Test 3

Question 1

Coupon Rate

Answer 1

The amount of stated interest to be paid (usually semi-annually) - PMT

Question 2

Maturity of Bond

Answer 2

End Life of Bond

Question 3

Bond Call Provision

Answer 3

gives the issuer the right to redeem the bonds prior to their maturity by paying a call price

Question 4

Face Value of Bond

Answer 4

Amount of money borrowed

Question 5

Market Premium = ?

Answer 5

Expected Return on Market Portfolio (Rm) - Risk-Free Rate ex. Rj = Rf + Bj (Rm - Rf)

Question 6

Value of Stock

Answer 6

P₀ = D₁ / r or P₀ = D₀ (1+g) / r-g

Question 7

Units Started and Completed =

Answer 7

Units Started - Beginning WIP

Question 8

Actual Process Costing - Weighted Average assumes beginning WIP is ?% complete?

Question 9

Net Realizeable Value (NRV) = ?

Answer 9

NRV = Revenue - Additional Costs

Question 10

Split Off Point

Answer 10

The point at which the single raw material is rendered into the joint and by-products

Question 11

Change in Credit Policy Question Steps

Answer 11

Change in Contribution Margin + Change in Cash Discounts on Credit Sales + Change in Bad Debt + Change in Financing Charges (Average Days in A/R & Average A/R) = Change in Net Income

Question 12

Cost of Goods Manufactured (COGM) Statement

Answer 12

Direct Materials Used + Direct Labour + Manufacturing Overhead = Total Manufacturing Costs + WIP Beg. - WIP End = COGM

Question 13

Income Statement with COGM

Answer 13

Sales - COGS (FG Inv Beg - End + COGM) = Gross Margin - Operating Expenses = Operating Income

Question 14

Normal Input = ?

Answer 14

Normal Input = Number of Good Units / (1 - Spoilage Rate of Normal Input)

Question 15

Break Even Point = ?

Answer 15

Break Even Point = Fixed Costs / CM per Unit

Question 16

Yield to Maturity = ?

Answer 16

I/Y (Divide it by two for semi-annual payments)

Question 17

Joint Cost Allocation

At what point does each method allocate costs? (Split-Off Point or End Sale)

1) Sales Value Method
2) Physical Units
3) Net Realizeable Value

Answer 17

1) Split-Off Point
2) Split-Off Point
3) End Sale of Products

Question 18

Joint Cost Allocation

Are by-products included in the allocation of product cost? If not, what is done with the by-product cost?

Answer 18

No. By-produce costs are deducted from the joint cost total (Final production units of by-product * Sales value per unit)

Question 19

Perferred Share Valuation Formula

P₀= ?

Answer 19

P_O = D₁ / r

Question 20

Common Share Valuation Formula with Even Growth

P₀ = ?

Answer 20

P_O = D₁ / (r - g)

Question 21

Predetermined Overhead Rate (POR) = ?

Answer 21

Predetermined Overhead Rate (POR) = Estimated manufacturing overhead cost total / Estimated number of machine hours

Question 22

What are period costs?

Answer 22

Period costs are all the costs that are not included in product costs. These costs are expensed on the income statement in the period in which they are incurred, using the usual rules of accrual accounting that we learn in financial accounting. Period costs are not included as part of the cost of either purchased or manufactured goods. Sales commissions and office rent are good examples of period costs. Both items are expensed on the income statement in the period in which they are incurred. Thus they are said to be period costs. Other examples of period costs are selling and administrative expenses.

Question 23

What are Prime Costs?

Answer 23

Direct Materials and Direct Labour Costs

Question 24

Statement of Cost of Goods Sold with COGM

Answer 24

Beginning FG Inventory

+ Cost of Goods Manufactured

= Goods Available for Sale

• Ending FG Inventory

= Cost of Goods Sold

Question 25

What are the 3 methods used to handle over/under applied overhead?

Answer 25

1. Direct charge to cost of goods sold (If company is IFRS, this is the only acceptable method)
   * Debit/Credit MOH and Debit/Credit COGS
2. Proration based on ending balances
3. Adjustment of Applied Manufacturing Overhead

Question 26

Margin of Safety = ?

Answer 26

Margin of Safety = Expected Units - Breakeven Units

Or as a %

Margin of safety percentage = (expected units - breakeven units) / expected units

Question 27

Degree of Operating Leverage (DOL) = ?

DOL measures the responsiveness of the firm’s net income to changes in the level of sales

Answer 27

DOL = CM / OI

Note: Operating Income (OI) = EBIT

Question 28

Economic Order Quantity = ?

Answer 28

Square Root ((2DP)/C)

D = demand in units for a specified time period (usually one year)
P = costs incurred per order
C = carrying cost of one unit of stock for a specified time period (usually one
year)

Question 29

Degree of Financial Leverage (DFL) = ?

DFL measures the relationship between a change in EBIT on the rsulting change on Earnings after Tax

Answer 29

Degree of Financial Leverage (DFL) = EBIT / (EBIT - Interest)

Note: Operating Income (OI) = EBIT

Question 30

Activity Based Costing (ABC) allcoates what type of costs?

Answer 30

Indirect Costs