BEC 5 Flashcards
Wexford Co. has a subunit that reported the following data for year 1:
Asset (investment) turnover = 1.5 times
Sales = $750,000
Return on sales = 8%
The imputed interest rate is 12%. What is the division residual income for year 1?
$60,000.
$30,000.
$20,000.
$0.
$0
To solve for residual income (RI), you must first solve for assets (investment) and income (Because RI = income - rate*investment). Since an asset turnover of 1.5 is sales/investment and sales is $750,000, we use $750,000 / x = 1.5, where x = investment. Thus, investment is $500,000. Since a return on sales of 8% is profit/sales and sales is $750,000, we use x / $750,000 = 8%, where x = income. Thus, income is $60,000. Now, RI = income less the rate given at 12% multiplied by the investment. Thus, RI is 0 = $60,000 - .12 ($500,000).
Selected costs associated with a product are as follows:
Total standard hours for units produced 5,000
Total actual direct labor cost $111,625.00
Actual per hour labor rate $23.50
Standard per hour labor rate $24.00
What amount is the total direct labor price variance?
$2,375 unfavorable.
$2,375 favorable.
$2,500 unfavorable.
$2,500 favorable.
$2,375 favorable.
To solve this we would use the formula (SP - AP) AQ. We are given SP and AP, but not AQ. We can find the AQ by dividing the actual total cost of $111,625 by the AP of $23.50 to get 4,750 hours. Now we multiply AQ of 4,750 by the $0.50 difference between the SP of $24 and the AP of $23.50 to get the price variance of $2,375. Since the actual price of $23.50 is less than the expected standard cost of $24, the variance is favorable.
For the current period production levels, XL Molding Co. budgeted 8,500 board feet of production and used 9,000 board feet for actual production. Material cost was budgeted at $2 per foot. The actual cost for the period was $3 per foot. What was XL’s material efficiency variance for the period?
$1,000 favorable.
$1,000 unfavorable.
$1,500 favorable.
$1,500 unfavorable.
$1,000 unfavorable.
A direct efficiency variance is the difference between the actual quantity and the standard quantity allowed multiplied by the standard price. The variance is unfavorable because the actual quantity is greater than expected based on the standard.
Day Mail Order Co. applied the high-low method of cost estimation to customer order data for the first 4 months of Year 1. What is the estimated variable order filling cost component per order?
Month Orders Cost January 1,200 $3,120 February 1,300 $3,185 March 1,800 $4,320 April 1,700 $3,895 Total 6,000 $14,520
$2.00.
$2.42.
$2.48.
$2.50.
$2.00.
The calculation of the variable cost per unit (or slope term) uses the high and low production points, provided they are representative of the distribution. The change in the cost for the two points (March is high, January is low) is divided by the change in activity level.
Slope = ($4,320 - $3,120)/(1,800 - 1,200) = $2.00
Labor efficiency variance equation (quantity variance)
(actual labor hours)(standard wage rate) - (standard labor hours)(standard wage rate)
Labor Rate (Price) Variance Equation
(actual labor hours)(actual rate) - (actual labor hours)(standard wage rate)
What is residual income?
Residual income (RI) is a managerial accounting measurement used to assess and compare the relative success of business units. The basic formula for calculating residual income is to multiply operating assets by the cost of capital, and then subtract this value from operating income.
What tools does Six Sigma commonly use to achieve quality control?
Demand flow technology tools (e.g., continuous flow planning).
Tools common to TQM (e.g., control charts).
Constraint management optimization tools (e.g., capacity analysis).
Push-model tools (e.g., forecasting using regression).
Tools common to TQM (e.g., control charts).
Six Sigma is very similar to total quality management (TQM) and uses TQM tools such as control charts, run charts, pareto histograms, and Isikawa (fish-bone) diagrams.
Which of the following items is never relevant to a sell or process further decision?
Incremental revenue after the split-off point.
Incremental cost after the split-off point.
Joint costs.
Additional contribution margin realized if processed further.
Joint costs.
Joint costs are sunk costs that are unavoidable, regardless of whether the item is sold at split-off or processed further.
Each of the following is a desirable characteristic of IT policies except:
Should relate to physical or electronic threats to IT.
An owner is responsible for the policy.
Should include a statement of purpose and a title.
Should be linked to strategy and objectives.
Should relate to physical or electronic threats to IT.
Correct! This is a false statement. IT policies need not relate specifically to physical or electronic threats to IT.
A company reports the following account balances at year-end:
Account Balance Long-term debt $200,000 Cash 50,000 Net sales 600,000 Fixed assets (net) 320,000 Tax expense 67,500 Inventory 25,000 Common Stock 100,000 Interest expense 20,000 Administrative expense 35,000 Retained earnings 150,000 Accounts payable 65,000 Accounts receivable 120,000 Cost of goods sold 400,000 Depreciation expense 10,000
Additional Information:
The opening balance of common stock was $100,000
The opening balance of retained earnings was $82,500
The company had 10,000 common shares outstanding all year
No dividends were paid during the year
For the year just ended, the company has times interest earned of
- 375 times.
- 75 times.
- 75 times.
- 5 times.
7.75 times.
This answer is correct. Times interest earned is calculated as earnings before interest and taxes divided by interest expense: [sales – cost of goods sold – administrative expense – depreciation expense] ÷ interest expense = [$600,000 – 400,000 – 35,000 – 10,000] ÷ 20,000 = $155,000 ÷ 20,000 = 7.75 times.
The following information is available for Armstrong Enterprises for 2012:
Net operating income after taxes $36,000,000
Depreciation expense 15,000,000
Change in net working capital (increase) 10,000,000
Capital expenditures 12,000,000
Invested capital (net assets) 100,000,000
Weighted average cost of capital 10%
What is the free cash flow for 2012?
$36M
$30M
$29M
$26M
$29M
This answer is correct. Free cash flow is calculated as follows:
Net operating income after taxes $36,000,000
+Depreciation expense 15,000,000
–Change in net working capital (10,000,000)
–Capital expenditures (12,000,000)
= Free cash flow $29,000,000
The Regression Equation is y = A + Bx. What do each of the variables represent?
y = dependent variable A = Y intercept on a graph B = the slope of the line x = the independent variable
Under frost-free conditions, Cal Cultivators expects its strawberry crop to have a $60,000 market value.
An unprotected crop subject to frost has an expected market value of $40,000.
If Cal protects the strawberries against frost, then the market value of the crop is still expected to be $60,000 under frost-free conditions and $90,000 if there is a frost.
What must be the probability of a frost for Cal to be indifferent to spending $10,000 for frost protection?
.167.
.200.
.250.
.333.
.200.
There are two states of nature that can affect the firm’s earnings: frost and no frost. There are also two actions under consideration: provide frost protection for $10,000, or do not. The expected income under each action will depend on the probability of frost. Let p = the probability of frost. Expected net income if frost protection is provided = $90,000(p) + $60,000(1-p) - $10,000. Expected net income if frost protection is not provided = $40,000(p) + $60,000(1-p). The firm is indifferent between the two actions when the expected net income is the same for both. Setting the two expressions equal to each other and solving for p determines at what probability of frost the two actions provide the same income.
$90,000(p) + $60,000(1-p) - $10,000 = $40,000(p) + $60,000(1-p)
$50,000(p) = $10,000
p = .20
When the probability of frost exceeds .20, the expected income from providing frost protection exceeds that of not providing frost protection. This can be verified by entering a probability higher than .20 into both income expressions and determining the income. This is the expected result. As the probability of frost increases, the expected benefits of providing frost protection also increase.
The opposite is true for probabilities lower than .20.
What are the 4 categories of Total Quality Management (TQM)?
The four categories are prevention costs, appraisal costs, internal failure costs, and external failure costs.
