Week 8

The short answer questions below required detailed answers. Read each question to understand the requirements. Notice that the questions may require computations and multiple-part answers, and they should include reference to where the answer was located.

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 negotiated transfer price is required (10 points) and (2) provide an example of the application of a negotiated transfer price (10 points). (Points : 20)

2. (TCO 11) Distinguish between managerial and financial accounting as to (1) primary users of reports (10 points) and (2) identify the types & purpose of financial reports. (10 points). (Points : 20)

3. (TCO 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. (TCO 7) 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 profit center operates (10 points) and (2) provide an example of its application in business. (10 points). (Points : 20)

5. (TCO 1) 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  (10 points) and (2) provide an example of how this ratio can be used in decision making in business (10 points). (Points : 20)


1. (TCO 8)  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. (15 points). (Points : 25)

2. (TCO 6)  To adequately plan for the success of the business a budget must be developed.  (1)  Explain the principal sections of a cash budget (10 points) and (2)  indicate the applicability of budgeting in nonmanufacturing companies (15 points).  Include textbook page references to identify where the correct answer was located. (Points : 25)

3. (TCO 4) 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. (15 points). (Points : 25)

4. (TCO 2) 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. (15 points). (Points : 25)

5. (TCO 5) 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. (20 points or 10 points per solution). (Points : 30)

6. (TCO 9) 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. (20 points). (Points : 30)