3/4

Question 1

Absolute conformance

Answer 1

demands compliance with the most rigorous standards.

represents ideal, perfect level of compliance.

Question 2

Goalpost conformance

Answer 2

assumes a range of acceptable results.

represents compliance within an established range of tolerable error.

Question 3

Conforming costs are the

Answer 3

preventative and appraisal costs invested to detect and prevent errors.

Question 4

Nonconforming costs are the

Answer 4

external and internal failures associated with correcting quality errors.

Question 5

Operating leverage is the degree to which a firm uses

Answer 5

fixed costs as opposed to VC.

Question 6

Financial leverage is the degree to which a firm uses

Answer 6

debt to finance the firm.

Question 7

Galax had operating income of 5mil before interest and taxes. Galax’s bv of assets were 22mil and 18mil at Jan 1 and Dec 31. Galax achieved a 25% return on investment with an investment turnover of 2.5. What were sales for the year?

Answer 7

investment turnover = sales / avg investment

2.5 = s / ((22mil + 18mil)/2)
2.5 = s / 20mil
s = 2.5 * 20mil
s = 50mil

Question 8

In a traditional cost system, the issue of indirect materials to a production department increases:

-work in process control
-factory overhead applied
-stores control
-factory overhead control

Answer 8

factory overhead control

Question 9

Calculate the acquisition of PPE

Beg PPE 6,240,000
Depr prior year 870,000
Depr current year 1,000,000
end PPE 7,040,000

Answer 9

6,240,000 - 1,000,000 = 5,240,000

7040,000 - 5,240,000 = 1,800,000

Question 10

Broad categories of risk are identified using the DUNS system. What is DUNS?

Answer 10

Diversifiable - can be eliminated through diversification.
Unsystematic - non market
Non-Diversifiable - inherent to the market.
Systematic - inherent to the market.

there are only two broad categories - Diversifiable, unsystematic or undiversifiable, systematic

Question 11

under variable costing system only

Answer 11

variable manufacturing costs are assigned to inventory. Variable OH is not.

Question 12

A company has the following information
Sales 200
Net income 100
Depr 20
Interest 10
Taxes 5

What is the operating profit margin?

Answer 12

100 + 10 + 5 = 115

115 / 200 = 57.5%

Question 13

calculate the forward P/E

Answer 13

the forward P/E is P0 / E1

P0 is market capitalization / shares outstanding
E1 is can be from forecasted EPS

Question 14

calculate the current price of xxx’s stock applying the method of comparable to the earnings multiplier model.

Answer 14

peer group P/E times E1

e1 can be a forecasted EPS

Question 15

Calculate the firms justified forward P/E based on the firm’s fundamentals and Gordon growth model

Answer 15

pe would be P0/E1

to do this we start with P0 = d1/r-g and divide it by e1
p0 / e1 = (d1 / e1) / r-g
d1 / e1 can be subbed for the dividend payout ratio

Question 16

estimate the current price of stock using the PEG ratio and the company’s forecasted earnings

Answer 16

p0 = PEG x E1 x g

PEG might be given to you
e1 can be a forecasted EPS
g can be given to you or it is ROA x Retention % / (1 - (ROA x retention%))

Question 17

calculate the price to sales ratio

Answer 17

this is p0 / s1
p0 is the current stock price. can be calc’d using market cap / shares outstanding
s1 is the growth in sales / shares. s0 x (1+growth) / shares

Question 18

calculate the price to book ratio

Answer 18

this is p0/b0
p0 is the current stock price. can be calc’d using market cap / shares outstanding
b0 is the book value of equity = CS + APIC + RE

Question 19

calculate the price to cash flow ratio

Answer 19

this is p0/CF1
p0 is the current stock price. can be calc’d using market cap / shares outstanding
CF1 is the cash flow x 1+growth then divided by shares outstanding

Question 20

calculate the current intrinsic price of the stock price using the price to cash flow ratio and method of peer group comparables

Answer 20

p0 = (p0/CF1 of the peer group) x CF1 of company

the peer group number should be given to you.
CF1 of the company is CF0 x 1+ growth / shares outstanding

Question 21

examples of prevention costs

Answer 21

employee training
preproduction inspections
process redesign
product redesign

Question 22

examples of appraisal costs

Answer 22

postproduction inspections
laboratory maintenance
product testing

Question 23

examples of internal failure costs

Answer 23

rework
scrap
tooling changes

Question 24

examples of external failure costs

Answer 24

returned goods
liability claims
warranty costs

Question 25

4 perspectives of the balanced scorecard

Answer 25

Financial - financial performance
Customer - success in targeted market segments
Internal Business process - improvements
Learning, innovation, growth - employee training, satisfaction, infrastructure

Question 26

withing the 4 perspectives of the balanced scorecard the company identifies its

Answer 26

strategic goals
critical success factors
tactics
performance measures

Question 27

which of the following uses analysis of production processes to ensure that uses stay within target costs?

-Kaizen
-JIT
-Value Chain Analysis
-Activity-Based Costing

Answer 27

Kaizen.

kaizen occurs in manufacturing stages and includes ongoing analysis of procedures to ensure that resource uses stay within target costs.

Question 28

Which one of the following would not be considered a carrying cost associated with inventory?

-cost of obsolescence
-shipping costs
-cost of capital invested in the inventory
-insurance costs

Answer 28

shipping costs.

shipping costs are part of selling costs. they are not considered for carrying costs.

Question 29

what item would not be considered in evaluating the adequacy of the budgeted annual operating income for a company

-return on assets
-long range profit objectives
-internal rate of return
-industry average for earnings on sales

Answer 29

internal rate of return

internal rate of return is used for capital budgeting

Question 30

which of the following equates the pv of cash inflows to the pv of cash outflows?

economic value-added
net present value
return on assets
internal rate of return

Answer 30

internal rate of return.