Day 39

Question 1

Equation: Residual Income

Answer 1

= Net Income - Required Return

Required Return = Net Book Value (Equity) × Hurdle Rate

Residual Income = Imputed Interest Rate × Avg. Invested Capital

MCQ-04250

Question 2

Equation: Investment Turnover

Answer 2

= Sales ÷ Avg. Investment

MCQ-06659

Question 3

Equation: Cost of Goods Manufactured

Answer 3

= Direct Materials Used + Direct Labor + Overhead Applied + (Beg. WIP - Ending WIP)

MCQ-03586

Question 4

Equation: WACC

Answer 4

= [(Common Stock ÷ Firm Value) × Required Rate of Return]
+
[(Prefered Stock ÷ Firm Value) × Required Rate of Return]
+
(Debt ÷ Firm Value) × Required Rate of Return × (1 - Tax Rate)

MCQ-06987

Question 5

Residual Income is a better measure for performance evaluation of an investment center manager than return on investment because:

Answer 5

Desirable investment decisions will not be neglected by high return divisions

Note: Residual Income measures actual dollars that an investment earns over it’s required return

MCQ-03435

Question 6

What cost is deducted from a manufacturing company to determine Gross Margin, but NOT deducted from revenues to determine Contribution Margin?

Answer 6

Fixed Manufacturing Costs

MCQ-08538

Question 7

Operating Budgets are used to create:

Answer 7

Proforma FS

All of the Operating Budgets (Sales, Production, Selling & Admin Budgets) are used to create Financial Budgets (Cash & FS)

MCQ-07747

Question 8

How are Joint Costs allocated:

Answer 8

Allocated based on:
- Relative Unit Volume
- Relative Sales Value at Split-Off
- Net Realizable Value

MCQ-05799

Question 9

A Flexible Budget is appropriate for what other types of budgets?

Answer 9

• Marketing Budget
• Direct Materials Usage Budget

Note: Flexible Budgets are good for any activity that has Variable Costs

MCQ-03819

Question 10

Equation: Return on Assets - ROA

Answer 10

= Net Income / Total Assets

MCQ-11115

Question 11

True or False: ROI may lead managers to reject capital investment projects that can be justified by using discounted cash flow models

Answer 11

True

Investment projects with positive Present Value may be rejected because ROI is too low

MCQ-03444

Question 12

Equation: ROI

Answer 12

= Income / Investment Capital

= Profit Margin × Investment Turnover
- Profit Margin = Income ÷ Sales
- Investment Turnover = Sales ÷ Invested Capital

MCQ-06659

Question 13

What does the Economic Order Quantity Inventory model attempt to minimize?

Answer 13

Total ordering and Carrying Costs

MCQ-07796

Question 14

Equation: EOQ

ESOC

Answer 14

= √ 2SO / C

• Sales in units
• Cost per Order
• Carrying cost per unit

MCQ-07796

Question 15

When does Quality Assurance take place?

Answer 15

During the Implementation Process

MCQ-06488