1. TCO 10) Not all pricing methods apply to the
market place. In manufacturing it is common practice to determine the
cost of a product as it moves through it transformation to a finished
product. (1) Explain why a transfer price is required (10 points) and
(2) provide an example of the application of a transfer price (10
points). (Points : 20)
2. (TCO 11) Terry LeMay is unclear as to the difference between the
income statement of a merchandising company and a manufacturing company.
(1) Describe and provide an example of an income statement of a
merchandising company and (2) compare to an example of an income
statement of a manufacturing company (10 points). (Points : 20)
3. Internal Control Procedures are required to safeguard company
assets and to ensure ethical operation of the business. (1) Explain how
adequate records can satisfy the purpose of internal control (10 points)
and (2) provide an example of how this control could be implemented (10
points). (Points : 20)
4. To promote better management control of business centers financial
responsibilities are assigned to managers. There are three basic types
of responsibility centers. (1) Explain how a cost center operates (10
points) and (2) provide an example of its application in business. (10
points). (Points : 20)
5. To evaluate the financial operation and health of a business ratio
analysis is used. (1) Provide the formula for Working Capital and
explain how it is computed (10 points) and (2) provide an example of how
this ratio can be used in decision making in business (10 points).
(Points : 20)
6. Planning for capital investments is an important function of
management. You are provided with the following data concerning a
proposed capital investment: cash cost $220,000, net annual cash flows
$40,000, present value factor of cash inflows for ten years 5.65
(rounded). Determine the net present value, and indicate whether the
investment should be made. (1) Explain the pros and cons of using this
method to evaluate a capital expenditure (10 points) and (2) show all
computations required to arrive at the correct solution. (15 points).
(Points : 25)
7. (TCO 6) To adequately plan for the success of the business a
budget must be developed. (1) Indicate the benefits of budgeting (10
points) and (2) state the essentials of effective budgeting (15 points).
Include textbook page references to identify where the correct answer
was located.
8. Financial statement analysis is used by investors, creditors and
managers of business to evaluate the operation and health of the
business. This information is in part the basis for decision making. (1)
Identify ratios used to evaluate the profitability of a company (10
points) and (2) provide an example of how the results of this analysis
could be used to make business decisions.
9. There are three different forms of business; sole-proprietor,
partnership and corporation. (1) Explain why a corporation's government
regulations may be a disadvantage (10 points) and (2) as a stockholder
explain why a stockholder would want to own preferred stock.
10. At the Vicksburg Company actual sales are $1,200,000 and
break-even sales are $840,000. Compute (a) the margin of safety in
dollars and (b) the margin of safety ratio. (1) Explain how the analysis
is to be performed (10 points) and (2) Show all computations required
to arrive at the correct answer.
11. Warsaw Products has a factory machine with a book value of
$90,000 and a remaining useful life of 4 years. A new machine is
available at a cost of $250,000. This machine will have a 4-year useful
life with no salvage value. The new machine will lower annual variable
manufacturing costs from $600,000 to $500,000. Prepare an analysis
showing whether the old machine should be replaced or retained. (1)
Explain how the analysis is to be performed (10 points) and (2) Show all
computations required to arrive at the correct answer.
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