ACT5060 Accounting for Decision Makers

Mid-Term Exam
Question #1
a) How would a financial analyst prepare a vertical analysis of the income statement?
b) What are some things a financial analyst can learn about a firm by performing a vertical
analysis of the income statement?
Question #2
a) How would a financial analyst prepare a vertical analysis of the balance sheet?
b) What are some things a financial analyst can learn about a firm by performing a vertical
analysis of the balance sheet?
Question #3
How can a financial analyst assess a firm’s solvency? As part of your answer, describe ratios that
would be helpful and things that the analyst should be looking for in performing the analysis.
Question #4
How can a financial analyst use a firm’s days to sell ratio, days to collect ratio, and asset
turnover ratio to assess a firm’s management efficiency? As part of your answer, you should
give the formula for each ratio and say how it relates to management efficiency.

Question #5
In analyzing a firm’s ratios over a four-year period, you observe that the firm’s gross margin
percentage has steadily increased. Over the same period, its operating margin percentage has also
steadily increased, but at a slower rate than the gross margin percentage. How would you
interpret this? Be specific in your response.
Question #6
The ABC Company manufactures widgets. It competes and plans to grow by selling high-quality
widgets at low prices and by delivering them to customers quickly. There are many other
companies in the industry producing similar widgets. ABC believes it needs to continuously
improve its manufacturing and delivery processes and that having satisfied employees are both
critical to its long-term success. List and justify eight metrics (2 in each of the Balanced
Scorecard perspectives) that you believe ABC should include in its Balanced Scorecard.

Question #7
The following is budgeted information for the Connor Corporation:
Annual production & sales
Projected selling price

Product XYZ
20,000
$50.00

Product ABC
30,000
$30.00

$10.00
$18.50
$4.00

$6.00
$10.00
$4.00

Production Cost Information
Parts (per unit)
Direct Labor (per unit)
Supplies (per unit)

Additional information:
• Fixed manufacturing overhead costs are budgeted to be $80,000.
• Selling & administrative costs (a mixed cost) are budgeted to be $120,000. The variable
component is $1 per unit.
Assuming the budgeted sales mix remains intact, how many units of each product does Connor
need to sell in order to break even?
Question #8
The following per unit information is based on expected production (capacity) and sales of
10,000 units:
Selling price
Variable cost of goods sold
Fixed cost of goods sold
Gross Profit

$75
$23
$16
$36

Variable selling &
administrative
Fixed selling & administrative
Operating Income

$10
$5
$21

a) How many units need to be sold to break-even?

b) How many units need to be sold to earn operating income of $42,000?

Question #9
What is an opportunity cost? Give an example of one. How can an opportunity cost impact the
decision to accept a special order?

The cost of an alternative that must be forgone in order to pursue a certain action, an example of
this are the benefits you could have received by taking an alternative action. The impact of
opportunity cost for accepting special orders can affect the production cost, due to the fact that
you adding additional cost and products.
Question #10
List and describe 3 ways in which management accounting differs from financial accounting.