periodic report complies with the SEC act of 1934 2. That information in the report fairly presents, in all material respects, the financial condition and operating results of the issuer. 3. Which must be signed by the CEO and CFO of the issuer, who bear responsibility for these statements.

Define elasticity, price elasticity of demand, and price elasticity of supply.

Elasticity: The measure of how sensitive the demand or supply of a product is to a change in price Price Elasticity in Demand: The % change in the quantity demanded divided by the % change in price Price elasticity of supply: the % change in quantity supplied divided by the % change in price

What is encryption?

Encryption involves using a password or a digital key to scramble a readable (plaintext) message into an unreadable (ciphertext message). The intended recipient of the message then uses either the same or another digital key (depending on the encryption method) to convert the ciphertext message back into plaintext.

How is days of payables outstanding calculated?

Ending A/P / (COGS / 365)

How is days in A/R caluclated?

Ending AR (net) / (Sales / 365)

How is days in inventory calculated?

Ending Inventory / (COGS / 365)

How is enterprise risk management defined according to COSO's Enterprise Risk Management - Integrating with Strategy and Performance?

Enterprise risk management is the culture, capabilities and practices, integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving, and realizing value.

How are equivalent units and total cost calculated using FIFO?

Equiv Units = (Beg WIP * % to be completed) + Units started and completed + (Ending WIP * % completed) Total Costs = Costs incurred during current period

How are equivalent units and total cost calculated using weighted average?

Equiv Units = Units completed + transferred out + (Ending WIP * % Completed) Total costs = Costs in beginning WIP + costs incurred during current period

What is the objective of executive information systems?

Executive information systems provide senior executives with immediate and easy access to internal and external information to assist executives in monitoring business conditions. EIS assist in strategic, not daily, decision making.

in Six Sigma, what is DMAIC?

Existing product and business process improvements: 1. Define the problem 2. Measure key aspects of current process 3. Analyze data 4. Improve or optimize current processes 5. Control

What dimensions or categories of business operation are frequently identified by the balanced scorecard?

FICA Finance Internal Business processes Customer Satisfaction Advancement of innovation and HR Development

Explain factoring as a mechanism for speeding cash collections

Factoring involves the sale of A/R to another party in exchange for cash. The selling company will receive upfront cash advance of a % of its receivables and will be charged a fee on all receivables purchased and an interest rate on the upfront advance. The factor will collect the fees and interest, while assuming the responsibility of collecting the receivables owned by the selling company.

Define financial leverage

Financial leverage is defined as the degree to which a firm's use of debt to finance the firm magnifies the effects of a given percentage change in EBIT on the percentage change in EPS.

Under Title XI, Corporate Fraud Accountability, what are the penalties for tampering with a document used in an official proceeding or retaliating against an informant providing information to the SEC?

Fines and or a prison term of not more than 20 years. Retaliation against informants providing information to the SEC will result in fines and/or a prison term of not more than 10 years

What is the formula for Cost Of Goods Sold?

Finished Goods (beg) + COGM / Purchases - Finished Goods (end) / Ending Inventory --------------------------------- COGS

Discuss the types of unemployment including frictional, structural, seasonal, and cyclical unemployment

Frictional: Normal unemployment resulting from workers changing jobs or being temporarily laid off. Structural: When available jobs don't match the skill set of the workforce Seasonal: Caused by seasonal/temporary changes in demand and supply of labor Cyclical: Results from declines in real GDP during periods of economic contraction or recession

What is the fundamental law of demand, and what factors shift demand curves?

Fundamental Law: The price of a produce (or service) and the quantity demanded of that product have an inverse relationship. Factors that shift demand curves are WRITEN. -Changes in Wealth - Prices of related goods -Consumer Income -Consumer Tastes -Consumer expectations -Number of buyers in a market

What is the fundamental law of supply and what factors shift supply curves?

Fundamental law: Price and quantity supplied are positively related. The higher the price received, the more quantity sellers are willing to produce. Factors that shift demand curves are ECOST -Expectations of supplying firm -Production Cost -Demand for other goods -Subsidies or taxes -Technology

Identify the five components of enterprise risk management.

GO PRO with ERM 1. Governance and Culture 2. Strategy and Objective-Setting 3. Performance 4. Review and Revision 5. Information, Communication, and Reporting (Ongoing)

Describe the impact of globalization

Globalization results in deeper integration of the world's individual national economies and makes those economies more interdependent.

How is gross margin calculated?

Gross Margin = (Sales - COGS) / Sales

How is GDP calculated under the income approach?

I PIRATED Income of proprietors + Profits of Corporations + Net Interest + Rental Income + Adjustments for net foreign income + Taxes + Employee compensation +Depreciation

Define IT Governance

IT Governance is the formal structure for how organizations align IT and business strategies, ensuring that companies stay on track to accomplish their goals, implementing performance measures for IT.

Define IT Risk

IT risk is the business risk associated with the use, ownership, operation, involvement, influence, and adoption of IT within an enterprise

Define ideal standards

Ideal standards represent costs that result from perfect efficiency and effectiveness in job performance.

How are investment decisions made using the NPV method?

If NPV is positive, then investment should be made and visa versa.

What constitutes ineffective internal control under COSO framework?

If a major deficiency is identified related to the presence and functioning of a component or relevant principle, or with respect to the components operating together in an integrated manner, the entity may not conclude that it has an effective internal control system in place under the COSO framework.

What is necessary for the five components of the COSO framework to create an effective internal control environment for an entity?

In order to have an effective internal control environment for an entity, the five components and 17 related principles must both be present and functioning. Additionally, the five components must operate together as an integrated system, to reduce the risk to an acceptable level that the entity will not achieve its objectives.

Explain how production costs (inputs) differ in the short run and the long run.

In the short run, some of the economic costs are fixed because the inputs are fixed. In contrast, during the long run, all costs are variable, as inputs used for production are variable.

What quantitative values indicate the following? 1. In-elasticity of demand and supply 2. Elasticity of demand and supply 3. Unit elasticity of demand and supply

Inelasticity exists when the absolute value of the elasticity calculation is less than 1. Elasticity exists when the absolute value of the elasticity is greater than 1. Unit elasticity exists when the absolute value of the elasticity calculation is exactly 1.

What defines an information security policy?

Information security policies state how an organization plans to protect its tangible and intangible information assets.

Within the context of enterprise risk management, what is the meaning of inherent risk?

Inherent risk is the risk to an entity in the absence of any direct or focused actions by management to alter its severity.

How should management approach a make-or-buy decision?

Insourcing vs. outsourcing. Similar to special order decision, managers should only consider relevant costs and select the lowest-cost alternative.

Describe the various types of investment risks

Interest rate risk: Change in the value of a security due to the changes in interest rates. Market Risk: Fluctuations in the value of a security or firm due to market exposure; this risk is nondiversifiable Credit Risk: Represents the inability to secure financing on favorable terms due to the firm's poor credit history/ratings. Default risk: The risk that the debtor will not pay interest or principal on a timely basis. Liquidity risk: The risk that a security cannot be sold on a timely basis or that a sale will require the need to make material price concessions

Define IRR

Internal rate of return. A discount rate at which the PV of the cash inflows equals the PV of the cash outflows from an investment or project.

How is inventory turnover and days in inventory calculated?

Inventory Turnover = COGS / Average Inventory Days in Inventory = Ending Inventory / (COGS/365)

Explain the purpose of a balanced scorecard.

It is a framework used to implementing strategy that converts an entity's strategic objectives into a set of performance measures.

Describe the high-low method and how it is applied.

It is a technique that is used to estimate the fixed and variable portions of total costs. To apply the high-low method: 1. Divide the difference between the high and low dollar total costs by the difference in high and low volumes to obtain the variable cost per unit. 2. Use either the high volume or the low volume to calculate the variable costs by multiplying the volume times the variable cost per unit. 3. Subtract the total calculated variable cost from total costs to obtain fixed costs.

Why is it important to have segregation of duties between computer operators and computer programmers?

It is important that computer operators' and computer programmers' duties be segregated, because a person performing both functions would have an opportunity to make unauthrozied and undetected program changes.

What is the difference between job and process costing?

Job Costing: Each unit/batch is unique and easily identifiable costs are determined by each job. Process Costing: Continuous mass-produced identical unites are manufactured, and costs are determined by activity/process/department

Define JIT and the underlying concept of JIT.

Just-In-time management anticipates achievement of efficiency by scheduling the deployment of resources just in time to meet customer production requirements. The underlying concept of JIT is that inventory does not add value. The maintenance of inventory levels purely produces wasteful costs. Reducing inventory by ensuring that resources arrive only if they are needed is the idea.

What is the after-tax cost of debt formula (kdx)

KDX = Pretax cost of debt x (1- Tax Rate)

What is the cost of preferred stock formula (kps)?

KPS = Preferred stock cash dividends / Net proceeds of preferred stock

What is the cost of retained earnings (kre) using the CAPM formula?

KRE = Risk-Free Rate + [Beta * (Market Return - Risk Free Rate)

Define Kaizen.

Kaizen is a term for continuous improvement efforts that improve the efficiency and effectiveness of organizations through greater operational control. Kaizen occurs during the manufacturing state.

What is the cost of retained earnings (kre) using discounted cash flow (DCF)

Kre = (D1 / P0) + g D1 = Dividend per share expected at the end of one year P0 = Current market value or price of outstanding common stock g = Constant growth rate of dividends

Differentiate the three economic indicators: Leading, lagging, and coincendent

Leading indicators: Usually predict economic activity and tend to change before the economy follows that trend Lagging Indicators: Follow economic activity and change after an economic trend has already begun Coincident Indicators: Change at about the same time as the economic trend.

Explain the concept of a learning curve.

Learning curve analysis is based on the premise that as workers become more familiar with a specific task, the per-unit labor hours will decline as experience is gained and production becomes more efficient. The calculation begins with the first unit/batch. As cumulative production doubles (1 to 2, to 4, to 8, etc.), cumulative average time per unit falls to a fixed percentage of the previous average time.

What is linear regression?

Linear regression is a method for studying the relationship between two or more variables. Linear regression is used to predict the value of a dependent variable corresponding to the given values of the independent variables. Simple regression involves one independent variable. Multiple regression involves more than one independent variable.

Identify three methods for valuing intangible assets

Market Approach: Actual arm's length transactions in a similar market are used as a reference Income Approach: Future expected cash flows over the useful life of an asset discounted to present value Cost approach: Determined based on replacement or reproduction cost

Define net present value (NPV)

NPV is the difference between the present value of the cash inflows and outflows from a project.

How is return on assets (ROA) Calculated?

Net Income / Average total assets

How is return on equity (ROE) calculated?

Net Income / Average total equity

What is the equation for DuPont ROE?

Net Profit Margin x Asset Turnover x Financial Leverage NPM = Net income / Sales AT = Sales / Avg. Total Assets FL = Average total Assets / Equity

What is the formula for residual income?

Net income - Required Return Required return = Net Book Value x Hurdle Rate If the amount of income from investment > computed required return, performance objectives have been met

In Six Sigma, what is DMADV?

New product or business process development (DMADV): 1. DEFINE design goals 2. MEASURE CTQ (Critical to Quality issues) 3. ANALYZE design alternatives 4. DESIGN optimization 5. VERIFY the design

The SOX act specifically prohibits improper influence on the conduct of audits defined as follows:

No officer or director may take any action to fraudulently influence, coerce, manipulate, or mislead an independent CPA engaged in an audit of the financial statements of an issuer for the purpose of rendering the financial statements materially misleading.

What is the difference between nominal GDP and real GDP?

Nomial GDP: measures the value of all final goods and services produced within the borders of a nation in terms of current dollars. Real GDP: measures the value of all final goods and services produced within the borders of a nation in terms of constant prices. (Nominal GDP / GDP Deflator) x 100

What are the three principles associated with the information and communication component of the COSO Internal Control Integrated Framework?

OIE 1. Obtain and use information 2. Internally communicate information 3. Communicate with external parties

Name and describe the three objectives within the COSO framework.

ORC 1. Operating objectives pertain to effectiveness and efficiency of the entity's operations. 2. Reporting objectives pertain to the reliability, timeliness, and transparency of an entity's reporting 3. Compliance objectives are necessary to ensure the entity is adhering to all laws and regulations.

How is operating margin calculated?

Operating income / Sales

Define operating leverage

Operating leverage is defined as the degree to which a firm uses fixed operating costs, as opposed to variable operating costs

Compare an operating lease with a finance lease as it pertains to a lessee.

Operating: Lessee will record right-of-use asset and a lease liability on the balance sheet. The asset will be amortized as the lease liability is paid down. Lease expense will be recognized on income statement. Finance Lease: Lessee will record ROU asset and a lease liability on the balance sheet. Each lease payment will consist of interest and principal pay down. Interest expense will be shown on the income statement and reduction of the liability on the balance sheet.

What is the equation for economic order quantity (EOQ)?

Order Size = Square Root of ((2*Sales in Units * Cost per purcahse Order)/Carrying Cost per Unit)

Define outsourcing

Outsourcing is generally defined as the contracting of services to external providers. Examples might include a payroll service or even a call center. A contractual relationship exists between the business and the outsource provider.

What is the equation to calculate the PV of $1?

PV = FV / (1+r) ^m

What is the equation to calculate the PV of an annuity?

PV = PMT * [ 1- (1/ (1+r)^n)] / r

How are pareto diagrams and fishbone diagrams used to identify quality-control issues (defects)?

Pareto Diagram: Identifies the frequency of defects or problems that demand management attention Once initially identified in the Pareto diagram, the individual defects/problems are further analyzed by cause and effect in a fish bone diagram.

What is the payback method formula?

Payback Period = Net Initial Investment / Increase in annual net after-tax cash flow

Name the three components of product cost and identify which of these components are categorized as prime costs and conversion costs?

Product Cost: -Direct Materials -Direct Labor -Manufacturing Overhead Prime Cost: DM + DL Conversion Cost: DL + MO

Distinguish between product and period cost

Product: Inventoriable; they become COGS when sold Period: Expensed in the period incurred, not inventoriable

What is the quick ratio formula?

Quick Ratio = (Cash and Cash Equiv + short term marketable securities + Net Receivables) / Current Liabilities

What is the equation to calculate the reorder point for inventory?

Reorder point = Safety Stock + (Lead Time x Sales during Lead TIme)

Define ROE

Return on equity is a measure of the rate of return earned by a a company on the equity component of its capital structure. It shows how well a company is using its funds to generate earnings.

Define ROI

Return on investment is used to assess the percentage return relative to capital investment risk. Income / Invested capital (Income / Sales) * (Sales/Assets)

What is the absorption formula?

Revenue - COGS ---------------- Gross Margin - Operating Expenses -------------------- Net Income

What is the formula for the contribution approach?

Revenue - Variable Costs ---------------- Contribution Margin - Fixed Costs ---------------- Net Income

According to COSO's Enterprise Risk Management - Integrating With Strategy and Performance (2017), what is the definition of risk?

Risk is the possibility that events will occur and affect the achievement of strategy and business objectives.

What are the four principles associated with the risk assessment component of the COSO Internal Control Integrated Framework?

SAFR 1. Specify objectives 2. Identify and analyze risks 3. Consider potential for fraud 4. Identify and assess changes

What are the four key management processes of supply chain management?

SCOR Model Plan Source Make Deliver

Identify the principles supporting the review and revision component of enterprise risk management.

SIR 1. Assesses substantial change 2. Pursues Improvement in enterprise risk management 3. Reviews risk and performance

What are the five principles associated with the monitoring activities component of the COSO Internal Control Integrated Framework?

SO D 1. Ongoing / Separate Evaluations 2. Communication of Deficiencies

Identify the principles supporting the strategy and objective-setting component of enterprise risk management.

SOAR 1. Evaluates alternative Strategies 2. Formulates business objectives 3. Analyzes business context 4. Defines Risk appetite

Why is it important to safeguard files and records?

Safeguarding of files and records is important because inadequate protection may result in loss or damage that might drive an organization out of business; hardware can always be replaced, but data often cannot be.

What is the working capital turnover formula?

Sales (net) / Average working capital

What is the formula for required sales volume for target profit?

Sales (units) = (Fixed Cost + Pre-tax Profit) / Contribution Margin per unit

What is selective hedging and how does it differ from cross-hedging?

Selective hedging is a process of reducing the uncertainty of the value of a transaction or position by entering into an offsetting derivative transaction. Cross-hedging involves hedging one derivatives instrument's risk with a different instrument by taking another position in a related derivatives contract.

What is the formula for setting selling prices based on assumed volume?

Selling $ per Unit = ( Fixed Costs + Variable Costs + Pre-tax Profit) / Number of units sold

Economists generally agree that business cycles result from what?

Shift in aggregate demand and aggregate supply

What is Six Sigma?

Six Sigma anticipates the use of rigorous metrics in the evaluation of goal achievement. Six sigma expands on the plan-do-check-act model of process management and logically anticipates methodologies to improve current processes and develop new processes.

How should management approach a special order decision?

Special orders require a firm to decide whether a specially priced order should be accepted or rejected. When there is excess capacity, a special order should be accepted if the selling price per unit is greater than the variable cost per unit. If the company is at full capacity, the opportunity cost of producing the special order should be included in the analysis.

Define the steps and formula for economic value added

Step 1: Calculate the required amount of return and income after taxes. Investment x Cost of Capital Step 2: Compare the income to the required return Income after taxes - Required Return = EVA

Define sunk costs.

Sunk costs are those costs that have already been incurred, are unavoidable in the future, and will not vary with the course of action taken.

With joint products, what is the treatment of costs incurred before the split-off point?

Sunk costs, not relevant to further processing decisions. Joint costs are allocated by an arbitrary means such as by unit volume relationships or relative nrv at the split-off point.

Define theory of constraints.

THEORY OF CONSTRAINTS anticipates that organizations are impeded from achieving objectives by the existence of one or more constraints. The organization or project must be consistently operated in a manner that either works around or leverages the constraint.

Identify the principles supporting the information, communication, and reporting (ongoing) component of enterprise risk management.

TIP 1. Leverages information and technology 2. Communicates risk Information 3. Reports on risk culture and performance

Name the factors influencing exchange rates.

TRADE-RELATED FACTORS 1. Relative inflation rates 2. Relative income levels 3. Government controls FINANCIAL FACTORS 1. Relative interest rates 2. Capital flows

Within the context of enterprise risk management, what is the meaning of target residual risk?

Target residual risk is the amount of risk that an entity prefers to assume in the pursuit of its strategy and business objectives knowing that management will implement or has implemented direct or focused actions to alter the severity of the risk.

What is the equation for extended DuPont ROE?

Tax Burden x Interest Burden x Operating Income Margin x Asset Turnover x Financial Leverage TB = Net income / pre-tax income IB = Pretax Income / EBIT OIM = EBIT / Sales AT = Sales / Average Total Assets FL = Average Total Assets / Equity

The SOX act assigns the following corporate responsibilities regarding the required disclosures to the auditors and audit committee by officers:

The CEO and CFO must certify the following for annual and quarterly reports to the auditors and the audit committee: 1. Any significant deficiencies in the design or operation of internal controls 2. Any fraud, material or immaterial, that involves management

The SOX Act assigns the following corporate responsibilities for financial reports for issuers:

The CEO and CFO must certify the following: 1. Officers have reviewed the report 2. Report does not include untrue statements or omit material info 3. The financial statements are fairly stated 4. The signing officers make assertions regarding their responsibilities for internal control. 5. The signing officers have disclosed internal control weaknesses and instances of fraud to the auditors and audit committee. 6. The status of changes to internal control subsequent to the date of their evaluation

What is the purpose of the COSO cube?

The COSO cube shows a graphical three-dimensional depiction of the relationship between an entity's three objectives, its five integrated control components, and entity's organizational structure.

What is meant by a shift in economic balance of power?

The ability of the world's emerging nations to contend with the economies of the industrialized world for power, resources, influence, etc., is a change or shift in the economic balance of power from previous decades when the U.S. dominated as the lone superpower. Although the U.S. 's absolute strength is not likely to decline, its relative power is expected to decline.

What are the various categories of business information systems

The categories of business information systems are: 1. Transaction processing systems 2. Decision support systems 3. Management information systems 4. Executive information systems

Explain the coefficient of correlation

The coefficient of correlation (r) measures the strength of the linear relationship between the independent variable (x) and the dependent variable (y) The range is from -1 to 1, with -1 being a perfect inverse correlation and 1 indicating a perfect positive correlation. 0 indicates no correlation

Explain the coefficient of determination

The coefficient of determination (R squared) is the proportion of the total variation in the dependent variable (y) explained by the dependent variable (x). The range lies between 0 and 1, with a higher number representing a better fit regression line.

Differentiate between conformance costs and non-conformance costs as they pertain to achieving quality standards.

The costs associated with maintaining existing quality standards are termed conformance costs, and include both prevention and appraisal costs. The costs associated with correcting non-conformance with existing quality standards are called non-conformance costs, and include both internal failure and external failure costs.

Explain the difference between absorption costing net income and variable costing net income

The difference depends on the change in inventory level during the period. Fixed overhead is a period cost for Variable and a product cost for Absorption. No change: Absorption = Variable Increase in Inventory: Absoprtion > Variable Decrease in Inventory: Variable > Absorption

Explain the difference between the contribution approach and the absorption approach

The different is the treatment of fixed overhead. Under absoroption, fixed overhead is a product cost. Under contribution, fixed overhead is a period cost.

Differentiate the COSO framework from the Audit framework.

The five components of the COSO framework are useful for identifying and evaluating the effectiveness of an entity's internal control. In contrast, the Audit framework focuses on how a given control prevents or detects and corrects material misstatements in an entity's financial reporting.

Identify some inherent limitations that may exist even with an effective internal control system.

The following inherent limitations may still exist with an effective internal control system: -Breakdowns in internal control due to error or human failure -Issues pertaining to the suitability of the entity's objectives -External events beyond the control of the entity -Faulty or biased judgement in decision-making -Management override of controls -Circumvention of controls through collusion

List the multiplier effect and show how its impact is calculated

The multiplier effect shows how an increase in consumer, firm, or government spending produces a multiplied increase in the level of economic activity. The size of the multiplier effect is determined as follows: 1 / (1-MPC) MPC = Marginal propensity to consumer Multiplier = Change in spending

Define opportunity costs evaluated in considering an opportunity when the firm is operating at capacity

The net benefit given up from the best alternative use of the capacity.

What is the primary assumption of the Gordon growth dividend discount model and how is it calculated?

The primary assumption of the DDM is that a stock will pay future dividends that grow at a constant rate through perpetuity. Current Price = D1 / (Required Return - Growth Rate)

What is the profitability index?

The ratio of the present value of net future cash inflows to the present value of the initial investment. The higher, the better.

Define relevant range

The relevant range is the range of volume for which the assumptions of the cost driver (i.e. linear relationship with the costs incurred) are valid and in which the actual value of the cost driver exists

Define residual income

The residual income method measures the excess of actual income earned by an investment over the hurdle rate.

Describe the normal series of events in accounting information systems.

The series of events in an AIS as follows: 1. The transaction data from source documents ins entered into the AIS by an end user 2. The original paper source documents are filed 3. The transactions are recorded in the appropriate journal 4. The transactions are posted to the general and subsidiary ledgers 5. Trial balances are prepared 6. Adjustments, accruals, and corrections are entered. Financial reports generated.

What are transaction processing systems?

The systems that process and record the routine, daily transactions necessary to conduct business.

Define weighted average cost of capital (WACC)

The weighted average cost of capital is the average cost of debt and equity financing associated with the firm's existing assets and operations.

Title IX of the SOX act considers what topics?

Title IX, White-Collar Crime Penalty Enhancements, includes the following: -Attempt and conspiracy -Amended sentencing guidelines for white-collar offenses -Failure of corporate officers to certify financial reports

What is the objective of management information systems?

To provide managerial and other end users with reports. These predefined management reports provide managers with the information they need to assist them in the business decision-making process.

What is the formula for break even point in dollars?

Total Fixed Costs / Contribution Margin Ratio

What is the formula for break even point in units?

Total Fixed Costs / Contribution Margin per Unit

What is the total debt ratio formula?

Total Liabilities / Total Assets

What is the debt-to-equity formula?

Total Liabilities / Total Equity

Define TQM.

Total Quality Management represents an organization's commitment to a customer-focused performance that emphasizes both quality and continuous improvement.

What is the margin of safety formula?

Total Sales $ - Break even Sales $ = Margin of Safety

Compare and contrast transaction exposure, economic exposure, and translation exposure

Transaction exposure is the potential that an entity could experience economic loss or gain upon a settlement of individual transactions as a result of changes in exchange rates. Economic Exposure is the potential that the present value of an entity's cash flows could increase or decrease due to changes in exchange rates. Translation exposure is the risk that an entity's assets, liabilities, equity, or income will change as a result of changes in exchange rates.

What are total factor productivity ratios (TFP) and partial productivity ratios (PPR)

Two types of productivity measures used as external benchmarks. Total factor productivity ratios reflect the quantity of all output produced relative to the costs of all inputs used. Partial productivity ratios reflect the quantity of output produced relative to the quantity of individual inputs used.

What is the equation for the direct materials purchases budget?

Units of DM Needed + Desired Ending Inventory - Beginning inventory ------------------------------- Units of direct materials to be purchased x Cost per unit ------------------------------- Cost of DM to be purchased

What is an equivalent unit and how are the costs applied?

Used in process costing, equivalent units are fully completed and partially completed units during the period. In applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of costs.

What is the phillips curve used for?

Used to graphically illustrate the inverse relationship between the rate of inflation and the unemployment rate. When inflation is high, unemployement tends to be low and visa versa.

What is a control chart and how is it used as a statistical quality control tool?

Used to plot a comparison of actual results by batch or other suitable constant interval to an acceptable range. Control charts effectively indicate whether there is a trend toward improved quality conformance or deteriorating quality conformance.

Identify the principles supporting the performance component of enterprise risk management.

VAPIR 1. Develops portfolio view 2. Assesses severity of risk 3. Prioritizes risk 4. Identifies risks (events) 5. Implements risk responses

Identify the manufacturing overhead variances

VOH Rate (spending) Variance: (AR-SR) * AH VOH efficiency variance: (AH-SH allowed for actual production volume) * SR FOH Budged (spending) Variance: Actual fixed OH - Budged Fixed OH FOH Volume Variance: Budged Fixed Overhead - Standard Fixed overhead cost allocation to production* *Actual production * Standard RAte

Describe value chain analysis, including the four general steps used to implement it.

Value Chain Analysis is a strategic tool that helps an entity determine the importance of its value (as perceived by buyers) with respect to the market in which it operates. The steps in VCA are: -Identify value activities -Determine cost drivers associated to each activity -Develop a competitive advantage by reducing cost or adding value -Exploit linkages among activities in the value chain

What is the weighted average cost of capital formula?

WACC = (E/V)(Re) + (P/V)(Rp) + (D/V)(Rd (1-t))

What is the formula for Cost Of Goods Manufactured?

WIP (beg) + DM + DL +MOH - WIP (end) ----------------------- COGM

How should management approach a keep or drop decision.

When deciding whether to keep or drop a segment, a firm should compare the fixed costs that can be avoided if the segment is dropped with the contribution margin that will be lost if the segment is dropped. The segment should be kept if the lost contribution margin exceeds avoided fixed costs and dropped if the lost contribution margin is less than avoided fixed costs.

What is the formula for working capital?

Working Capital = Current Assets - Current Liabilities

What is a frequently used statistical measure for globalization?

World trade expressed as a % of GDP

What is the formula for sales price variance?

[(Actual SP / Unit) - (Budgeted SP / Unit) ] x Actual Units Sold

What is the formula for working capital

current assets - current liabilities

How is profit margin calculated?

net income/net sales

Define GDP

total market value of all final goods and services produced within the borders of a country in a specific time period