Final Exam

Question 1

Net Present Value (NPV)

Answer 1

tells you if rate is higher or lower than cost of capital (next best method)

Question 2

Internal Rate of Return (IRR)

Answer 2

tells you what your return is (best method)

Question 3

Payback

Answer 3

how quickly you’ll get money back

Question 4

Static

Answer 4

is long-term strategic planning

Question 5

Flexible

Answer 5

shows expected revenue and expenses at a variety of volume levels

Question 6

3 Reasons why cash is work more today than cash to be received in the future

Answer 6

• inflation
• interest
• risk

Question 7

What are 3 approaches to establishing transfer prices

Answer 7

• price based on market forces
• price based on negotiation
• price based on cost

Question 8

Capital Investment

Answer 8

using an asset to generate a return

Question 9

Operating Leverage

Answer 9

magnifies and increase we have in sales

Question 10

Advantages of Budgeting

Answer 10

• coordination
• planning
• performance measurement
• corrective action

Question 11

Responsibility Center

Answer 11

an organizational unit that controls identifiable revenue or expense items

Question 12

Residual Income

Answer 12

operating income - (operating asset + desired ROI)

Question 13

Break Even Point

Answer 13

where profit/revenue equals total cost

Question 14

Liquidity

Answer 14

• short term
• how quickly we use up an asset OR how fast cash turns to an asset

Question 15

Solvency

Answer 15

• long term
• ability to pay all of money that is owed

Question 16

Period Costs

Answer 16

selling general administrative (expensed when incurred)

Question 17

3 ways a manager can increase ROI

Answer 17

• increasing sales
• reducing expenses
• reducing the investments (assets) base

Question 18

Vertical Analysis (common size)

Answer 18

study of items on financial statements in terms of another item

Question 19

Horizontal Analysis (% change)

Answer 19

compares items over periods of times

Question 20

Relevant Range

Answer 20

range of activity over which the definitions of fixed and variable costs are valid

Question 21

Contribution Margin

Answer 21

amount of sales revenue that remains for a product or service after its variable costs are deducted

Question 22

Value Chain

Answer 22

obtaining raw materials to ultimate disposition of finished products. Sequence of steps we use to convert to finish product

Question 23

High/Low methods:

Answer 23

1. equation method
   sales - vc - fc = 0
2. cm per unit method
   fc (profit) / cm (per unit)
3. cm ratio method
   fc (profit) / cm ratio

Question 24

Contribution Ratio

Answer 24

CM / Sales

Question 25

Relevant Information

Answer 25

- differs among alternatives - is future oriented

Question 26

Unit Level Cost

Answer 26

cost incurred each time a company generates one unit of product (ex: cost of direct materials, direct labor, inspections, packaging, shipping, handling)

Question 27

Batch Level Cost

Answer 27

products are generated in batches rather than individuals (ex: apartment air conditioners)

Question 28

Product Level Cost

Answer 28

costs incurred to support specific products or services (ex: quality inspection costs, engineering design costs)

Question 29

Facility Level Costs

Answer 29

incurred to support the entire company. Not related to any specific product, batch or unit of product (ex: building rent, depreciation, personnel administration and training)

Question 30

Direct Costs

Answer 30

can easily be traced

Question 31

Indirect Costs

Answer 31

can not easily be traced

Question 32

3 Primary Volume Cost Drivers Used in Traditional Costing Systems

Answer 32

1. # of units produced 2. # of labor hours 3. amount of direct materials

Question 33

ABC

Answer 33

use many more activity centers than the number of departments in traditional system

Question 34

Time Value Money Theory

Answer 34

present value of a dollar received in the future is less than a dollar

Question 35

Opportunity Cost

Answer 35

sacrifice incurred in order to obtain an alternative opportunity

Question 36

Overhead Costs

Answer 36

also known as indirect costs

Question 37

Activity Based Drivers

Answer 37

used to improve accuracy or indirect cost allocations

Question 38

3 levels of planning for a business

Answer 38

1. strategic planning 2. capital budgeting 3. operating budgeting

Question 39

Strategic Planning

Answer 39

involves making long term decisions such as: defining scope of business, determining which products to develop/discontinue, identifying most profitable market price

Question 40

Capital Budgeting

Answer 40

intermediate range planning. Involves decisions on whether to buy or lease equipment etc.

Question 41

Operations Budgeting

Answer 41

short term plans. Key component is master budget. Sales targets, production goals, financing plans

Question 42

Master Budget

Answer 42

group of detailed budgets and schedules representing the company's operating and financial plans for a future accounting period

Question 43

Key Factors to Help Develop Budget Standards:

Answer 43

- combined experience - judgement - forecasting ability for all personnel who have resposability for a price and usage decisions

Question 44

Favorable Costs

Answer 44

occur when actual costs are less than expected costs

Question 45

3 categories of responsibility center

Answer 45

1. cost 2. profit 3. investment

Question 46

Inventory Accounts are used in manufactoring costs:

Answer 46

- raw materials (lumber, metals, paint) - work in process (partially completed products) - finished goods (completed products ready for sale)

Question 47

Job Order

Answer 47

accumulate costs by individual products

Question 48

Process Costing

Answer 48

allocate costs evenly to homogeneous products