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Chapter 4.1, BEC412704, BEC412730, BEC412670, BEC412683, BEC412754,…
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BEC412704
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Incorporates non-financial measures as well as financial measures into its output.which is beneficial to the organization and not a criticism
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BEC412730
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Freight charges paid for the delivery of raw materials to the company.
Freight charges paid for delivery of raw materials is a component of direct material cost and would thus not appear in the overhead budget.
A company that manufactures furniture is establishing its budget for the upcoming year. All of the following items would appear in its overhead budget except for the
BEC412670
In developing the budget for the next year, which one of the following approaches would most likely result in a successful budget with the greatest amount of positive motivation and goal congruence?
Permit the divisional manager to develop the goal for the division that in the manager’s view will generate the greatest amount of profits.
Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met.
Have the divisional and senior management jointly develop goals and objectives while constructing the corporation’s overall plan of operation.
Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.
BEC412683
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When the value of X is 10, the estimated value of Y is
The intercept (often labelled the constant) is the expected mean value of Y (dependent variable), when all X=0 (independent variable). Slope defines the steepness of the line, while the intercept indicates the location where it intersects the axis. Thus, given the data the following equation can be formed:
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Substituting the value of X as 10, the value of Y = 5.23 + 1.54 (10) = 5.23 + 15.4 = 20.63.
BEC412754
The monthly sales volume of Shugart Corporation varies from 7,000 units to 9,800 units over the course of a year. Management is currently studying anticipated selling expenses along with the related cash resources that will be needed. Which of the following types of budgets (1) should be used by Shugart in planning, and (2) will provide Shugart the best feedback in performance reports for comparing planned expenditures with actual amounts?
Flexible budget is ideal for both planning and performance reporting. A flexible budget calculates cost at a different level of production and thus provides an accurate basis for comparison between actual and expected cost for an actual production. It acts as a good planning tool and also helps in evaluating the performance.
A static budget remains same regardless of the actual volume of production and thus does not help in planning and performance reporting.
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BEC410355
The coefficient of determination, r squared, in a multiple regression equation is the
The coefficient of determination measures the percentage variation in the dependent variable explained by the variation in the independent variables.
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BEC410351
A company is conducting a risk analysis on a project. One task has a risk probability estimated to be 0.15. The task has a budget of $35,000. If the risk occurs, it will cost $6,000 to correct the problem caused by the risk event. What is the expected monetary value of the risk event?
The expected monetary value of risk is probability of risk X amount of loss, i.e. 0.15 x $6,000 = $900.
BEC412687
A manufacturing company has the opportunity to submit a bid for 20 units of a product on which it has already produced two 10-unit lots. The production manager believes that the learning experience observed on the first two lots will continue for at least the next two lots. The direct labor required on the first two lots was as follows:
• 5,000 direct labor hours for the first lot of 10 units.
• 3,000 additional direct labor hours for the second lot of 10 units.
Time taken to produce first 10 units = 5,000 hours.
Per unit time on producing 10 units in lot 1 = 5,000 hours / 10 units = 500 hours.
Time taken to produce 20 units = 5000 hours (lot 1) + 3000 hours (lot 2) = 8,000 hours.
Per unit time on producing 20 units in lot 1 and 2 = 8,000 hours / 20 units = 400 hours.
The time taken per unit has improved with experience gained. This is the impact of learning curve. Learning rate can be worked out as:
Per unit time taken on producing 20 units in lot 1 and 2 (Step 4) above / Per unit time on producing 10 units in lot 1 (Step 2) above
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As the production doubled, the time taken to produce successive units reduced by 100 hours or 20%. This means that the learning curve rate is 80%.
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BEC413510
“Show me an asset with potentially superior earning capacity and I will put my money on it. With risk or without it!” Which type of investor is most likely to make this statement?
Risk-neutral investors prefer investments with higher returns while disregarding risk. As long as there is a potentially superior earning capacity these investors will invest with or without risk.
BEC412727
Playtime Toys estimates that it will sell 200,000 dolls during the coming year. The beginning inventory is 12,000 dolls; the target ending inventory is 15,000 dolls. Each doll requires two shoes which are purchased from an outside supplier. The beginning inventory of shoes is 20,000; the target ending inventory is 18,000 shoes. The number of shoes that should be purchased during the year is
Playtime Toys should purchase 404,000 shoes during the year as calculated below:
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= (200,000 x 2) – (12,000 x 2) + (15,000 x 2) – 20,000 + 18,000
= 400,000 – 24,000 + 30,000 – 20,000 + 18,000
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BEC412509
Brent Co. has intra-company service transfers from Division Core, a cost center, to Division Pro, a profit center. Under stable economic conditions, which of the following transfer prices is likely to be most conducive to evaluating whether both divisions have met their responsibilities?
A cost center is responsible for costs only. A profit center is responsible for both costs and revenues. Thus, the transfer from the cost center must, by definition, be at a cost-based figure. The transfer should be evaluated at standard variable cost as it is a controllable cost. Fixed cost should not be considered as it is not controllable in short run.
Option (a) is incorrect because the actual cost or full cost (including fixed cost) based transfer price may impact the contributions margins of the Pro division which is a profit center.
Option (c) is incorrect because actual cost plus mark-up would increase the transfer price by adding the mark-up. Though, this would motivate transferor division as the profits can be made, it would also impact the transferee division’s operating income and runs a risk of encouraging dysfunctional decision making.
Option (d) is incorrect because it would not be correct to use the negotiated price as core is a cost center not a profit center. Further the transferor division would calculate the profit or loss based on the negotiated price rather than on the performance.
BEC410363
Which of the following types of budgets is the last budget to be produced during the budgeting process?
The cash budget is prepared in the end, as the inputs for the cash budget are obtained from all other budgets.
Option (b) is incorrect because capital budget is prepared before the cash budget. It determines whether new equipment, plant, machinery and/or building are worth pursuing, which provides information to the cash budget.
Option (c) is incorrect because cost of goods sold is prepared much before the cash budget is prepared. It is prepared after sales volume is established.
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BEC412715
Ming Company has budgeted sales at 6,300 units for the next fiscal year, and desires to have 590 good units on hand at the end of that year. Beginning inventory is 470 units. Ming has found from past experience that 10% of all units produced do not pass final inspection, and must therefore be destroyed. How many units should Ming plan to produce in the next fiscal year?
Ming need to produce 7,133 units in the next fiscal year.
Production = Sales – Beginning Inventory + Ending Inventory = 6,300 – 470 + 590 = 6,420.
Provision for Scrap = 6,420 ÷ 0.9 = 7,133 units.
BEC413620
A strategy wherein short term funds requirements are met with short-term debts and long-term fund requirements with long-term debts is called as:
Hedging approach or maturity matching is a strategy of working capital financing wherein short term requirements are met with short-term debts and long-term requirements with long-term debts. The underlying principle is that each asset should be compensated with a debt instrument having almost the same maturity.
BEC412705
Many companies use comprehensive budgeting in planning for the next year’s activities. When both an operating budget and a financial budget are prepared, which one of the following is correct concerning the financial budget?
A financial budget of an organization includes capital budget that forecasts the capital expenditure, cash budget that details the cash inflows and outflows and the budgeted balance sheet. A budgeted income statement combined with these statements produce the statement of cash flows.
BEC413601
Geometric average return on investment would be considered a better measure of return on investment for which of the following cases?
Geometric average return represents the compound annual return earned by an investor over the years of investment while arithmetic mean is a simple average of returns of different periods. Geometric average is a better measure of return on investment when the investment is held for number of historical periods and when investment offers compounding return. Also, for calculating geometric average return on investment, actual amount invested need not be known, only return for each year needs to be known as it can be calculated using the following formula:
[(1+Return for year 1) x (1+Return for year 2) x (1+Return for year 3)...)]1/n – 1.
BEC420023
What is the Beta of Philip Enterprises? Based on data over the past 5 years, the correlation between Philip Enterprises and SPDR S&P ETF Trust is 0.85.
Beta measures how the value of an investment moves with changes in the value of a portfolio or overall market. It measures the volatility of an investment and is calculated by first dividing the security’s standard deviation by the benchmark’s standard deviation and then multiplying the results by the correlation of the security’s returns and the benchmark’s returns. Philip Enterprise’s Beta is 1.06, computed as (0.15 / 0.12) x 0.85. A Beta of 1.06 indicates that Philip Enterprises is not volatile and moves more or less along the SPDR S&P 500 ETF Trust.