1) In 2012, the Human Resources Department at Heather Corporation expects to incur
costs of $145,000. The company has two operating departments. Department A has 30
employees and will incur salary costs of $1,350,000 in 2012 . Department B has 20
employees and expects to have salary costs of $800,000. How much of the Human
Resources Department costs should be assigned to Department B?
2) List three measures that can be taken to achieve strong internal control.
3) Indicate whether each of the following statements about financial statement analysis
is true or false.
1>Horizontal analysis for several years can be done by choosing one year as a base year
and calculating increases or decreases in relation to that year
2>The reason behind a financial statement ratio or percentage analysis result is usually
self evident and does not require further study or analysis
3>Vertical analysis compares two or more financial statement items within the same
time period
4>In horizontal percentage analysis, an item from the financial statements may be
expressed as a percentage of the same item from a previous year’s financial statements
5>In horizontal analysis, all items on the income statement are compared to net sales
4) For 2012, the New Products Division of Tellis Company had operating income of
$7,000,000 and operating assets of $38,800,000. Tellis has set a target return on
investment (ROI) of 14% for each of its divisions.
The New Products Division has developed a potential new product that would require
$8,500,000 in operating assets and would be expected to provide $1,400,000 in
operating income each year. Assuming that the new product is put into production,
calculate the division’s ROI. Would the new product increase or decrease the division’s
ROI?
5) Present value factors
The present value of an annuity of $1 at 8% has a factor for 3 periods of 2.577097; for 5
periods at 8% the factor is 3.992710 . For 10% at 5 periods the factor is 3.790787. For
12% at 5 periods the factor is 3.604776 .
Denver Company is considering the purchase of equipment that would cost $40,000 and
offer annual cash inflows of $10,500 over its useful life of 5 years. Assuming a required
rate of return of 10%, calculate the net present value. Is the project acceptable?
6) Indicate whether each of the following statements is true or false.
1>Company A sold 10,000 units and had contribution margin of $180,000 and net
income of $30,000. Company B sold 10,000 units and had contribution margin of
$120,000 and net income of $30,000. Based on this information, if both companies
achieve a 10% increase in revenue, Company B will benefit more than Company A
2>Contribution margin is calculated by subtracting variable cost from revenues
3>Companies achieve operating leverage by having fixed costs
4>The magnitude of a company’s operating leverage is equal to total fixed costs divided
by net income
5>Company A sold 10,000 units and had contribution margin of $180,000 and net
income of $30,000. Company B sold 10,000 units and had contribution margin of
$120,000 and net income of $30,000. Based on this information, Company A had higher
fixed costs than Company B
7) Indicate whether each of the following statements regarding internal control is true or
false.
1>Administrative controls are concerned with the reliability of a business’s financial
statements
2>Whenever possible, the functions of authorization, recording transactions, and
custody of assets should be exercised by the same dependable employee
3>A fidelity bond is liability insurance that protects a company against certain lawsuits
filed by customers
4>Cash is most susceptible to embezzlement at the points of receipt and disbursement
5>Accounting controls are composed of procedures designed to safeguard the assets of
a business and to ensure that its accounting records contain reliable information
8) How is the magnitude of operating leverage calculated?