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1
Q

COSO Internal Control Model - What? (5)

A

Control Environment, Risk Assessment, Control Activities, Information & Communication, Monitoring Activities

2
Q

COSO Internal Control Model - Why? (3)

A

Operations, Reporting, Compliance

3
Q

COSO Internal Control Model - Where? (4)

A

Entity, Division, Operating Unit, Function

Control Environment – the core/foundation of I/C

4
Q

Control Environment - Principles

A
  1. Integrity and ethical values, 2. Independence of mgmt, 3. Competence, 4. Achieve objectives, 5. Accountability
5
Q

Risk Assessment - Principles

A
  1. Objectives, 2. Assessment, 3. Fraud, 4. “Change” mgmt
6
Q

Control Activities - Principles

A
  1. Risk reduction, 2. Technology controls, 3. Policies
7
Q

Information & Communication - Principles

A
  1. Quality, 2. Internal, 3. External
8
Q

Monitoring - Principles

A
  1. Ongoing & Periodic, 2. Address deficiencies
9
Q

COSO ERM Model - 8 Components

A
  1. internal environment, 2. event identification, 3. risk assessment, 4. risk response, 5. control activities, 6. information & communication, 7. monitoring 8. objective setting
10
Q

Segregation of Duties - Categories

A
  1. authorizing, 2. recording, 3. safeguarding resources, 4. reconciling, overseeing and auditing
11
Q

IIA Mandatory Guidance

A
  1. Definition of internal audit, 2. Code of Ethics, 3. International Standards
12
Q

IIA Code of Ethics

A
  1. Integrity, 2. Objectivity, 3. Confidentiality, 4. Competency
13
Q

How often are IIA External Assessments performed?

A

At least once every 5 years.

14
Q

Attribute Standards - Categories

A

1000 – Purpose, Authority and Responsibility, 1100 – Independence and Objectivity, 1200 – Proficiency and Due Care, 1300 – Quality Assurance & Improvement Program

15
Q

Performance Standards - Categories

A

Managing the Internal Audit Activity, 2100 – Nature of Work, 2200 – Engagement Planning, 2300 – Performing the Engagement, 2400 – Communicating Results, 2500 – Monitoring Progress, 2600 – Resolution of Senior Management’s Acceptance of Risks

16
Q

Free Market Flow Model

A

(1) Economic Resources, (2) Payment for Resources, (3) Payment for Goods/Services, (4) Providing Goods/Services

Macro - additional sections include foreign sector, financial sector, and government.

17
Q

Demand Changes - Micro

A

size of market, income or wealth of participants, preferences, changes in prices of other goods/services, substitute goods – move in the same direction, complementary goods – move in the opposite direction

18
Q

Supply Changes - Micro

A

number of providers, cost of inputs, technological advances

19
Q

Market Equilibrium Changes - Micro

A

change in demand, change in supply, or change in both supply and demand

20
Q

Demand and supply curves only shift when there are changes other than _______ ?

A

Price.

21
Q

Indifference Curve

A

Same satisfaction in receiving two different goods, or any combination of the two goods.

22
Q

Law of Diminishing Returns

A

Short-term: marginal product falls as more units of variable input are added to fixed inputs, Long-term: returns to scale

23
Q

Elastic - D or S > P

A

Price Increase = Total Rev. Decreases

Price Decrease = Total Rev. Increase

24
Q

Unitary Elasticity - D or S = P

A

Price Increase = No Change

Price Decrease = No Change

25
Q

Inelastic - D or S < P

A

Price Increase = Total Revenue Increases

Price Decrease = Total Revenue Decreases

26
Q

Perfect Competition

A

large # buyers/sellers, no single person can affect market price, low barriers to entry, maximized when MC = MR, Demand is horizontally sloped, Price = MR

27
Q

Perfect Monopoly

A

single seller, no close substitutes, restricted barriers to entry, maximized when MC=MR, Demand is downwardly sloped and increasingly moving away from MR, Natural monopolies have increasing returns to scale

28
Q

Monopolistic Competition

A

large number of sellers, differentiated products/services, low barriers to entry, maximized when MC=MR, Demand is downward sloping and increasingly moving away from MR

29
Q

Oligopoly

A

few sellers, differentiated product, high barriers to entry, maximized when MC=MR, Demand curve is “kinked”, Elastic-Kink-Inelastic

30
Q

Tacit Collusion

A

firms copy a larger firm’s prices, not illegal in the U.S.

31
Q

Leakages

A

expenses not on domestic production (i.e. savings, taxes, etc.)

32
Q

Injections

A

added to domestic production (i.e. gov’t spending/subsidies, investment subsidies, exports)

33
Q

Nominal GDP

A

total output of FINAL goods and services produced for exchange in the domestic market, not adjusted for changing prices

34
Q

Real GDP

A

adjusted for changing prices

35
Q

GDP “Gap”

A

Real GDP vs. Potential GDP, Real GDP > Potential – creates upward pressure on prices (i.e. inflation)

36
Q

Expenditure Approach to GDP vs. Income Approach to GDP

A

Expenditure approach to GDP: uses final sales/purchases, Income approach to GDP: uses income/resources

37
Q

Unemployment Rate vs. Natural Rate (Formulas)

A

Unemployment Rate = Unemployed/Size of Labor Force

Natural Rate = Frictional + Seasonal + Structural/Size of Labor Force

38
Q

Frictional Unemployment

A

transition or imperfection information

39
Q

Structural Unemployment

A

prior types of jobs have been reduced or eliminated

40
Q

Seasonal Unemployment

A

work opportunity regularly and predictably varies by season

41
Q

Cyclical Unemployment

A

downturn in business cycle/economic contraction

42
Q

Net Exports are Positive – Aggregate Demand _________

A

Increases

43
Q

Net Exports are Negative – Aggregate Demand _________

A

Decreases

44
Q

Multiplier Effect

A

Multiplier Effect = Initial Change in Spending x (1/(1 - MPC))

45
Q

Marginal Propensity to Consume

A

change in consumption as a % of disposable income

46
Q

Marginal Propensity to Save

A

change in savings as a % of disposable income

47
Q

Avg. Propensity to Consumer

A

% of disposable income spent on goods

48
Q

Avg. Propensity to Save

A

% of disposable income saved

49
Q

Aggregate Supply - Classical (Graph)

A

Vertical Supply

50
Q

Aggregate Supply - Keynesian (Graph)

A

horizontal, then kinks upwards

51
Q

Aggregate Supply - Conventional (Graph)

A

curved upwards

52
Q

Causes of Inflation - Macro

A

demand-induced (demand pull) and supply-induced (cost push or supply push)

53
Q

Consequences of Inflation

A

(1) lower current wealth and lower future real income, (2) higher interest rates, (3) uncertainty of economic measures

54
Q

Monetary Policies

A

(1) reserve requirement changes, (2) open market operations, (3) discount rate

55
Q

Principle of Comparative Advantage

A

output will be greatest when firms produce goods w/ lowest opportunity cost

56
Q

Transaction Risk vs. Translation Risk

A

Transaction Risk: settled in a foreign currency; Translation Risk: settled in domestic currency

57
Q

Economic Risk (International)

A

alters the value of future revenues/costs

58
Q

Transfer Price Issue (International)

A

transfer of goods/services to affiliated entities to manipulate tax rates and profits (favorable)

59
Q

Functions of World Bank

A

emerging countries/reconstruction

60
Q

Functions of International Monetary Fund

A

currency crisis, banking crisis, financial debt crisis

61
Q

Functions of GATT/World Trade Organization

A

police international trading system

62
Q

Foreign Direct Investment

A

establishing production facilities (through financial investment) to carry out production needs.

63
Q

U.S. - What % of Worldwide exports? % of World’s GDP?

A

10% - exports, 25% - World’s GDP

64
Q

World’s Largest Exporters? (2)

A

Germany and China

65
Q

Largest Decline in output over past 40 yrs?

A

Europe

66
Q

PEST Analysis

A

Political, Economic, Social and Technological; used for a specific region/environment

67
Q

Five Forces Analysis

A

(1) threat of entry, (2) threat of substitute goods, (3) bargaining power of buyers, (4) bargaining power of suppliers, (5) intensity of rivalry; used for industry analysis

68
Q

SWOT Analysis

A

Internal: Strengths & Weaknesses, External: Opportunities & Threats; used in entity analysis in comparison to environment

69
Q

Generic Business Strategies

A

Cost Leadership, Differentiation, and Focus Strategy

70
Q

Sunk Costs

A

costs of resources incurred in the past

71
Q

Opportunity Costs

A

discounted dollar value of benefits lost from an opportunity as a result of choosing another opportunity

72
Q

Differential Costs

A

costs that are different between two or more alternatives

73
Q

Common Stock - Risk Level/Rate of Return

A

most risky, highest rate of return

74
Q

Preferred Stock - Risk Level/Rate of Return

A

characteristics of both debt and equity, more risky than debt, less risky than equity

75
Q

Debt - Risk Level/Rate of Return

A

least risky, lowest rate of return

76
Q

Weighted Average Cost of Capital (WACC)

A

required rate of return on each source of capital weighted by the proportion of total capital provided by each source, summed for a total weighted average.

77
Q

Ordinary Annuity vs. Annuity Due

A

Ordinary Annuity – end of the period

Annuity Due – beginning of the period

78
Q

PV of a Single Amount

A

PV now of an amount to be received/paid at a single date

79
Q

FV of a Single Amount

A

FV of a single amount invested now

80
Q

PV of an Ordinary Annuity

A

PV now of an ordinary annuity to be received over some future time period

81
Q

FV of an Ordinary Annuity

A

FV at a future time invested over some future time period

82
Q

Effective Interest Rate (Formula)

A

Net Cost of Borrowing / Net Proceeds (deduct for bank restrictions)

83
Q

GAAP FV Valuation Levels

A

Level 1: external, observable inputs, Level 2: similar observable inputs, Level 3: unobservable inputs

84
Q

GAAP FV Valuation Approaches

A

Market Approach, Cost Approach, Income Approach

85
Q

CAPM Model (Formula)

A

RoR = Risk Free RoR + beta (Expected RoR – Risk Free RoR)

86
Q

Beta is a measure of what?

A

Volatility

87
Q

Meaning of Beta (>1, =1, <1)

A

1 more volatile than benchmark

88
Q

Business Valuation Approaches

A

market, income and asset approach

89
Q

Types of Qualitative Forecasting

A

executive opinion, market research, Delphi Method

90
Q

Types of Quantitative Forecasting

A

Time series, causal models

91
Q

Capital Budgeting - Evaluation Techniques

A

(1) Payback period approach, (2) discounted payback period, (3) accounting rate of return, (4) net present value, (5) Internal rate of return, (6) Profitability index

92
Q

Payback Period Approach

A

of years to recover the initial cash investment, compared to a max number of acceptable years, ignores time value of money.

93
Q

Discounted Payback Period Approach

A

uses discounted cash flows, considers time value of money, # of years to recover will be higher than traditional method.

94
Q

Accounting Rate of Return Approach

A

(Avg. Incremental Revs – Avg. Incremental Exp. (Annual)) / Initial (or Avg.) Investment; Uses accrual-basis of accounting (i.e. account for depreciation in expenses), ignores time value of money.

95
Q

Net Present Value Approach

A

Inflows – Outflows = NPV, recognizes time value of money, considers entire life, relates to cost of capital.

96
Q

Internal Rate of Return Approach

A

PV Factor = Investment Cost/Future Annual Cash Inflow

**Depreciation is not included!

97
Q

Profitability Index Approach

A

PV of Cash Inflows/Project Cost = PI
NPV/Project Cost = PI
Higher Percentage = Higher Rank, used when limited funds are available

98
Q

Financial structure includes?

A

All debt and equity

99
Q

Capital structure includes?

A

only L/T debt and equity

100
Q

Trade A/P Advantages/Disadvantages

A

no collateral, specific use (trade accounts only)

101
Q

Accrued A/P Advantages/Disadvantages

A

no collateral, specific use (i.e. salaries payable)

102
Q

S/T Notes Payable Advantages/Disadvantages

A

no collateral, requires compensating balance

103
Q

Spontaneous Financing

A

occurs automatically through day-to-day operations, (i.e. general S/T payables)

104
Q

Line of Credit

A

informal agreement to extend credit to a borrower

105
Q

Revolving Credit

A

legal agreement to extend credit to a borrower

106
Q

Letter of Credit

A

conditional commitment to pay a third party, has specified terms and commitments

107
Q

Credit Advantages/Disadvantages

A

flexible, no collateral, poor credit rating results in high interest, requires compensating balance

108
Q

Commercial Paper

A

S/T unsecured promissory note sold by large, creditworthy firms

109
Q

Pledging A/R

A

uses a current asset, trade A/R, as security for S/T borrowings

110
Q

Pledging A/R Advantages/Disadvantages

A

flexible, costs may be greater than other sources of S/T financing

111
Q

Factoring A/R

A

sale of A/R to a commercial bank or other financial institution (with or w/o recourse)

112
Q

Factoring A/R Advantages/Disadvantages

A

buyer assumes billing/collection responsibilities (except w/ recourse), cost may be greater than other sources of S/T financing

113
Q

Inventory Advantages/Disadvantages

A

commonly available, pledged inventory may not be available when needed, costs can be greater than other sources, not available for all inventory

114
Q

Types of Inventory Secured Loans

A

floating lien - lien all inventory, retain control
chattel mortgage - lien specific inventory, retain control
field warehouse - collateral remains at firm’s warehouse, placed under control of 3rd party
terminal warehouse - collateral moved to public warehouse

115
Q

L/T Notes, Restrictive Covenants

A

(1) maintaining certain working capital conditions, (2) additional incurrence of debt, (3) Frequency and nature of financial information, (4) management changes

116
Q

Net Lease

A

Lessee assumes the cost associated with ownership (executory costs - maintenance, taxes, insurance, etc.)

117
Q

Net Net Lease

A

Lessee assumes the cost associated with ownership and is responsible for a residual value at the end of the lease

118
Q

Debenture bonds vs. Secured bonds

A

Debenture bonds: unsecured, no specific asset is designated as collateral, Secured bonds: have specific assets designated as collateral

119
Q

What bonds are most likely to maintain a constant market value?

A

Floating rate bonds

120
Q

Indenture

A

contract that states the terms of a bond issued by a corporation

121
Q

Preferred Stock Characteristics

A

cumulative/noncumulative, participating/nonparticipating, protective provisions, convertible/nonconvertible, call provisions

122
Q

Preferred Stock Value (PSV) Formula

A

Preferred Stock Value (PSV) = Annual Dividend / Required Rate of Return

123
Q

Preferred Stock Expected Rate (PSER) Formula

A

Preferred Stock Expected Rate (PSER) = Annual Dividend / Market Price

124
Q

Common Stock Characteristics

A

limited liability, residual claim to income and assets, right to vote, preemptive right

125
Q

Common Stock Value (CSV) Formula

A

Common Stock Value (CSV) = Dividend in 1st Year / (Required RoR – Growth Rate)

126
Q

Common Stock Expected Return (CSER) Formula

A

Common Stock Expected Return (CSER) = (Dividend in 1st Year / Market Price) + Growth Rate

127
Q

Financing Strategies (S/T & L/T)

A

(1) hedging principle of financing, (2) optimum capital structure, (3) business risk constraint, (4) tax rate benefit effect

128
Q

Cost of Capital Relationships

A

(1) macroeconomic conditions, (2) past performance of the firm, (3) amount of financing, (4) relative level of debt financing, (5) debt maturity, (6) debt security

129
Q

Zero Balance Accounts

A

overdrafts are covered automatically by the bank, no real money in the account (i.e. monthly payroll)

130
Q

Lock box System

A

customer’s payments are accessed directly by the company’s bank

131
Q

Increase or Decrease - Receipt Float vs. Disbursement Float?

A

Decrease Receipt Float – receives cash sooner, Increase Disbursement float – cash paying is available longer.

132
Q

Cash Conversion Cycle

A

cash for inventory and collection of cash from the sale of products made with inventory.

133
Q

S/T Investment Opportunities

A

U.S. Treasury bills (safest), Federal agency securities, negotiable Certificates of Deposit, Bankers’ acceptances, commercial paper, repurchase agreements

134
Q

Sharpe Ratio (Formula)

A

Sharpe Ratio = (Avg. RoR – Risk-Free RoR) /St. Dev.

135
Q

S/T Investment Concerns

A

safety of principal, price stability, marketability/liquidity

136
Q

Primary goal of A/R Management is to…. ?

A

Maximize profits

137
Q

Approaches to Inventory Management

A

(1) Traditional Materials Requirement Planning system (MRP) – Supply Push (2) Just –In-Time (JIT) System – Demand Pull

138
Q

Economic Order Quantity (EOQ) Formula

A

Total Inventory Cost (EOQ) = (T/Q) x O + (Q/2) x C or the square root of – (2TO/C)

139
Q

Reorder Point Formula

A

Reorder Point = Delivery time stock + safety stock

140
Q

Hedging Principle of Finance

A

finance S/T assets with S/T liabilities

141
Q

B/S vs. I/S Ratios

A

must find average for B/S item (Beginning + Ending)/2

142
Q

Types of Ratio Measures

A

liquidity/solvency, operational activity, profitability, equity/investment leverage

143
Q

Working Capital vs. Working Capital Ratio

A

Working Capital = CA – CL

Working Capital Ratio = CA/CL

144
Q

Acid Test/Quick Ratio

A

(Cash + Net Receivables + Marketable Securities) / Current Liabilities (Excludes Inventory!)

145
Q

Defensive-Interval Ratio

A

(Cash + Net Receivables + Marketable Securities) / Avg. Daily Cash Expenditures

146
Q

Average Collection Period

A

(Days in Year x Avg. A/R) / Credit Sale for Period

147
Q

Times Interest Earned Ratio

A

(N/I + Interest Expense + Income Tax Expense) / Interest Expense

148
Q

Times Preferred Dividends Earned Ratio

A

N/I / Annual Preferred Dividend Obligation

149
Q

A/R Turnover

A

Net Credit Sales / Average Accounts Receivable

150
Q

Avg. Number of Days Sales in Receivables

A

365 / A/R Turnover

151
Q

Inventory Turnover

A

COGS / Avg. Inventory

152
Q

Number of Days Supply in Inventory

A

365 / Inventory Turnover

153
Q

A/P Turnover

A

Credit Purchases (or COGS + Ending – Begin Inventory) / Avg. Accounts Payable

154
Q

Number of Days Purchases in Payables

A

365 / Accounts Payable Turnover

155
Q

Capital Turnover

A

Annual Sales (or Revenue) / Avg. Owner’s Equity

156
Q

Cash Conversion Cycle

A

Cash Conversion Cycle = Inventory Conversion + A/R Conversion – A/P Conversion

157
Q

Operating Cycle

A

Inventory Conversion + A/R Conversion

158
Q

Gross Profit vs. Gross Profit Margin

A

Gross Profit = Sales (or Revenue) – COGS

Gross Profit Margin = Gross Profit / Net Sales

159
Q

Net Profit Margin

A

Net Profit Margin = Net Income / Net Sales

160
Q

Return on Total Assets/Investments

A

Net Income + Interest Expense / Avg. Total Assets or Avg. Total Investments

161
Q

Return on Owner’s Equity

A

Net Income / Avg. Stockholder’s Equity

162
Q

Return on C/S Equity

A

Net Income – Preferred Dividends / Avg. Common Stockholder’s Equity

163
Q

Residual Income

A

Residual Income = Net Income – Required Dollar Return

164
Q

Economic Value Added

A

Earnings before interest – ((Opportunity Cost) x (L/T Debt + Stockholder’s Equity)

165
Q

EPS (Basic)

A

Net Income – Preferred Dividends / Weighted Avg. Number of Shares Outstanding

166
Q

Price to Earnings Ratio

A

Market Price for a Common Share / Earnings Per Share

167
Q

Debt to Equity Ratio

A

Total Liabilities/Total Shareholder’s Equity

168
Q

Owner’s Equity Ratio

A

Shareholder’s Equity / Total Assets

169
Q

Debt Ratio

A

Total Liabilities / Total Assets

170
Q

Diversifiable Risk

A

Unsystematic, Firm-Specific, or Company-Unique

171
Q

Non-diversifiable Risk

A

Systematic, Market-Related

172
Q

Computer Data Structures, Smallest to Largest?

A

bit, byte, field, record, file, database

173
Q

Data Definition Language (DDL)

A

definition of tables/fields and relationships

174
Q

Data Manipulation Language (DML)

A

add new records, delete old records, update existing records

175
Q

Data Query Language (DQL)

A

extract information from the database

176
Q

Database Management System

A

“middle-ware” between application and OS, includes DDL, DML and DQL

177
Q

3 types of Software

A

includes (1) systems software, (2) programming languages, (3) application software

178
Q

CPU Components

A

Control Unit, Arithmetic Logic Unit, Primary Storage (RAM & ROM)

179
Q

Batch vs. Online, Real-Time (OLRT) Processing

A

Batch processing: group transactions for processing

Online, Real-Time (OLRT) processing: continuous, immediate

180
Q

Master file equivalent to what in manual environment? Transaction file?

A

Master - Subsidiary Ledgers

Transaction - Journals

181
Q

Twisted Pair

A

least expensive media for phone connections, slowest and least secure.

182
Q

TCP/IP

A

two core network protocols that underlie the Internet

183
Q

Extensible Business Reporting Language (XBRL)

A

used for encoding and tagging business information (i.e. F/S’s, taxation, regulation)

184
Q

Operational/Transactional Processing System

A

general day-to-day activities (cash collection, payroll, sales, etc.)

185
Q

Management Information Systems (MIS)

A

lower level management, summary reports, variance reports, exception reports, solving routine problems

186
Q

Decision Support Systems (DSS)

A

non-routine problems, data-driven, large amounts of data to find relationships and patterns

187
Q

Flat file vs. Database Systems

A

Flat file - “bad”

Database - “good”

188
Q

Data mart vs. Data Warehouse

A

Mart - specialized for function
Warehouse - larger scale data
Both use patterns to organize data.

189
Q

IaaS, PaaS, and SaaS

A

IaaS – Infrastructure (access hardware, storage), PaaS – Platform (create software and programs), SaaS – Software (remote access to software programs)`

190
Q

Online Transaction Processing vs. Online Analytical Processing

A

Online Transaction Processing (OLTP): core business functions, sales, production; Online Analytical Processing (OLAP): incorporates data warehouse and data mining capabilities

191
Q

System Development/Implementation Steps

A

(1) Planning & Feasibility, (2) Analysis, (3) Design, (4) Development, (5) Testing, (6) Implementation, (7) Maintenance

192
Q

IT Segregation of Duties

A

(1) Development, (2) Administration & Programming, (3) Operations

193
Q

Batch Back-up use ?

A

Checkpoint/restart controls

194
Q

Online Real Time Back up use ?

A

rollback and recovery

195
Q

E-Commerce Back-up use ?

A

mirrored server

196
Q

IT Controls are… (general, corrective, detective, etc.)

A

general, some are corrective, some preventative

197
Q

EDI transactions are made through a ?

A

value-added network (VAN)

198
Q

Recovery Point vs. Time Objectivve

A

Recovery Point Objective – acceptable amount of data loss

Recovery Time Objective – acceptable downtime

199
Q

Types of backup facilities

A

cold site (no actual equipment/files), warm site (already stocked w computer hardware), hot site (immediate take over)

200
Q

Business Continuity Planning - Order of Importance

A

(1) Task Critical, (2) Business Critical, (3) Mission Critical

201
Q

Application Controls for Batch Systems

A

(1) Financial total, (2) Hash totals, (3) Record counts

202
Q

Application - Input Controls

A

missing data check, field check, limit test (i.e. range tests & sign tests)

203
Q

Application Control - Processing Objectives

A

validity, completeness, accuracy

204
Q

Application - Processing Controls

A

run-to-run controls, internal labels, audit trail controls

205
Q

Application - Output Controls

A

spooling controls, disposal of aborted print jobs, distribution of reports, end user controls

206
Q

Digital Certificate

A

most secure encryption technique

207
Q

Digital Signature

A

used to ensure the message is not altered after being sent

208
Q

Prime/Direct Costs

A

Direct Materials & Direct Labor, flows to WIP

209
Q

Conversion Costs

A

Direct Labor & Overhead

210
Q

Indirect Costs

A

Overhead, does not flow to WIP, “Factory Overhead Control”

211
Q

Factory Overhead - Applied

A

flows to “WIP Inventory Control”

212
Q

Actual Costing

A

Actual Q x Actual P; simplest, waits until all costs are known and then is recorded in accounts

213
Q

Normal Costing

A

Actual Quantity x Predetermined Overhead; DM & DL traced to work in process when the costs become known

214
Q

Standard Costing

A

Standard Quantity x Standard Price; predetermined estimated quantities and prices

215
Q

High -Low Method (definition)

A

calculate change in costs between two production volume cost extremes (high and low)

216
Q

High-Low Method (formula)

A

Difference in Costs/Difference in Units = VC per Unit

Total Cost = FC + (VC per unit x # units)

217
Q

Value-added Activities

A

processes that contribute to the product’s ultimate value

218
Q

Absorption Costing

A

assigns the 3 factors of production (DM, DL, and OH) to inventory.
Selling & Administrative Expenses are always period costs.

219
Q

Direct/Variable Costing

A

assigns only variable costs (DM, DL, VOH) to inventory. Fixed overhead costs are period costs.
Selling & Administrative Expenses are always period costs.

220
Q

Difference (Absorption and Direct Costing) (Formula)

A

Change in Inventory Level x Fixed Manufacturing OH per unit

221
Q

Production > Sales, Effect on Absorption vs. Variable Costing Income?

A

Production > Sales, Absorption Costing Income > Variable Costing Income

222
Q

Absorption vs. Direct Costing I/S

A

Absorption Costing I/S: Gross Margin, Direct Costing I/S: Contribution Margin

223
Q

Job Costing vs. Process Costing

A

Job Costing: large, expensive, custom-order

Process Costing: mass-produced, small, inexpensive

224
Q

Applied Overhead (Formula)

A

Applied Overhead = (bud. FOH/bud. volume) X (actual volume)

225
Q

Process Costing Process

A

(1) Equivalent Units (2) Cost per Equivalent Unit (3) CGTO and Ending WIP Inventory

226
Q

Cost/Equivalent Unit Formula

A

Cost/Equivalent Unit = Cost to be Allocated / Equivalent Units

227
Q

Cost Allocation of Joint Products

A

(1) Relative Physical Volume (2) Relative Sales Value (3) Net Realizable Value

228
Q

Last budget created during budgeting process?

A

Cash

229
Q

Receivables - Dec/Incr, Effect on Cash

A

Decrease - Cash Increases

Increase - Cash Decreases

230
Q

Payables - Dec/Incr., effect on Cash

A

Decrease - Cash Decreases

Increase - Cash Increases

231
Q

Static Budget

A

budgeted costs for budgeted output

232
Q

R squared

A

coefficient of determination, indicates the degree to which the behavior of the independent variable predicts the behavior of the dependent variable.

233
Q

Y = A + Bx

A

A – y-intercept, B – slope, x – independent variable, Y – dependent variable

234
Q

Effect on income vs. Effect on Break-even

A

Effect on income is the opposite of the effect on the break-even point.

235
Q

Basic Breakeven Formula

A

(Quantity x Sales Price) = FC + (Quantity x VC per unit)

236
Q

Break even in units vs. Break even in dollars

A

Breakeven in units = Fixed Costs/Contribution Margin

Breakeven in dollars = Total FC/Contribution Margin Ratio

237
Q

Contribution Margin vs. Contribution Margin Ratio

A

Contribution Margin = Sales Revenue – Variable Costs

Contribution Margin Ratio = Contribution Margin/Sales Revenue

238
Q

Operating Income Formula (in terms of Contribution Margin)

A

Contribution Margin – Fixed Costs = Operating Income

239
Q

Assumptions in Cost-Volume-Profit Analysis

A

Price, Variable Cost/Unit, and Fixed Costs behave as constants.
Volume is the only driver of costs and revenues.

240
Q

Sales in Units based on a Target Profit (Formula)

A

Sales in Units (for Profits) = (FC + Target Profit) / CM per Unit

241
Q

Margin of Safety

A

difference between the current sales level and the breakeven point.

242
Q

Price/Rate Variance

A

Price/Rate Variance = Difference in Rates (Standard – Actual) x Actual Quantity

243
Q

Usage/Efficiency Variance

A

Usage/Efficiency Variance = Difference in Quantities (Standard – Actual) x Standard Rate

244
Q

Total Variance

A

Total Variance = (AQ x AP) – (SQ x SP), Rate & Efficiency Variance netted together.

245
Q

What kind of costs are not considered in a special order situation?

A

Fixed Costs.

246
Q

Transfer Pricing Methods

A
  1. Market based, 2. Cost based, 3. Negotiated price
247
Q

Transfer Minimum vs. Maximum Price

A

Transfer minimum: 1. Direct cost if it has excess capacity, or 2. its market price if it does not have excess capacity
Transfer maximum: market selling price

248
Q

Just in Time Production Characteristics

A

“pull” process, schedule is determined by the actual sale of goods, L/T contracts w small number of suppliers, high quality raw materials, suppliers paid on periodic basis instead of each time there is an order

249
Q

Backflush costing

A

costing is delayed until finished goods or COGS

250
Q

Quality of Design vs. Quality of Conformance

A

Quality of Design: meeting or exceeding the needs and wants of customers
Quality of Conformance: conforming to the design specifications

251
Q

Prevention of Defects

A

Prevention of defects is cheaper than the cost of failure and increases the quality of conformance.

252
Q

Costs of Quality

A

Costs of Quality: (1) Conformance costs - prevention costs, appraisal costs, (2) Non-Conformance costs - internal failure costs, external failure costs

253
Q

Balance Scorecard

A

provides a comprehensive view of overall performance using both financial and non-financial measures. 4 categories: Financial, Customer, Internal Business Processes, Learning/Innovation/Growth

254
Q

ROI (Normal and DuPont Approach)

A
ROI = Net Income / Total Assets
ROI = Return on Sales: (NI/Sales) x Asset Turnover or Capital (DuPont Approach)
255
Q

Residual income (Formula)

A

Residual Income = Operating Income – (Required RoR x Invested Capital)

256
Q

Economic Value Added

A

Net Operating Profit after Tax – WACC (Total Assets – Current Liabilities)

257
Q

Operating Profit Margin vs. Profit Margin

A

Operating Profit Margin = Operating Income / Sales

Profit Margin = Net Income / Net Sales

258
Q

PERT vs. CPM

A

PERT: program evaluation and review technique
CPM: Critical Path Method

259
Q

Operating Leverage

A

A measurement of the degree to which a firm or project incurs a combination of fixed and variable costs.

260
Q

Coupon or Stated Interest Rate

A

determines cash interest paid

261
Q

Effective Interest or Yield Rate

A

used for interest expense and bond price

262
Q

Bond Price (formula)

A

present value of future cash payments discounted at the yield rate at issuance