Flashcards in BEC Deck (103):
How do you calculate cost of ending inventory?
Beginning Inv + Prod costs - COGS
When management uses listings of potential events common to a specific industry as a means of identifying risks or opportunities, the method is known as
According to the Act, codifications of ethical standards should include provisions forx
Full, fair, accurate, and timely disclosure in periodic financial statements; Honest and ethical conduct; Compliance with laws, rules and regulations
Why did the Committee on Sponsoring Organizations prepare the Internal Control Integrated Framework
To help businesses assess internal control
A cost that bears an observable and known relationship to a quantifiable activity base is a(n)
What costs are included in in product or inventoriable costs in an absorption costing system?
direct material, direct labor and all overhead.
which costing methods provide(s) the added benefit of usefulness for external reporting purposes?
the absorption method
What are the components of a financial budget process?
Cash and capital purchases budgets.
Balance sheet and statement of cash flows
What are the components of operating budget process?
All budgets except cash and capital purchases.
The pro forma income statement.
A standard costing system is most often used by a firm in conjunction with
Which type of budget is the last budget to be produced during the budgeting process?
Break-even analysis assumes that over the relevant range
Unit variable costs are unchanged
A regression equation estimates what?
What are the steps in calculating applied overhead?
1. rate = budgeted OH cost / cost driver (DL$, DLH, MH)
2. Applied OH = actual cost driver x rate
How do you calculate COGM (Cost of Good Mfg)?
WIP Beginning Inv
+ DM used
+Mfg OH applied
- WIP Ending Inv
How do you calculate direct materials used, if not given in COGM question?
Beg Raw Materials
- Ending Raw Materials
= Materials USED
How do you calculate COGS (Cost of goods sold)?
Beg Finished Goods
+ COGM / net purchases
- Finished goods Ending Inv.
When is job order costing used?
When producing fewer unique items. Ex: Car with VIN etc.
When is process costing used?
When mass producing homogeneous goods.
How do you calculate equivalent units using FIFO? Three elements.
1. WIP Beg Inv x % remaining
2. Units completed - Units in Beg Inv.
3. WIP Ending Inv x % completed
How do you calculate equivalent units using weighted average? Two elements.
1. units completed
2. Ending Inv x % complete
Calculate cost per EU using FIFO
Current Costs / EU
Calculate cost per EU using weighted avg
Beg + current cost / EU
What is the most accurate method used to assign indirect costs to products?
Activity Based Costing (ABC). This is a more detailed approach and focuses on multiple factors. Also known as "transaction based costing."
The Treadway Commission was established by...
Private sponsoring organizations
Define residual risk
The risk that remains AFTER management has responded to the risk.
What type of marketing method involves gathering information on customers and using the information to segment customers into target markets for a more effective selling effort?
What is the most accurate method of classifying costs of an object as either fixed or variable?
regression analysis method.
How do you calculate pay back period?
initial cost / net cash inflows. **salvage value is not taken into consideration
How do you calculate WACC (weighted avg cost of capital)?
(cost of equity x % of equity) + (weighted avg cost of debt x % of debt)
The theory underlying the cost of capital is primarily concerned with the cost of....
Any combination of old or new, short-term or long-term funds
A cost driver is defined as....
A causal factor that increases the total cost of a cost objective
Most client/server applications operate on a three-tiered architecture consisting of which 3 layers?
desktop client, application, database
Frictional unemployment refers to unemployment resulting from...
The time needed to match qualified job seekers with available jobs
How long must an employee wait to participate in an internal audit function of the business if they had previously been involved in those operations?
1 year (ex: former controller promoted to internal audit division)
What is an example of a carrying cost?
What are the 7 criteria related to Control Objectives for Information and related Technology? (COBIT)?
What is the purpose of CRM systems?
CRM systems provide sales force automation and customer services. CRM systems record and manage customer contacts, manage salespeople, forecast sales and sales targets and goals, manage sales leads and potential sales leads, provide and manage online quotes and product specifications and pricing, and analyze sales data.
The objectives of CRM systems are to increase customer satisfaction and customer revenue.
What are the two elements that make up conversion costs?
direct labor and overhead
What are 4 ways of converting AR?
Electronic Funds transfer (EFT)
A CEO or CFO who misrepresents the company's finances may be penalized by...
Being fined and imprisoned
Define PKI - Public Key Infrastructure
PKI refers to the system and processes used to issue and manage asymmetric keys and digital certificates
What costs are included in product or inventoriable costs in an absorption costing system?
Direct material, direct labor and all overhead
What is budgetary control?
Budgetary control is the process of developing plans for a company's expected operations and controlling the operations to help carry out those plans
How do you calculate operating leverage?
ratio of fixed costs to variable costs (FC/VC)
The business judgment rule is a rule that immunizes...
Management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.
What is the definition of ERM (enterprise risk management)?
process, effected by an entity's board of directors, management, and other personnel
Describe a Pareto Diagram..
A Pareto diagram represents an individual and cumulative graphical analysis of errors by type. Individual error types are represented on a histogram (bar graph) while the cumulative number of errors is presented on a line graph. The Pareto diagram is used to prioritize process improvement efforts
A standard costing system is most often used by a firm in conjunction with
Is activity based costing acceptable for internal or external costing, or both?
Accepted for internal reporting and NOT external reporting.
Is job costing acceptable for internal or external costing, or both?
Is variable costing acceptable for internal or external costing, or both?
not acceptable for external reporting but is often used for internal purposes
Is process costing acceptable for internal or external reporting, or both?
Process costing is acceptable for both internal and external purposes
In an Activity Based Costing System, cost reduction is accomplished by identifying and eliminating
non-value adding activities.
A local area network (LAN) is best described as a..
Computer network that connects computers of all sizes, workstations, terminals, and other devices within a limited proximity.
What is a solution that creates an encrypted communication tunnel across the Internet for the purpose of allowing a remote user secure access into the network?
Virtual private network.
What is a difference between absorption costing and variable costing?
When production is greater than sales, absorption costing income is greater than variable costing income
What is an advantage of net present value modeling?
it accounts for compounding interest & returns.
What is the term that represents the residual income that remains after the cost of all capital, including equity capital, has been deducted?
Conflict of interest provisions of the Sarbanes-Oxley Act of 2002 generally prohibit the directors or executive officers of an issuer from
Receiving a personal loan from the issuer not in the ordinary course of business
Establishing objectives that will support the mission and vision of an organization generally involve supporting the mission with
Strategic objectives, supported by strategies and related objectives.
What is an enterprise resource planning system designed to do?
Integrate data from all aspects of an organization's activities
What is the system of user identification and authentication that prevents unauthorized users from gaining access to network resources ?
What is the most direct way to prepare a cash budget for a manufacturing firm?
Projected sales and purchases, percentages of collections, and terms of payments
How do you calculate profitability index of a project?
Divide the present value of the annual after-tax cash flows by the original cash invested in the project
What is the term used, when a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset?
Working capital management.
What is the optimal imputed interest rate used in the residual income approach to performance evaluation?
target return on investment set by the company's management
Describe 4 aspects of EDI (Electronic Data Interchange)?
1. EDI requires that companies have a prior relationship. Agreements will have been drawn up between the companies to outline how the systems will operate
2.EDI can be conducted through the use of VANs or over the Internet.
3.Data transmission costs for EDI are falling.
4.EDI requires all transactions to be submitted in a standard format.
What is a benefit of EDI?
Reduced likelihood of stockout costs
How is a production budget best described?
It is calculated from the desired ending inventory and the sales forecast
A combination of rising unemployment and a rising price level
Define monopolistic competition...
Monopolistic competition is characterized by a relatively large number of sellers who produce differentiated products. There are few barriers to entry and firms exert some influence over the price and the market. Best examples are brand name consumer products.
How do you calculate the economic rate of return on common stock?
(Dividends + change in price) divided by beginning price.
According to the Independence and Objectivity standards included in the International Standards for the Professional Practice of Internal Auditing, how often should the chief internal audit officer confirm their independence?
What SEC Act requires an independent auditor to review the controls of a public company?
Sarbanes Oxley Act of 2002
What body of a corporation has the right and power to change the articles of incorporation and nature of the corporation?
The shareholders, not the BOD.
Define Price risk
the risk that a security or portfolio of securities will decline in value
Describe the difference between risk tolerance and risk appetite..
Risk appetite in an ERM system refers to the level of risk an entity is willing to accept in reaching its goals; In contrast, risk tolerance refers to a specific level or range of variation that is acceptable in reaching particular objectives.
Define transfer pricing
Transfer pricing refers to the pricing strategy for products and services bought and sold across international borders between related parties.
What two factors are used to calculate the nominal risk free rate of interest?
the real risk free rate plus inflation
How do you define an outside director of a board?
An outside director is a member of the board who is not otherwise employed by or engaged with the organization, and does not represent any of its stakeholders.
What is the term used to describe a transaction where unregistered bonds are sold directly to a specific number of accredited investors?
What is the original maturity of a T-bill?
1 year or less
What is a call option?
A call option gives the holder the right to purchase a security at a specified price for a certain period of time
What is a put option?
A put option would allow a firm to sell a certain financial instrument or commodity at a specified price during a specified period of time.
How do you calculate the break even point in units?
total fixed cost / contribution margin per unit
How do you calculate Contribution Margin?
Selling price - variable cost
How do you calculate contribution margin ratio?
contribution margin / sales revenue
How do you calculate the break even point in dollars?
total fixed cost / contribution margin ratio
What are advantages and disadvantages of NPV?
+ flexible and can be used with different rates
+ considered the best technique for capital budgeting
- doesn't provide true rate of return
- only tells you if you meet the hurdle rate
What are the advantages and disadvantages of IRR (internal rate of return)?
+ calculates the expected rate of return for a project
- IRR assumes the reinvestment rate to be the same as the internal rate (could be higher or lower)
- less reliable than NPV
- evaluates based on achieved IRR, doesn't consider profits.
What are the advantages and disadvantages of the payback method?
+ easy to compute and understand
+ emphasizes liquidity and return of capital
- doesn't consider the time value of money
- cash flows after completion are not considered.
- total project profitability is ignored.
What is an added advantage of the discounted payback method?
It takes into consideration the time value of money.
How do you calculate return on assets (ROA)?
net income / average total assets
How do you calculate working capital?
current assets - current liabilities
How do you calculate current ratio?
current assets/ current liabilies
How do you calculate quick ratio (acid test ratio)?
cash + securities + AR / current liabilities
**no inventory, no prepaid
How do you calculate the advantages of sales discounts?
360/pay period - discount period x discount/ 100-discount
How do you calculate AR turnover?
sales / average AR
What is the purpose of a digital signature?
It is used to determine that a message is received from an authenticated user.
What is an accurate description regarding selling and administrative budgets?
Selling and administrative budgets need to be detailed in order that the key assumptions can be better understood.
In what situations will the benefits of debt financing over equity financing be highest?
High marginal tax rates and few non-interest tax benefits