1. 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 how a transfer price could be used to make other financial decisions and (2) provide an example of the application of transfer price data
2. Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how proper approvals can satisfy the purpose of internal control and (2) provide an example of how this control could be implemented
3. 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 investment center operates (10 points) and (2) provide an example of its application in business.
4. To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for Debt to Total Assets Ratio and explain how it is computed and (2) provide an example of how this ratio can be used in decision making in business
5. Planning for capital investments is an important function of management. You are responsible for considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $55,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period. (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.
6. To adequately plan for the success of the business a budget must be developed. (1) Identify the budgets that comprise the master budget and (2) Describe the sources for preparing the budgeted income statement. I
7. 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 and (2) provide an example of how the results of this analysis could be used to make business decisions.
8. There are three different forms of business; sole-proprietor, partnership and corporation. (1) Explain why a corporation’s separation of ownership and management may be a benefit (10 points) and (2) as a stockholder explain why preemption may be a benefit.
9. Allgood Inc. has fixed costs of $480,000. It has a unit selling price of $6, unit variable cost of $4.50, and a target net income of $1,500,000. Compute the required sales in units to achieve its target net income. (1) Explain how the analysis is to be performed and (2) Show all computations required to arrive at the correct answer.
10. At the Wilber Company it costs $30 per unit ($20 variable and $10 fixed) to make a product at full capacity that normally sells for $45. A foreign wholesaler offers to buy 3,000 units at $24 each. Wilber will incur special shipping costs of $2 per unit. Assuming that Wilber has excess operating capacity, indicate the net income (loss) Wilber would realize by accepting the special order. (1) Explain how the analysis is to be performed (10 points) and (2) Show all computations required to arrive at the correct answer.