ACT5060 midterm exam

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’sdays sales in inventory ratio, days sales in receivables ratio, and asset turnover ratioto 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	$5,865,000
Pounds of DM purchased	150,000
Total cost of DM purchased	$1,050,000
Pounds of DM used	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 describe3 ways in which management accounting differs from financial accounting.Be specific in your response.

Question 5

1. List and describe4 potential problems with budgeting. As part of your description, provide an example of each potential problem.