BEC - 6

Question 1

The debt ratio measures ________

Answer 1

Percentages of a company’s assets that are financed by total debt, both short-term and long-term.

Debt Ratio = Total Debt / Total Assets

Question 2

How does activity-based costing (ABC) allocate overhead?

Answer 2

First to activities, then to products (rather than to departments then products as with traditional systems).

Question 3

In a perfect monopoly, which of the following describes the relationship between the marginal revenue curve and the demand curve?

Answer 3

In a perfect monopoly market structure, the marginal revenue curve is below the demand curve and the curves diverge as the quantity increases. The basic reason for this relationship is that, facing a downward-sloping demand curve, the firm must continuously lower its selling price in order to sell more units; therefore, marginal revenue must be below demand.

Question 4

What do transaction processing systems (TPS) support?

Answer 4

Day-to-day activities of the business (purchasing of goods and services, manufacturing activities, sales to customers, cash collections, payroll, etc.)

Question 5

When does underapplied overhead occur?

Answer 5

When actual overhead was greater than the applied overhead.

Applied OH = (Bud. FOH/Bud. volume) x (actual volume)

To be underapplied, either the actual fixed costs must be greater than the budgeted fixed costs or the actual volume must be less than the budgeted volume.

Question 6

5 Internal Control Components

Answer 6

Control Environment
Risk Assessment
Control Activities
Information & Communication
Monitoring

Question 7

Control Environment - 5 Principles

Answer 7

1. Integrity & Ethical Values
2. Independent Board of Directors
3. Mgmt establish oversight
4. Competence
5. Accountability

Question 8

Risk Assessment - 4 Principles

Answer 8

1. Clear Objectives
2. Risk Assessment
3. Fraud Risks
4. Change Management

Question 9

Control Activities - 3 Principles

Answer 9

1. Risk Reduction.
2. Technology controls
3. Policies

Question 10

Information & Communication - 3 Principles

Answer 10

1. Quality Information
2. Internal Communication Processes
3. External Communication Processes

Question 11

Monitoring - 2 Principles

Answer 11

1. Ongoing & Periodic

2. Address Deficiencies