Week 7 and 8 (chapter 15, 3, 11, 9)
Return on Investment (ROI) can be described or computed in each of the following ways, except:
Amount Invested / Amount of Return = ROI.
Direct Fixed Expense:
An expense assigned to an organizational segment in a segmented income statement that would not be incurred if the segment were eliminated
Common Fixed Expense:
An expense that is not assigned to an organizational segment in a segmented income statement because the expense would be incurred even if the segment were eliminated
The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw material purchase price variance that might very well have been more than offset by:
An unfavorable raw material usage variance
If the net standard costing variance of a business is considered immaterial to the total production cost, the net variance should be:
Assigned to costs of goods sold
If stockholders' equity at the beginning of the year = $480,000, stockholders' equity at the end of the year = $520,000, and net income = $80,000, then:
Average stockholders' equity = $500,000, and ROE = 16% ROE = NI / Average stockholders equity
Which of the following statements is true regarding the working capital calculation?
Cash is part of current assets. Merchandise inventory is part of current assets.
A management activity in the planning and control cycle that compares actual performance with planned activity is known as:
Controlling
An example of a cost that is controllable in the short run is:
Direct Labor
The entry to record the recognition of cost of goods sold is:
Dr. Cost of Goods Sold Cr. Inventory
When an entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits (the increase in cash or some other asset, or the satisfaction of a liability), the ___ criterion has been met
Earned
In a standard cost system, which of the following statements is true?
Favorable variances are not always good variances.
If the actual number of labor hours used exceeds standard labor hours allowed for the actual number of units produced but actual labor cost is less than standard labor cost, the labor rate and efficiency variances are:
Favorable, unfavorable.
If they are to be useful to managers, variances should be reported:
In physical terms or dollar amounts as promptly as feasible.
The use of an accelerated depreciation method and the LIFO inventory cost flow assumption will usually do what to a company's turnover?
Increase a company's total asset turnover relative to using the straight-line method and FIFO.
The LIFO reserve is the difference between the inventory valuation as reported under:
LIFO and the amount that would have been reported under FIFO.
Which of the following variances is not determined during an overhead variance analysis?
Price variance
Which of the following terms are used to describe the cost per unit of input variance for different product cost components (raw materials, direct labor, and manufacturing overhead)?
Price variance spending variance rate variance
What is the DuPoint formula of ROI?
ROI = Margin x Turnover or ROI = Segment Margin / operating Assets
To be recognized, revenues must meet what criteria?
Realization and Earned
Identify the correct statements about matching principle.
Some expenses (administrative salaries, for example) are recognized in the period in which they are incurred. Expenses are measured by the cash or other asset used up to obtain the economic benefit they represent.
What is a controllable cost?
a. a cost that is influences by managers in the long run
A segmented income statement in the preferred format uniquely emphasizes:
direct and common fixed costs
How do you calculate a company's book value per share of common stock?
dividing a company's year-end total stockholders' equity by the year end number of shares of common stock outstanding
A variance is the difference between actual costs and:
expected costs
By reporting discontinued operations on the income statement as a separate item, net of taxes, all the effects of the discontinued business segment are excluded from the ____ of continuing operations.
expenses losses revenues gains
Trend Analysis:
for a company over several years generally leads to a more meaningful analysis than does the observation of a single year's ratio result.
The principal categories of other operating expenses frequently reported on the income statement include:
general and administrative expenses selling expenses research and development expenses
Multiple-step income statements commonly report subtotals for:
gross profit income from operations
The principal objective of a performance report is to:
highlight activities that need management attention
Horizontal common size analysis:
percent change in each income statement and balance sheet is calculated from period to period the base year selected impacts how the trends of a company's financial results in recent years are portrayed.
The best reason for flexing a budget is to:
permit a more accurate determination of variances
An individual interested in making a judgment about the profitability of a company should:
review the trend of the company's ROI for several years
Asset turnover calculations:
should be evaluated by observing the turnover trend over a period of time.
What is Segment Margin?
term describing the contribution of a segment of an organization to the common fixed expenses and operating income of the organization
The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?
the operating activities section only
To calculate the amount of interest earned on an investment, you would need to know:
the principal amount invested the interest rate per year the length of time the funds are invested for
If the net of all variances is immaterial relative to the total production costs incurred during the period, the net variance is:
treated as an adjustment to a cost of goods sold
The difference between the fixed manufacturing overhead budgeted for the period and the fixed manufacturing overhead applied to the production for the period is called:
volume variance
Management's use of resources can best be evaluated by focusing on measures of:
Activity
For control purposes, the material price variance should be isolated when:
Material is purchased.
What is volume variance?
The fixed manufacturing overhead variance caused by actual activity being different from the estimated activity used in calculating the predetermined overhead application rate
What is variable overhead efficiency variance?
The part of the variable overhead budget variance due to the difference between actual hours required and standard hours allowed for the work done
What is the Variable overhead spending variance?
The part of the variable overhead budget variance due to the difference between actual variable overhead cost and the standard cost allowed for the actual inputs used
The key difference between a controllable cost and a noncontrollable cost is:
The short-term ability to influence the cost by the manager
How do you calculate Turnover?
Turnover = Sales / Operating Assets
Volume variance?
fixed overhead
With a semilogarithmic graph, the __ scale is arithmetic
horizontal
The ratios used to facilitate the interpretation of an entity's financial position and results of operations can be grouped into four (4) categories:
liquidity, activity, profitability, and debt
The LIFO reserve:
may be disclosed in the notes to the financial statements
What is price variance?
neither fixed nor variable overhead
How do you calculate P/E ratio?
price / earnings
What is a budget variance?
A fixed manufacturing overhead variance caused by the difference between the actual fixed overhead expenditures and the fixed overhead that was budgeted for the period difference between actual and budgeted amounts
What is a balance scorecard?
A set of integrated financial and operating performance measures that communicates an organization's priorities associated with achieving strategic goals
The performance of an investment center is determined by comparing:
Actual and budgeted ROI based on segment margin and assets controlled by the segment
A favorable materials quantity variance would occur if:
Actual pounds of materials used were less than the standard pounds allowed.
Which of the following is an accurate statement regarding a statement of cash flows?
All material operating, investing, and financing activities are included.
The difference between standard and actual cost per unit of input is measured by:
All of these (the direct labor rate variance, raw materials price variance, and variable overhead spending variance)
If the net standard costing variance of a business is significantly relevant to the total production cost, the net variance should be:
Allocated between WIP and FG inventories and cost of goods sold
If a company outsources its product service division then what fixed expense would continue to be incurred?
Common fixed expense
How is performance evaluated for a cost center?
Comparison of actual and budgeted return on investment (ROI) based on segment margin and assets controlled by the segment.
Which of the following is(are) an example of a measure of leverage?
Debt/Equity Ratio
If a company outsources its product service division then what fixed expenses would be eliminated?
Direct fixed expenses would be eliminated
The entry typically recorded when revenues are earned is:
Dr. Cash (or Accounts Receivable) Cr. Sales (or Service Revenue)
What makes an Unfavorable Variance?
If actual raw material cost < budgeted raw material cost
Which of the following statements are true regarding a semilogarithmic graph?
If the data increases at a constant rate over the period of time shown on the horizontal scale, the plot will be a straight line. Semilogarithmic graphs are frequently used to plot data that is expected to change significantly over time, such as a company's sales data.
Place the following segmented income statement elements in the correct logical order.
a. Sales - Variable expenses b. Contribution Margin c. Direct Fixed Expenses d. Segment margin e. Common fixed expenses f. Operating income
The concept of matching revenue and expense refers to the fact that:
all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.
The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the:
LIFO reserve
The amount of interest earned on an investment is calculated as:
Principal ($) x Rate (%) x Time (in years)
Assume that Kulpa Company has a current ratio of 0.7. Which of the following transactions would increase this ratio?
Purchasing Merchandise Inventory on credit. this would increase liability
The financial statement effects of recognizing cost of goods sold include:
an increase to expenses. a decrease to current assets. a decrease to net income.
Financial leverage:
arises because most borrowed funds have a fixed interest rate.
A high-level integrated approach to measuring and reporting organizational performance is accomplished by using a:
balanced scorecard
Which of the following statements are true regarding the acid-test ratio?
Temporary cash investments are included in the numerator of the acid-test ratio. The acid-test ratio is sometimes called the quick ratio. The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. More conservative method of measuring liquidity
What is Cost per Unit of input Variance?
That part of a variable cost budget variance due to a difference between the actual and standard costs per unit of input
What is Quantity Variance?
That part of a variable cost budget variance due to a difference between the actual and standard quantities of inputs
Recognition of revenue in accrual accounting requires:
That revenue be realized or realizable, or earned
In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:
be subtracted from net income because this means that revenues were more than cash collected.
Budget variance?
both variable and fixed overhead
What is the current ratio?
current assets / current liabilities
Working capital refers to the excess of a firm's:
current assets over its current liabilities.
What is variance?
The difference between the actual and budgeted amounts shown in a performance report
Examples of physical or combined physical/financial measures of activity that are sometimes disclosed in the notes to the financial statements include:
sales dollars per employee operating income per employee plant operating expenses per square foot gross profit per square foot of selling space number of employees sales in units
In the statement of cash flows, depreciation and amortization expense is added back to net income because:
These expenses do not affect cash, but were subtracted in the determination of a net income
Which of the following terms are used to describe the quantity variance for different product cost components (raw materials, direct labor, and manufacturing overhead)?
Usage Variance and efficiency variance
Earnings multiple is another term used to describe the price/earnings ratio. This term merely reflects that:
the market price of stock is equal to the earnings per share multiplied by the P/E ratio.
What is a noncontrollable cost?
a cost that CANNOT be influences by managers in short run
Identify the correct statements about vertical common size financial statement analysis.
each item on the income statement is expressed as a percentage of sales. total current assets are expressed as a percentage of total assets. Each financial statement is examined from top to bottom on an annual basis. Each stockholders' equity item is expressed as a percentage of total assets. Each asset is expressed as a percentage of total assets.
Identify a subtotal that is reported in a multiple-step income statement.
income before taxes
The "other income and expense" category is normally reported after income from operations and includes such items as:
interest income losses gains interest expense
Trend analysis of ratios:
is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios
What is responsibility reporting?
is a technique used to filter cost information contained in performance reports to each manager within the organization at an appropriate level of detail or summarization
The inventory turnover calculation:
is an alternative way of expressing the number of days' sales in inventory.
Working Capital:
is expressed as a dollar amount, rather than as a financial ratio. is the excess of a firm's current assets over its current liabilities.
The after-tax cost of debt ...
is its interest rate multiplied by the complement of the firm's tax rate.
Liquidity:
is measured by relating current assets and current liabilities as reported on the balance sheet. refers to a firm's ability to meet its current obligations as they become due.
What is objective of performance reporting?
is to highlight those activities for which actual and planned results differ, favorably or unfavorably, so that appropriate action can be taken
Operating income is frequently substituted for net income in the calculation of ROI and ROE because:
operating income is a more direct measure of the results of a firm's activities. operating income excludes interest expense, which varies from firm to firm based on their capital structure decisions. operating income excludes income tax expense, which varies from firm to firm based on country-specific tax rates. operating income excludes the effects of discontinued operations and thus provides a more forward looking measure of the firm's profitability
Efficiency variance?
variable overhead
