2/6 Flashcards
The use of activity-based costing normally results in
substantially greater unit costs for low-volume products than is reported by traditional product costing.
Inc. is considering implementing a lock box collection system at a cost of 80k per year. Annual sales are 90mil and the lock box will reduce collection time by 3 days. If Inc. can invest funds at 8%, should it use the lock box? Assume 360 day year.
No, it is a loss of 20k
3 days / 360 x 90 mil x 8% = 60k. Cost is 80k.
For allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the
Relative sales value at split-off
Assumptions underlying black-scholes model
Stock prices behave randomly
risk free rate and volatility of the stock price are constant
no taxes or transaction costs
stock pays no dividends
options are exercisable only at maturity - european model
Daphne Corp evaluates employees with responsibilities for financial reporting for fulfillment of those responsibilities for compensation and promotion. The companies policies support the idea that
Human resources practices should be designed to facilitate effective control over financial reporting.
The cash budget provides management with information. Which of the following is not an example of information a cash budget provides?
-Availability of funds for distribution to owners
-the need for internal financing
-Availability of funds for repayment of debt.
-Availability of funds for investment purposes.
Need for internal financing. Cash budget provides information concerning external financing.
A company retains a CPA with the appropriate knowledge, skills, and abilities to prepare timely and effective financial reporting is applying the ideas from which principle of effective internal control over financial reporting?
Financial reporting competencies.
To decrease the money supply, the fed might
-lower the discount rate
-decrease the required reserve ratio
-buy government securities on the open market
-sell government securities on the open market
sell government securities on the open market.
the decrease the money supply the fed can
-sell government securities on open market.
-increase discount rate
-increase reserve ratio
managers that anticipate greater return for greater risk are referred to as having what attitude
risk averse. defined as managers who demand more return on an investment as risk increases.
each of the following is an effect from opening markets to foreign investment except
-a decrease in investment growth rates
-a change in the volatility of emerging stock market returns
-an increase in the correlation of emerging stock markets with world markets
-a decrease in local firms’ cost of capital
a decrease in investment growth rates
Which of the following transactions does not change the current ratio or total current assets?
-short term notes payable are retired with cash
-a cash dividend is declared
-equipment is purchased with a three year not and a 10 percent cash down payment
-a cash advance is made to a divisional office
a cash advance is made to a divisional office
Which of the following is an example of prevention costs?
-lost customers
-testing
-tooling changes
-redesign of processes
redesign of processes
lost customers is external failure
testing is appraisal costs
tooling changes is internal failure costs
computing the cost of credit discount
3/15, net 60
360 day year
360 / 60 - 15 = 8
.03 / 1 - .03 = .0309
8 x .0309 = .2474
When does competition not become an even stronger force impacting the profitability of a firm?
The market is fast growing
competition becomes stronger when
-market is not fast growing
-several equal sized firms in market
-customers do not have strong brand preferences
-cost of exiting market exceed the costs of continuing to operate
-some firms profit from making certain moves to increase market share
-various firms in the market use different types of strategic plans
calculate days in the company cash conversion cycle
inventory / (cogs / 365) + rec / (sales / 365) - payable / (cogs / 365)
the internal rate of return is the
rate of interest that equates the present value of cash outflows and present value of cash inflows
a company evaluating the advantages and disadvantages of short term financing options would note which of the following two characteristics to be true
Short term financing increased interest rate risk
Long term financing decreased credit risk
what is the relationship between the allowance for doubtful accounts and working capital
when bad debt expense is recorded, working capital decreases
after tax cost of debt
pre tax cost of bonds x (1 - tax rate)
an increase in tax rates is most likely to cause :
-a decrease in spending on substitute goods
-an increase in export revenue
-an increase in spending on imports
-none of the above
none of the above
an increase in tax rates will cause a decrease in aggregate demand. increased taxes means consumers have less disposable income, therefore less overall demand.
in a free market economy what is the most significant factor that determines how resources are used and allocated?
-ability of businesses to acquire and capitalize on resources
-government regulation
-preference of individual consumers with the ability to purchase goods and services
-all of the above
preference of individual consumers with the ability to purchase goods and services
free market economy is defined by the market adapting to the preference of individual consumers
price of a perpetuity
price = dividend / required return
economic return =
growth price + dividend income / beg. price
All of the following are used to compute required rate of return except:
-default risk
-maturity risk
-purchasing power risk
-credit risk
credit risk
credit risk relates to the ability to obtain credit. required rate of return does not include a credit risk adjustment.
