ACT 5060 Mid Term 2014

Question 1
1. In analyzing a firm’s profitability ratios over a four-year period, you observe that the firm’s gross margin percentage has steadily decreased. Over the same period, its operating margin percentage has steadily increased. How would you interpret this? Be specific in your response.
Question 2 
1. How can a financial analyst use a firm’s days sales in inventory ratio, days sales in receivables ratio, and asset turnover ratio to assess a firm. As part of your answer, you should give the formula for each ratio and say what it tells us about the firm. Be specific in your response.
Question 3
1. The following information pertains to the Sophia Corporation:
Expected production (units)

35,000

Standard DML hours per unit

9

Standard DML rate per hour

$18

Standard pounds of DM usage per
unit

4

Standard DM price per pound

$6

Actual units produced

37,000

Actual DML hours worked

345,000

Actual cost of DML
Pounds of DM purchased
Total cost of DM purchased
Pounds of DM used

$5,865,000
150,000
$1,050,000
136,000

a) Calculate the following variances:
Direct manufacturing labor rate variance
Direct manufacturing labor usage variance
Direct materials price variance (like we did in the chat session)
Direct materials usage variance

b) Explain what each of the calculated variances imply about Sophia’s operations. Make sure you give a specific possible reason for the calculated variance.
Direct manufacturing labor rate variance
Direct manufacturing labor usage variance
Direct materials price variance
Direct materials usage variance

Question 4
1.List and describe 3 ways in which management accounting differs from financial accounting. Be specific in your response.
Question 5
1. List and describe 4 potential problems with budgeting. As part of your description, provide an example of each potential problem.