BEC 3

Question 1

Application of FOH.
Increase In what account
Decrease IN what account

Answer 1

Dr. WIP

Cr. FOH Applied (or the FOH Control Account)

Question 2

What are the three inventory accounts used in mfg.

Answer 2

Raw Materials
WIP
Finished Goods - Where COGS or COGM is calculated

Question 3

If Manufacturing OH Ends up over or under applied OH how is this handled

Answer 3

Closed out to COGS
Allocated between
   WIP
   FIG (COGM)
   COGS

Now I seem to remember something else, not sure,

Question 4

Entry for when you buy raw materials

Answer 4

Dr. Raw Mateirials Inventory

Cr. Accounts Payable

Question 5

Entry for when you ask for RM and it’s direct and indirect RM
Direct RM 50,000
Indirect RM 2,000

Answer 5

WIP. 50,000
RM. 50,000
above for the direct RM

MOHead. 2,000
RM. 2,000
above for the indirect rm

Question 6

How does COGS sold work: debit what and credit what

Answer 6

A/R
Sales

COGS
       FG Inventory (or just Inventory)

Question 7

What are the entries for FOH Over or Under Applied

Answer 7

Under Applied (COGS or WIP or FG)
COGS
FOH Control

The Control if you didn’t apply enough debit because that’s where all the real costs end up on that side of the ledger

OverApplied
FOH
COGS
You didn’t Apply enough so need to reduce COGS

Question 8

COGS good (normal) Balance is what

Answer 8

Debit

COGS
Inventory

Credit for over applied FOH

Question 9

FOH Control Balance is What

Answer 9

Debit for the Actual Costs

Use to Inventory because the real cost is - can’t be this cause you can’t do it twice
Electric Expense
Cash

So Must
FOH control Indirect Expense
Cash/A-P

Question 10

Move goods from WIP to FG

Answer 10

Dr. FG
Cr. WIP

WIP
Dr. DL
Dr. DM
Cr. for what move to FG

Question 11

Days of Sales Outstanding (also Known as)

Formula

Answer 11

Average Days to Collect Cash

365/AR T.O.

Question 12

Acid Test Ratio is also Known AS

Answer 12

Also known as quick ratio

Formula: Quick Assets Cash, Marketable Securities, Net AR/Current Liabilities

No: Inventory or Pre-pairs

Question 13

What should you notice in this question?
“The project is expected to increase sales by $100,000 and reduce costs by $50,000 annually. Depreciation expense is $30,000 per year.”

Answer 13

You should notice that increase sales and reducing costs are both increases in income.

You initially red it as increase sales and increase costs.

Question 14

Price Elasticity of 2 means what

Answer 14

Price goes up by 10% demand will decrease by double
Over 1 means relatively elastic
Less than 1 means relatively Inelastic
0 means perfectly elastic

Question 15

If stores inventory has a high risk of obsolescence, then what ratio is important

Answer 15

Quick because doesn’t include inventory.

Question 16

In the payback model what’s included in the denominator’s income figure (or is it cash flow?)

Can’t figure this one out - seriously - Rule of Them

If it says payback and after tax cash flow just use that figure, don’t worry about the depreciation
If it says payback and Expense are and “depreciation is” net the depreciation out of the expenses

Never worry about the depreciation shield
Use salvage only to calculate depreciation

Answer 16

No present value
Well actually it’s not no depreciation, the question literally said “is the amount of depreciation over the life of the project” included in the payback model calculation.”

If you take it literally, the amount is not, I believe the amount is used to calculate the amount of inflows from the depreciation shield. The correct answer was (as far as what was included) “ the total amount of the initial outlay over the life of the project.

There’s a discussion on Another 71 which says depreciation is almost always included it’s that you have to be able to catch the terms “after tax inflows” - unless it has a net loss - or you look for “net cash inflows” which means they’ve included the shield in there already

Question 17

Payback may include depreciation, but does it include salvage? You know I'm still not sure.  They List like this:
Initial Cost:  $500K
Life:  10 years
Annual Net Cash Inflows: $200K
Salvage:  $100K

Answer 17

Woulda thought that this indicated that the salvage doesn’t mater because the answer is 2.5 years (500/200), but that may be because it says “NET Cash Inflows” and not Cash Inflows.

Question 18

Here’s another payback question where you don’t use the tax shield because it says. Machine cost, blah, blah, useful life, 5 years, tax rate 20%. THE AFTER-TAX cash flows are as follows (lists them all for 5 years). No salvage. Company uses 8% hurdle rate, what is the payback period.

Answer 18

Again, “after-tax” so just use what they give you for inflows. Tax shield is irrelevant if they use after-tax, hurdle rate is irrelevant in Payback.

Question 19

Here’s a payback question, do you consider depreciation or not?
Invested in a machine will generate revenues of $35,000 annually for seven years. Will have annual operating expense of $7,000 on the new machine. Depreciation expense included in the operating expense is $4,000 a year. The payback period is 5.2 years. What amount of money did the company pay for the machine.

Answer 19

Nothing in the question says anything about taxes. OK fine, it also doesn’t give the tax rate so I guess that means we don’t have to worry about calculating the depreciation shield. Which kind of means that the actual tax shield isn’t an issue so much as you won’t be paying cash out for the depreciation amount.

So we have $35,000 in new revenues and $7,000 in expenses. All those expenses are cash-out except for the depreciation. So really the cash in is 35,000 - 7000 then add the non-cash depreciation back of $4,000 and you get $32,000 X 5.2 and you get $166,400.

Question 20

Cost indexes divide the new by the old and you get what

Example 120 year 1 becomes 126 year 2

Answer 20

126/120 = 5% so the cost will go up 5%

Question 21

Payback period and salvage vale

Answer 21

Ignore it for once and for all payback doesn’t include cash flows after initial investment is recovered that’s one of it’s weaknesses