Deck 4

Question 1

Which of the following would most likely NOT be considered a specific IT risk?

Insufficient data storage
Unauthorized access to confidential data
Security and identity management
High Turnover

Answer 1

High Turnover - it can be a risk to a business, however, it is most likely not to be considered a specific IT risk.

Question 2

How do you calculate the cost of jobs completed in a month?

Answer 2

Direct materials + Direct labor + Factory overhead

Question 3

For a company that produces more than one product, the sales volume variance can be divided into which two of the following additional variances?

Sales quantity
Sales price variance
sales mix variance
flexible budget variance
sales efficiency variance 
production volume variance

Answer 3

Sales Quantity variance and sales mix variance

For a company that produces more than one product, the sales volume variance can be divided into sales quantity variance and sales mix variance.

Sales price variance and sales efficiency variance is not part of sales volume variance; and flexible budget variance and production volume variance is part of overhead volume variance.

Question 4

How is the velocity of money measured?

Answer 4

It is the ration of Nominal GDP to the money supply

Question 5

What are some characteristics of Executive information systems?

Answer 5

Executive information systems provide senior executives with immediate and easy access to internal and external information to assist the executives in strategic issues such as non routine decisions that may involve analysis of cyclical data, acquisitions and competitor behavior.

Question 6

1. According to COSO, which of the following components of the internal control integrated framework addresses an entity’s financial reporting competencies?
2. Which one addresses an entities policies and procedures?

Control Activities
Risk assessment
Control Environment
Information and Communication

Answer 6

1. Control environment

The control environment component of the internal control integrated framework includes such principles as financial reporting competencies, human resources, organizational structure, etc. (Key word is competencies, financial reporting is typically related to information and communication and objectives of financial reporting is risk assessment)

2. Control Activities

The control activities component of the internal control integrated framework includes principles such as policies and procedures and information technology.

Question 7

According to COSO, which of the following components of enterprise risk management addresses an entity’s process for establishing the likelihood and impact of events?

Governance and culture
Performance
Strategy and objective setting
review and revision

Answer 7

Performance

The performance component of the enterprise risk management framework includes analyzing risk, including the establishment of the events’ likelihood and impact.

Question 8

At what amount is a good price elastic or inelastic?

Answer 8

1.0 = inelastic

> 1.0 = Elastic

Question 9

What is the difference between translation exposure and transaction exposure?

Answer 9

Transaction exposure = The risk exposure faced by an entity that encounters the possibility that the currency in which a transaction is denominated will be adversely affected by the currency in which the transaction is settled. (I.e. Risk that the value of a purchase will fall in the future)

Translation Exposure = refers to the gain or loss generated from the conversion of financial statements from one currency to another based on different exchange rates.

Question 10

What is the formula for calculating NPV?

Answer 10

Inflows each year (net of tax)
+Depreciation Tax Shield
+any salvage amount (in last year only)
= Total

Total * PV Factor for each year = Amount

Sum the amount for each year = PV

PV - Cash outflows (what you paid for the item) = NPV

Question 11

The IRR for a project can be determined by finding what?

Answer 11

the discount rate that yields a NPV of 0 for the project.

Question 12

If a question is asking for the net cash outflow, how would you calculate that?

Answer 12

Price of equipment
+Any costs to get it to it’s final place (shipping, installation, testing, etc)
+Any increase in working capital required for the investment

Question 13

How do you calculate Total manufacturing costs?

Answer 13

Calculate the Direct materials used (like direct materials COGS calculation)

Take the DM COGS amount
+Direct Labor
+factory overhead applied
= Total manufacturing costs

Question 14

When calculating the breakeven point, do you include tax effects?

Answer 14

No, you dont apply taxes to the break even calc. And if they give you a profit objective that is net of tax, to get rid of the tax effect you take that
profit goal / (1-tax rate)

Then you can take that profit objective +fixed costs / contribution margin (or sales - variable costs)

Also, fixed costs should include depreciation if the problem mentions it is included, leave it in the fixed costs total.

Question 15

What happens when a supply curve shifts inward?

Answer 15

Aggregate supply is decreased

When a supply curve shifts inward, it moves left and up – which means aggregate supply has decreased.

Question 16

Which metric equates the present value of a project’s expected cash inflows to the present value of the project’s expected costs?

NPV
IRR

Answer 16

IRR

This is the definition of internal rate of return (IRR).

Net present value is the sum of present values of both cash inflows and outflows.

Question 17

In the long run, firms in a monopolistic competitive market earn what:

0 economic profit OR Positive economic profit

Answer 17

Zero Economic Profit

Monopolistic competition is characterized by a market in which many firms sell differentiated products. In the short-run, product differentiation allows firms to earn positive economic profits. However, because there are few barriers to entry, in the long-run, economic profits are zero.

Question 18

A large decline in investment spending caused by a sharp rise in interest rates moves what? The supply curve or the demand curve in which direction?

Answer 18

Demand curve to shift left.

A sharp rise in interest rates will cause investment spending to fall and hence aggregate demand to fall. Thus, as illustrated below, a decline in investment spending causes the aggregate demand curve to shift left.

Question 19

A company located in the US has contracted with a separate company in India to handle its customer service call center. This practice is most accurately described using the term:

Outsourcing OR
Offshore operations

Answer 19

Offshore operations - which is the outsourcing of services or business functions to an external party in a different country.

Although the company is outsourcing, the best description of the practice of moving their call center to India is offshore operations because the outsourced service is actually being performed out of the country.

Question 20

How do you calculate tax burden and interest burden?

Answer 20

Tax Burden = NI/EBT

Interest Burden = EBT/EBIT

Question 21

Comparison of Short term vs long term financing strategies? (written communication)

Answer 21

In general, there are two strategies that can be used to finance new projects. While both a short-term and a long-term strategy will provide capital to meet your needs, it is important to understand the difference between the two so you can choose the best option to meet your needs.

Short-term financing generally matures within one year. Accordingly, interest rates associated with this type of financing tend to be lower than long-term rates, resulting in lower interest expense to the organization. Another advantage of short-term financing presumes higher turnover of financing instruments and matching of receipts and disbursements. It also promises the potential of increased profitability. On the other hand, disadvantages may include increased interest rate risk, wherein an abrupt change in interest rates may trigger an increase in financing charges greater than originally anticipated. This interest rate risk may also inadvertently increase the credit risk, causing an organization to receive less favorable financing terms.

Unlike short-term financing, long-term financing is generally classified as noncurrent and matures after one year. Accordingly, interest rates tend to be higher than short-term rates because money is less liquid. An advantage of long-term financing is decreased interest rate risk because the interest rate is locked in for a longer period of time, thus reducing the organizations’ exposure to rate fluctuations. There is also a decreased credit risk. Long-term financing, however, may decrease profitability and liquidity, as well as increase the organizations’ financing costs.

Question 22

A comparison of absorption vs. direct cost methods yields:

Answer 22

Greater net income under absorption costing when production exceeds sales and inventory amounts increase.

Question 23

What method should be used if capital rationing needs to be considered when comparing capital projects?

Answer 23

Profitability index

Question 24

General controls in an information system include each of the following except:

Information technology infrastructure
Security management
Software acquisition
Logic test

Answer 24

Logic test

A logic test is not a general IT control. A logic test a logic test is an input control to make sure data has been entered correctly.

Question 25

The determination of gross domestic product using the expenditure approach would include what?

Answer 25

Government expenditures
Capital Investments
Consumption
Net exports

The other approach is called the income approach and includes things like Business profits, a capital consumption allowance, and compensation to employees.

Question 26

A not- for - profit organization conducts focus groups of employees, service beneficiaries and governance board members to reevaluate its mission and vision and values to determine the accuracy of the strategic statements to refine them where necessary. The activities relates to which component of internal control?

Monitoring
Information and communication
Risk Assessment
Control Activities

Answer 26

Monitoring

Periodically comparing and updating the mission vision and values of a not-for-profit could best be classified as a monitoring activity.

Question 27

If a joint cost problem is asking you to determine the amount of joint costs to allocate to each product and one product is saleable immediately after split off, you dont look at the extra info for that item. if it has additional costs and sale proce shown, you dont care. just ignore the extra stuff.

Also, if the problem asks for the completed cost assigned after calculating the joint costs, make sure to include all the costs for that product, not just the joint costs.

Answer 27

b

Question 28

Which component of the internal control integrated framework addresses an entity’s timely reporting of identified internal control deficiencies?

Answer 28

Monitoring

Question 29

Deflation is best defined as what?

Answer 29

a continuous or sustained decline in the overall price level.

Inflation is a continuous rise in the overall price level.

Question 30

SLOW DOWN AND READ ALL THE INFORMATION

Answer 30

SLOW DOWN AND READ ALL THE INFORMATION

Question 31

Who provides oversight of an entity’s enterprise risk management?

Answer 31

The board of directors.

One of the key components of the governance and culture associated with enterprise risk management (ERM) is board oversight, which requires that the board of directors set an organization-wide tone that not only establishes their authority but also promotes management accountability.

Question 32

An increase in the money supply leads to an increase or decrease in each of the following:

Interest Rates
Investment
Aggregate Demand

Answer 32

Decline in interest rates; increase in investment; increase in aggregate demand

Expansionary monetary policy results when the Fed increases the money supply. Expansionary monetary policy affects the economy through the following chain of events: (1) an increase in the money supply causes interest rates to fall, (2) falling interest rates stimulate the desired levels of firm investment and household consumption, (3) increases in desired investment and consumption cause an increase in aggregate demand, and (4) aggregate demand shifts to the right causing real GDP and the price level to rise.