Font size
WorksheetsFinal Review Ch3
Total questions: 84
Worksheet time: 42mins
What does capital expenditure refer to?
Money invested in the acquisition of fixed assets
Money available for the day to day operations of a firm
Monetary payments to sustain the daily operations such as wages, rent and energy
Money received from the sale of assets
What are payments for daily operations such as wages, advertising, water and electricity costs called?
Working capital
Capital expenditures
Revenue expenditures
Cash outflows
Which of the following is not an internal source of finance?
Sale of assets
Personal savings
Retained profits
Share capital
When a firm is given the ability to pay a supplier at a later date, usually after one to two months, this is called (a) ________. An example of such a facility also arises when using ___________.
Trade credit, credit cards
Cash payment, debit cards
Advance payment, checks
Immediate payment, bank transfers
The first time a firm offers its shares to the general public, it is called a(n) ____________; subsequent offerings of additional shares are called ____________.
Share placement, additional share issue
Initial public offering, share placement
Initial public offering, oversubscriptions
Initial public offering, administrative issuances
A debenture is a _______ loan providing regular __________. They provide ______ voting rights.
Long-term, interest payments, no
Short-term, dividends, no
Short-term, interest payments, significant
Long-term, dividends, no
What is a facility that allows a firm or person to temporarily use more money than their bank account holds called?
Short-term loan
Overdraft
Debt-factoring facility
Trade credit
Which of the following is the main advantage of an overdraft facility?
It provides flexibility in the face of cash flow problems
It offers long-term financial stability
It reduces interest rates on loans
It increases the credit score of the borrower
What are sums of money that do not have to be paid back given by the government to firms called?
Stockholders’ equity
Subsidies
Cash injections
Grants
What is a per-unit payment to producers to encourage greater output by reducing costs of production called?
Grant
Business angel
Subsidy
Venture capital
What is the primary difference between venture capital and business angels?
Venture capitalists are institutional investors while business angels are high net worth individuals
Venture capitalists are high net worth individuals while business angels are institutional investors
Venture capitalists require a stake in the business while business angels do not
Business angels require a stake in the business while venture capitalists do not
What does debt factoring refer to?
Selling one’s accounts receivable at a discount
The facility whereby a firm can withdraw more funds than their bank account holds
The analysis of how efficient different debtors are at repaying amounts owed
The interest expense that builds up due to trade credit facilities being used
What is the primary difference between leasing and hire purchase?
In leasing the lessee acquires ownership, but in hire purchase the lessee does not
Leasing is short term while hire purchase is for long term purchases
In leasing the lessee does not acquire ownership, but in hire purchase the lessee does
Leasing involves a lump sum security deposit while hire purchase does not
The short term refers to a period of less than _______ months, while the medium term refers to a period of _______ to _______ years. Anything with a later maturity date is considered long term.
6, 1, 3
12, 2, 5
3, 1, 2
9, 1, 4
Which of the following is not an advantage of leasing as an external source of finance?
Lessors conduct necessary maintenance
System upgrades are the responsibility of the lessor
It minimizes capital expenditures
The lessee acquires ownership at the end of the lease contract
Sources of finance found within the firm are __________ sources of finance.
Internal
External
Borrowed
Equity
Which of the following is a bank loan not likely to include?
Periodic interest repayments
Periodic principal repayments
Dividends
Collateral
Which of the following are valid criticisms of share issuances?
It dilutes ownership and control of existing shareholders
It is a costly and bureaucratic procedure
It increases a firm’s gearing ratio
All of the above
What is leasing most appropriate to fund?
Equipment procurement
Property acquisitions
Inventories
Salaries
What is the benefit of receiving venture capital funding?
Access to expertise
Access to contacts and networks
Access to funding that may not be provided by traditional lenders like banks
All of the above
What are costs that have to be paid regardless of the level of output called?
Variable costs
Stubborn costs
Fixed costs
Direct costs
What are costs that are directly proportional to the level of output called?
Variable costs
Indirect costs
Fixed costs
Direct costs
What are costs which contain both a fixed and variable cost component called?
Fixed costs
Indirect costs
Direct costs
Semi-variable costs
What is the distinguishing factor between direct and variable costs?
Direct costs need not be directly proportional to the level of output
Direct costs are always fixed costs
Direct costs need not be traceable to the production of any particular product
There are no distinguishing factors between direct and variable costs
Which of the following is not an example of an indirect cost?
Energy (lighting) costs
Rent
Mortgage fees
Security
Which of the following is not an example of fixed costs?
Mobile phone service costs
Loan interest payments
Rent
Manager salaries
Assume a firm has fixed costs of $125,000 per month, and a variable cost per unit of $85. What is the firm’s total costs at an output level of 30,000 units per month?
$2,675,000
$3,000,000
$2,550,000
$2,750,000
Assume a firm has fixed costs of $3,071,025 per year, and a variable cost per unit of $256. What is the firm’s total costs at an output level of 82,000 units per year?
$21,150,025
$24,063,025
$29,500,000
$31,018,025
Assume a firm has total costs of $2,500,000 per year. Fixed costs are $300,000. 200,000 units of output are produced in the year. What is the firm’s variable costs per unit?
$11.00
$12.00
$12.50
$14.00
Assume a firm has total costs of $7,750,000 per year. 480,000 DVD players are produced in the year at a variable cost per unit of $12.50. What is the firm’s fixed costs?
$1,750,000
$5,500,000
$7,125,000
$13,750,000
What is the firm’s average cost per unit if produced at a variable cost per unit of $12.50?
$12.50
$13.75
$16.15
$28.65
Assume a firm has fixed costs of $23,250,000 per year. 1,440,000 coffee machines are produced in the year at a variable cost per unit of $37.50. If the selling price per coffee machine is $65, what is the total profit or loss made if all the units produced are sold?
($8,500,000) loss
$16,350,000 profit
$39,600,000 profit
$70,350,000 profit
Which of the following is not an example of a revenue stream?
Product sales
Interest income
Rental income
Employee salaries
What does contribution refer to?
The money generated per sale that is used to contribute towards paying fixed costs
Selling price – variable costs – fixed costs per unit
Selling price – variable costs – direct costs
Both (A) and (C)
Assume a firm sells its output for $649. Variable costs per unit are $456, and total fixed costs are $2,500,000, and 5,000 units of output were sold this year. What is the contribution per unit?
$193
$307
$456
$649
Assume a firm sells its output for $45. Variable costs per unit are $41, and total fixed costs are $150,000, and 72,150 units of output were sold this year. What is the total contribution?
$3,246,750
$138,600
$288,600
-$438,600
Assume a firm sells its output for $90. Variable costs per unit are $82, and total fixed costs are $300,000, and 144,300 units of output were sold this year. What is the total profit?
$1,454,400
$1,154,400
$577,200
$854,400
Which of the following is not a valid use of contribution analysis?
Conducting breakeven analysis
Managing product portfolios
Set prices
Position mapping
What does the breakeven point refer to?
The level of output where there are neither profits nor losses
The level of output where fixed costs are covered by sales revenue
The level of output where variable costs are equal fixed costs
Which of the following equations is used to determine the breakeven level of output?
Fixed costs / (selling price – average variable costs per unit)
Selling price / (fixed costs – contribution per unit)
Fixed costs / selling price
Total sales revenue / contribution per unit
A shoe manufacturer faces fixed costs of $30,000 per month. Variable cost per shoe is $15, and selling price is $40. What is the breakeven level of output?
2000 shoes
1000 shoes
1200 shoes
750 shoes
A printer manufacturer faces fixed costs of $475,000 per month. Selling price is $100 per printer. The breakeven level of output is 9,500 printers per month. What is the average variable cost per unit?
$45.00
$47.50
$50.00
Cannot be determined
A calculator manufacturer has fixed costs of $40,000 per month. Total variable cost $30,000. The calculators sell for $10 per unit. Using the TR=TC approach, what is the breakeven level of output for this firm?
3000 calculators
5000 calculators
4000 calculators
6000 calculators
A product has a per-unit contribution of $8. Total fixed costs are $7600. If the product sells for $15, and 1950 units are sold, what is the profit (or loss) generated?
($3000) loss
$8000 profit
$15,600 profit
$21,650 profit
If a firm has a breakeven level of output of 3,000 units, but sold 7,500 units of output in the most recent quarter, the margin of safety in units is ________ and the margin of safety in percentage is ________.
7,500; 250%
3,000; 75%
4,500; 150%
7,500 units; 40%
A firm wishes to achieve profits of $15,000. The product they sell retails for $35, with variable costs per unit of $15. Rental expenses are $8,000, and management salaries for the month total $17,000. What is the level of output required to achieve the profit target?
1000 units
2000 units
3000 units
4000 units
Assuming the consoles sell for $399 each and costs per unit equal $195, if 235 units are sold this month, what is the margin of safety?
-65 units
-10 units
75 units
125 units
Which of the following are valid criticisms of breakeven analysis?
It assumes every unit produced is sold
It assumes costs functions are linear
It is a static model
All of the above
Which of the following is not a principle or ethical value of the accounting profession?
Integrity
Punctuality
Professional competence and due care
Objectivity
What is a financial statement illustrating a firm’s results from its trading activities over a period of time called?
Balance sheet
Trade-exchanges sheet
Cash flow statement
Income statement
Which of the following is not a component of an income statement?
Profit & loss account
Expenditure account
Appropriation account
Trading account
What is the cost of goods sold if the firm makes stock purchases of $452,000 and ends the year with $521,125 in ending inventory?
$306,645
$444,895
$1,348,895
Cannot be determined
Which of the following is not a relevant method to boosting gross profit?
Reduce expenses
Raise the product’s price
Shift to cheaper suppliers and intermediaries
An improved marketing strategy
What is the net profit for the year given the following data: Sales revenue $1,525,018, Rental expenses $325,000, Opening stock $289,455, Stock purchases $82,011, Closing stock $133,087, Interest expenses $37,050, Salaries $415,111, Retained earnings $212,815?
$221,663
$296,663
$673,824
$834,478
An asset expected to stay within the business and be used for business activities for over 12 months is called a _______ asset, while assets likely to be used up or converted into cash within 12 months are called _______ assets.
Direct, indirect
Fixed, variable
Fixed, current
Long-term, fixed
Debts that must be paid back within 12 months are called _______ liabilities, while debts that have a maturity of over 12 months are called _______ liabilities.
Current, fixed
Direct, indirect
Long-term, current
Current, long-term
A firm has $32,500 in cash, $17,750 due from debtors, and $45,000 in stock. Creditors are owed $25,250 and a 6-month loan of $42,000 is outstanding. What is the firm’s working capital?
-$7,500
$28,000
$70,000
$73,000
Which of the following is not an example of a current asset?
Cash
Debtors
Machinery
Inventories
Which of the following is not an example of a fixed asset?
Buildings
Debtors
Plant
Intangible assets
Which of the following is/are current liability/liabilities?
Overdrafts
Taxes due to the government
Short-term loans
All of the above
In a balance sheet, what would ordinary share capital be classified as?
A fixed (long-term) asset
A current asset
A liability
Which of the following is not an example of an intangible asset?
Goodwill
Copyrights and patents
Share capital
Trademarks
A machine costs $125,000, and has a residual (salvage) value at the end of its 5-year useful life of $20,000. What is the annual depreciation expense of this machine?
$21,000
$25,000
$29,000
$105,000
A machine with a 7-year lifespan costs $9,500, and records annual depreciation under the straight line method of $1,150. What is the salvage value of this machine?
$1,357
$1,450
$1,500
$1,521
A commercial machine costing $35,000,000 with a 20-year expected life and a salvage value of $2,500,000 is depreciated at a rate of 3% per year. The depreciation expense in the first year is __________, and the net book value is __________.
$700,000; $34,300,000
$750,000; $34,250,000
$975,000; $34,025,000
$1,050,000; $33,950,000
A piece of manufacturing equipment costing $21,500 has a 3-year lifespan, at the end of which it will be resold to scrappers for $3,500. The depreciation expense would be _______ using the straight line method and _______ using the declining balance method (at a 40% rate).
$6,000, $7,200
$6,000, $8,600
$7,500, $8450
$7,500, $10,000
What does the gross profit margin describe?
Gross profit earned per dollar of revenue
Costs incurred per dollar of products sold
Net profit earned per dollar of revenue
Total revenue earned per dollar of cost
Which company has the highest capital employed?
Company E
Company F
Company G
Company H
Which of the following actions would not help in raising a firm’s gross profit margin?
Optimising the marketing mix
Using cheaper raw material suppliers
Reducing fixed and indirect costs
Cutting the number of staff employed in the manufacturing process
Which of the following actions would not help in raising a firm’s net profit margin?
Reducing fixed costs such as rental expenses
Reducing indirect costs such as insurance expenses
Increasing sales revenue
Increasing the cost of goods sold
Return on capital employed (ROCE) is a(n) ____________ ratio.
Profitability
Liquidity
Efficiency
Leverage
What formula is used to calculate ROCE?
Total dividends / capital employed × 100%
Net profit after interest and tax / total share capital × 100%
Net profit before interest and tax / capital employed × 100%
Gross profit / net profit after interest and tax × 100%
What are ratios which seek to assess the ability of a firm to meet short-term obligations called?
Profitability ratios
Efficiency ratios
Liquidity ratios
Current ratios
If a firm has $7,589 in cash and $17,833 worth of stock on hand, and $14,751 in current liabilities due to suppliers, what is the current ratio?
0.51
1.21
1.74
2.25
Typically, one would like their firm’s ________ to range between 1.5-2, and their firm’s ________ to be at least 1.
Quick ratio, current ratio
ROCE, net profit margin
Current ratio, gearing ratio
Current ratio, acid test ratio
Which of the following statements about ratio analysis is invalid?
Historical performance is not indicative of future performance
Interfirm comparisons may not be valid due to accounting differences
Only qualitative factors are considered
Organization objectives may differ, making inter-firm comparisons inappropriate
What do efficiency ratios assess?
The number of times a firm sells its inventory within a year
A firm’s ability to meet its short term obligations
Profit as a proportion of sales revenue
Which of the following is not an efficiency ratio?
Debtor days
Creditor days
ROCE
Gearing
What does the stock (inventory) turnover ratio measure?
How many times a firm’s inventory is used per time period
How many days it takes a firm to recover its accounts receivable (debtors)
The value of all inventory sold per time period
The total potential sales revenue that can be generated from selling all a firm’s inventory
What is the formula for the stock turnover (in days)?
Cost of goods sold / average stock
Average stock / cost of goods sold × 365
Debt / sales revenue × 365
Cost of goods sold / average inventory × 365
With reference to the following data, what is the stock turnover (number of times per year) ratio? Sales revenue $1,275,113 Cost of goods sold $675,000 Opening inventory $150,000 Closing inventory $100,000 Debtors $122,300
4.50 times
3.75 times
5.25 times
6.00 times
With reference to the following data, what is the stock turnover (number of days) ratio? Sales revenue $3,415,216 Cost of goods sold $2,850,000 Opening inventory $1,415,000 Closing inventory $825,000 Average inventory $1,120,000 Debtors $645,525 Accounts payable $315,600 Net profit margin 7.12%
2.54 days
76.20 days
125.00 days
143.44 days
Which of the following methods would not help improve a firm’s stock turnover ratio?
Implementing a just-in-time stock management system
Divesting unpopular or obsolete items from the firm’s product line
Hold lower stock levels
Hold greater stock levels
Which of the following ratios measures the number of days it takes a firm to collect its debt from customers who have purchased on credit?
Current ratio
Quick ratio
Debtor days ratio
Inventory turnover ratio
