Financial

Question 1

Absorption (Full) Costing

Answer 1

The full cost method uses the selling division’s costs of production as the basis of the transfer price. Under the full cost method, an allocated portion of the fixed costs of the selling division is added to the product’s variable costs to determine the transfer price.
Markup % = (Desired return + SG&A costs)/Annualized absorption cost
Target selling price requires calculation of absorption cost per unit

Question 2

Variable (direct) costing

Answer 2

Direct Costing (also known as variable costing) assigns only variable manufacturing costs (direct material, direct labor, but only variable manufacturing overhead) to inventory. Direct costing does not include comparison of costs to revenue. As such, use of direct costing does not include a calculation of product profitability. Direct costing is not an appropriate method to use to determine the expected product price and/or profit margin.
Use variable cost pricing occurs when transfer price is set at the variable costs incurred by the selling division to produce and sell the unit to the purchasing division. In general, these are direct materials costs, direct labor costs, variable factory overhead costs, and variable selling and administrative costs
Markup % = (Desired return + Fixed costs) / Variable cost per unit x Annual volume)
Target selling price requires calculation of variable cost per unit

Question 3

Total Cost Approach

Answer 3

Markup % = (Desired return) / Total cost
Target selling price = full cost per unit

Question 4

Drawback of cost-based pricing

Answer 4

One drawback of cost-based pricing is that it ignores customer demand. It does not require accountants to classify costs as either fixed or variable, nor does it require accountants to state a specific return on investment goal. And it can be used correctly in an entity that employs activity-based costing.

Question 5

Canceled orders

Answer 5

Indicat an external failure. Should be included in the cost of quality report as an external failure. It is not recorded in the financial statements.
Keeping track of cancelled orders can help an organization determine if they have a quality problem.

Question 6

Cost of quality reports

Answer 6

Are a tool that some organizations use internally to monitor both quality of design and quality of conformance.
1. Prevention costs: involve any quality activity designed to do the job right the first time.
2. Appraisal costs: costs associated with quality control and include testing and inspection.
3. Internal failure costs: occur when substandard products are produced but discovered before shipment to the customer
4. External failure costs: incurred for products that do not meet requirements of the customer and have been shipped to the customer

Question 7

Bank reconciliation

Answer 7

A bank reconciliation is an inspection of the banking records and the general ledger accounts related to cash. The purpose of reconciling is to determine if the records match. This is an inspection, also known as an appraisal.

Question 8

Voluntary cost

Answer 8

Both prevention costs and appraisal costs are voluntary

Question 9

Contribution Margin

Answer 9

CM = selling price - variable costs (Direct labor, direct materials, variable overhead)

Question 10

Return on Investment (ROI)

Answer 10

Net income divided by invested capital (equity)
ROI is highly related to stock price and, therefore, shareholder value.
Pretax profit / Total assets
Net income (before interest expense)/ Average total assets

Question 11

Revenue market share

Answer 11

To evaluate a product with comparable products sold by competitors, one must use a metric that reflects the entire market for these products. The metric revenue market share measures the percentage of the overall market’s revenue that is being sold by any single product or firm. Revenue market share is a much more meaningful metric than unit market share, because unit market share does not reflect any differences in product price.

Question 12

Incremental cash inflow

Answer 12

The payback period is the amount of time required for cash inflows generated by a project to offset its initial cash outflow, also called initial cost. To calculate the payback period, one must use the incremental cash inflow. Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project.

Question 13

Gross margin

Answer 13

Gross profit / sales

Question 14

Gross profit

Answer 14

Sales - COGS

Question 15

Return on Asset (ROA)

Answer 15

Net Income / Average Total Assets

Question 16

Economic value added (EVA)

Answer 16

Net operating income after taxes (NOPAT) -(Invested capital (total assets − current liabilities) x Weighted average cost of capital)
net operating profit after taxes minus the cost of capital.

Question 17

Return on Sales

Answer 17

Net operating profit divided by sales
Pretax profit / Sales

Question 18

Inventory turnover

Answer 18

COGS/average inventory.

Question 19

Inventory percentage

Answer 19

ending inventory balance/total assets

Question 20

Bottleneck

Answer 20

A bottleneck is any resource or operation where the capacity is less than the demand placed upon it.

Question 21

Appraisal costs

Answer 21

Appraisal costs are costs associated with quality control and include testing and inspection.
It involves any activity designed to appraise, test, or check for defective products.

Question 22

Level of sales

Answer 22

The level of sales for the company is calculated using total debt to total assets ratio and total asset turnover

Question 23

BV per share

Answer 23

Common stockholder’s equity(CS+RE) divided by Outstanding share

Question 24

Six-sigma

Answer 24

Six-sigma is a statistical measure expressing how close a product comes to its quality goal. Six-sigma is 99.999997% perfect with a 3.4 defects per million parts.
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.

Question 25

Four perspectives of the balanced scorecard

Answer 25

1. Financial perpective: measures of an entity’s financial perspective would include calculations such as ROI or percentage growth in revenue.
2. Customer perspective: measures of an entity’s customer perspective would include customer satisfaction ratings or revenue per customer and evaluates the organization’s success in targeted customer and market segments.
   3.Internal business processes: focuses on the internal operations that create value. include new product development, operations, and after-the-sale customer service, percentage of on-time deliveries or number of rejects. includes measures related to cost, quality, and time.
   Cycle time is the time it takes to manufacture a product and
3. Learning and growth: identifies the internal characteristics that the company must possess in order to be successful in the other areas. It includes areas such as employee skill levels, information system capabilities, and employee morale and empowerment. Employee training, employee retention, reserach and development, infrastructure, teaming, and capabilities

Question 26

Total Assets

Answer 26

Sales/Asset turnover

Question 27

Pretax profit

Answer 27

(Required rate of return × Total assets) + Residual income.

Question 28

Expected value

Answer 28

The expected value of an action is the weighted-average of the payoffs for that action, where the weights are the probabilities of the various mutually exclusive events that may occur

Question 29

Sales for the year

Answer 29

Investment turnover x average investment

Question 30

Regression analysis

Answer 30

Regression analysis determines the functional relationship between variables and provides a measure of probable error. Multiple regression analysis involves the use of two or more independent variables (such as the number of shipments and the weight of materials handled) to predict one dependent variable (inventory warehouse costs).

Question 31

Vertical analysis

Answer 31

Vertical analysis involves presenting everything within a financial statement as a percentage of a base. For a common-size income statement all items would be presented as a percentage of net sales.

Question 32

Residual Income

Answer 32

Income - required rate of return ( total assets x required return)

Question 33

Mass production

Answer 33

Mass production is typically characterized by higher setup times, dedicated equipment, and low-skilled workers with a high degree of specialization.

Question 34

Lean production

Answer 34

lean production is characterized by lower setup times, flexible equipment, and highly skilled, cross-trained workers.

Question 35

Receivable turnover ratio

Answer 35

Net sales divided by average receivable balance

Question 36

Job order costing

Answer 36

Job order costing is used to accumulate costs related to the production of items that are custom-made and can be distinguished from each other. Job costing does not include comparison of costs to revenue. As such, use of job costing does not include a calculation of product profitability. Job costing is not an appropriate method to use to determine the expected product price and/or profit margin.

Question 37

Process costing

Answer 37

Process costing is used to accumulate costs for mass-produced, continuous, homogeneous items, which are often small and inexpensive. Process costing does not include comparison of costs to revenue. As such, use of process costing does not include a calculation of product profitability. Process costing is not an appropriate method to use to determine the expected product price and/or profit margin.

Question 38

Target costing

Answer 38

Target costing is the concept of “price-based costing” instead of “cost-based pricing.” A target price is the estimated price for a product or service that potential customers will be willing to pay. A target cost is the estimated long-run cost of a product or service whose sale enables the company to achieve a targeted profit.

Question 39

Throughput Costing

Answer 39

Throughput costing assigns only direct material manufacturing costs to inventory. All other manufacturing costs are expenses as incurred. Throughput costing does not include comparison of costs to revenue. As such, use of throughput costing does not include a calculation of product profitability. Throughput costing is not an appropriate method to use to determine the expected product price and/or profit margin.

Question 40

Transfer Pricing

Answer 40

When one division of a manufacturing organization supplies components or materials to another division, the price charged by the selling (producing) division to the buying division is known as the transfer price. Transfer pricing is not a method used to develop the budgeted profit margin for a new product.

Question 41

Market price method

Answer 41

The market price method sets the transfer price as the price the purchasing unit would have to pay on the open market. Because taxes and import duties vary substantially among countries, the transfer price used to value products as they flow across national boundaries can have a significant effect on the amount of taxes and duties paid.

Question 42

Negotiated price method