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72 financial ratios are relationships between two

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72. Financial ratiosare relationships between two financial statement numbers and areoften used in analyzing and describing a company's performance.Financial ratios are often used in a business context to describe variouscharacteristics of companies.Sixof themost commonly used ratiosare:1.Debt ratio:percentage of company funding that is borrowed2.Current ratio:indication of a company's ability to pay its short-term debts3.Return on sales:pennies in profit on each dollar of sales4.Asset turnover:measure of efficiency; number of sales dollars generatedby each dollar of assets
5.Return on equity:pennies in profit for each dollar invested by stockholders6.Price-earnings ratio:number of dollars an investor must pay to "buy" thefuture rights to each dollar of current earnings73. Financial statement analysis is usedto predict a company's future profitability and cash flows from its pastperformance andto evaluate the performance of a company with an eye toward identifyingproblem areas.The informativeness of financial ratios is greatly enhanced when they arecompared with past values and with values for other firms in the same industry.74. The5 steps in implementing and using an ABCsystem are:1.Identifyoverhead cost activities.2.Analyzeindividual overhead costs in terms of those cost activities.3.Identifymeasurable cost drivers.4.Assignoverhead.5.Usethe ABC data to make decisions.75. Disagreements in judgmentDifferences in opinion about what numbers should bereported in the financial statements based on different estimates76. FraudIntentional misrepresentations in the financial statements77. The 5 types of control procedures are
1.Segregation of duties2.Procedures for authorizations3.Documents and records4.Physical safeguards5.Independent checks78. A shoe manufacturer incurred the following costs during the first quarter of the year:The company produced 40,000 pairs of shoes and sold 35,000 pairs.Direct labor 780,000Direct Materials500,000Manufacturing Overhead 900,000Step 1:Total Product Costs2,180,000What was the cost of sales for the first quarter of the year?Step 1:Total the product costsStep 2:Divide the total product costs by the number of shoes produced2,180,000 / 40,000 = 54.50 per pair of shoesStep 3:Multiply the cost per pair of shoes * the number of shoes sold54.50 * 35,000 = 1,907,500If the sales were $5,000,000. How much was the gross profit?5,000,000 - 1,907,500 = 3,092,500If fixed costs were $1,592,500, How much operating income (loss) did the companyhave for the first quarter?3,092,500 - 1,592,500 = 1,500,00079. The income statement of Santa's Toy Manufacturing Company had the followingincome statement for the month of November.Production = 1,000,000 unitsSales$850,000Direct Material270,000Direct Labor380,000Mfg Overhead247,000COS897,000Gross profit(47,000)
Overhead was applied at 65% of direct labor.

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Term
Fall
Professor
Moe
Tags
Balance Sheet, Generally Accepted Accounting Principles, Financial Accounting Standards Board

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