Revision

Question 1

What is standard costing?

Answer 1

Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, many manufacturers assign the expected or standard cost
- Direct material
- Direct labor
- Manufacturing overhead
      ~ Variable manufacturing overhead
      ~ Fixed manufacturing overhead

Question 2

What is a perpetual inventory system?

Answer 2

A perpetual inventory system is a method of inventory management that records real-time transactions of received or sold stock through the use of technology – generally considered a more efficient method than a periodic inventory system

Question 3

What is the weighted average costing system for COGS?

Answer 3

The weighted average cost method divides the cost of goods available for sale by the number of units available for sale (have to keep track of dates in and out)

Question 4

What is absorption costing?

Answer 4

a method of calculating the cost of a product or enterprise by taking into account indirect expenses (overheads) as well as direct costs.

Question 5

What is SWOT analysis?

Answer 5

Strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning

Question 6

What is PESTEL analysis?

Answer 6

P – Political
E – Economic
S – Social
T – Technological
E – Environmental
L – Legal
E - Ethical (NEW)
This is best used with SWOT analysis

Question 7

What is acid-test (quick) ratio?

Answer 7

A type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
(Current Assets - Inventory) / Current Liabilties

Question 8

What is financial benchmarking?

Answer 8

Either comparing internal departments or external similar companies to analysis performance and practices

Question 9

What are KPI’s?

Answer 9

Key performance indicators can be recorded and assessed in either financial or non-financial terms. They do not involve setting minimum and maximum (targets) figures, nor are they targeted at micro issues like employees’ daily tasks

Question 10

What is EPS (earnings per share)?

Answer 10

The portion of a company’s profit that is allocated to each outstanding share of common stock and serves as a proxy of the company’s financial health.
(Net Income - Preferred dividends paid) / Ordinary Shares = EPS

Question 11

What is ROI?

Answer 11

Return on investment is a ratio between net profit and cost of investment. A high ROI means the investment’s gains compare favourably to its cost.
Net Profit / Total Investment (assets) * 100 = ROI

Question 12

What is Asset Turnover Ratio?

Answer 12

Asset turnover is the ratio of total sales or revenue to average assets. This metric helps investors understand how effectively companies are using their assets to generate sales
Net Sales / Total Assets = Asset Turnover %

Question 13

What is the payback method/period?

Answer 13

The amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a break-even point.

Question 14

What is the quantitative decision rule for the NPV method?

Answer 14

Net present value is greater than zero (results in a positive investment)

Question 15

How is NPV calculated?

Answer 15

NPV = F / [ (1 + i) ^n]
NPV - Net Present Value
F - Future payment (cash flow)
i - Discount rate (interest rate)
n - number of periods of F

Question 16

What is RoR?

Answer 16

Rate of return is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost. When calculating the rate of return, you are determining the percentage change from the beginning of the period until the end. Time value of money is not considered, that’s in IRR
RoR = [ (Current Value - Initial Value) / Initial Value ] * 100

Question 17

What is IRR?

Answer 17

Internal rate of return is like RoR but considers time value of money. Manually can only be calculated by making NPV $0

Question 18

What is variable costing?

Answer 18

Under this method, manufacturing overhead is incurred in the period that a product is produced.

Question 19

Absorption vs Variable costing?

Answer 19

• Absorption costing includes all costs, including fixed costs, related to production, while variable costing only includes the variable costs directly incurred in production.
• Absorption costing, also known as full costing, entails allocating fixed overhead costs across all units produced for the period, resulting in a per-unit cost.
• Variable costing can make it more difficult to determine ideal pricing for its goods and services since it does not directly consider all of the costs.

Question 20

What is PE ratio? (Price earning ratio)

Equity

Answer 20

the price of shares to the EPS

PE = Share price / EPS

Question 21

What is Current Ratio?

Answer 21

To work out the liquidity of the organisation (pay debts short term)
Current Assets / Current Liabilities = Current Ratio

Question 22

What is Interest Coverage Ratio?

Investment

Answer 22

A ratio used to determine how easily a company can pay interest on outstanding debt. This is calculated by dividing a company’s earnings before interest and tax (EBITDA) of one period by the company’s interest expense of the same period