BEC - 20 Flashcards
Breakeven point
Fixed costs / Contribution Margin
Residual Income
equals net operating profit minus the cost of capital based on average capital invested in the division
What is the major advantage of a zero-balance account system?
It maximizes the float involved in cash disbursements
By using regional banks and not transferring funds until the checks are presented, the float on disbursements is maximized.
The theory underlying the cost of capital is primarily concerned with the cost of
Long-term funds and new funds.
The theory underlying cost of capital is related to existing long-term financing and obtaining new long-term financing.
Name 3 limitations of using ROI as a performance measure
1 It could cause managers to postpone critical expenditures.
2 It could cause managers to not accept projects that would be advantageous to the firm.
3 It could be affected arbitrarily by allocation of indirect costs.
Name an advantage of using ROI as a performance measure
ROI is highly related to stock price and, therefore, shareholder value.
Which formula should be used to calculate the economic rate of return on common stock?
(Dividends + change in price) / beginning price
Return on stock is measured by the return to the investor both in appreciation and in dividends.
The real risk-free rate __________
Is the basic component of interest
In JIT systems, who inspects the goods?
Vendors inspect their own goods and guarantee that they are free of defects, thus eliminating the need for incoming inspection by the purchaser.
Acid Test Ratio
(Cash and Cash Equivalents + AR + Marketable Securities) / by Current Liabilities
