Question No: 2 10 Marks
Case (a) The National Ferries Company in Oman purchased a new ferry at a cost of OMR 320,000. The facilities
available in that ferry were modern and long lasting. The useful life of the ferry was estimated for 20 years. At the
end of the 8th year the ferry’s wireless and navigation system requires replacement. The company felt that the
maintenance cost of the wireless and navigation system was very high and they decided to replace that wireless and
navigation system immediately. Except the wireless and navigation system, the ferry’s technical parts and other
facilities are sail worthy and are expected to function for the next 6 years without any problem. The National
Ferries Company inquired about the price with the producer of wireless and navigation system and they are ready to
deliver the wireless and navigation system at a price of OMR 85,000.
Case (b) A land was acquired by a manufacturing corporation and the purpose of this acquisition was to construct a
factory building. The corporation wishes to obtain permission from the government authorities. For this purpose,
the corporation needs certificate from the government regarding environment clearance and change of classification
of land etc. The estimated cost for such permission and clearance was OMR 42, 200. The corporation wishes to
capitalize such cost of getting permission from the government and it should be included capitalized under cost of
construction of factory building.
According to the standards of IAS 16 the cost of an item of property, plant and equipment will be provided
if and only if it is probable that asset must provide future economic benefits. And the cost of permission and
clearance must also have to be measured reliably. Further as per the standards of IAS 16 the recognition of the cost
of permission and clearance will be made at the time when it is incurred. As per the principle of recognition, the
corporation has capitalized the cost of obtaining permission and clearance.
Required:
Case (a)
i. On the role of a financial analyst provide your information about whether the cost of the new wireless
and navigation system can be recognized as an asset?
ii. By considering the replacement cost of the wireless and navigation system, what amount would be
reported as an asset? And How would treat this asset in the company’s financial statements?

Case (b)
i. On the role of a financial analyst justify by your explanation about the decision of capitalizing the cost
of obtaining permission and clearance from the government is correct or not.
ii. If it is correct, how would you treat this cost in the cost in the corporation’s financial statements? 300 word

1. ABC Co anticipates adding 100 new stores in the next year to its existing 500 stores. If last year's sales growth of 15% is expected to repeat, how would you derive a sales growth percentage forecast?

Select an answer:

• past year sales growth percentage plus percentage increase in new stores
• past year sales volume plus percentage increase in new stores
• past year sales growth percentage plus anticipated sales volume for the next year
• past year sales volume plus anticipated percentage increase in sales for the next year

2. When you are forecasting expenses, what assumption can you generally rely on?

Select an answer:

• cost of goods sold will remain constant as a percentage of sales if sales increase

depreciation expense will increase at the same rate sales increase

operating expenses will decrease in dollars as sales increase

cost of goods sold will decrease as a percentage of sales if sales increase

3. ABC Co. anticipates a 50% increase in sales volume for the next year as a result of expanding capacity. What financial statement item will change at a different percentage rate than its sales volume increase?

Select an answer:

• cash

depreciation expense

accounts receivable

operating assets

4. Why would a company's property, plant, and equipment expense increase from Year 1 to Year 2 at a higher rate than its sales volume increase?

Select an answer:

• property, plant, and equipment expense always increases at a rate twice that of sales volume increase

the company has to invest in new property, plant, or equipment to achieve its sales volume increase

property, plant, and equipment expense always increases at a rate three times that of sales volume increase

property, plant, and equipment expense will increase because sales volume increase lowers depreciation expense

5. Although most businesses utilize computerized records, they are still based on journals and ledgers. What does a ledger contain differently than a journal?

Select an answer:

• business events by category or account

payments made in chronological order

year-end income and depreciation

cash collections in chronological order

6. If you have a small sideline business selling homemade items over the internet, what would be the least complicated software for you to use if you only needed to create an income statement?

Select an answer:

• QuickBooks

Quicken

EXCEL spreadsheet

mint.com

7. Of the three types of books kept by large companies, in which book does the company keep summary reports provided to banks and investors?

Select an answer:

• tax

managerial

journal

financial

8. What type of internal control is intended to avoid adjustments to books in order to cover up a theft?

Select an answer:

• separation of duties

perceived opportunity

internal checks

physical safeguards

9. Consider ABC Co. has a P/E ratio of 40 and earnings per share of $2.00. How would a potential investor estimate price per share if the average P/E ratio in ABC's industry is 20?

Select an answer:

• Price-Earnings Ratio 40 x earnings per share $2.00 equals estimated price per share of $80.00

Price-Earnings Ratio 40 / earnings per share $2.00 equals estimate price per share of $20.00

Price-Earnings Ration 20 / earnings per share $2.00 equals estimated price per share of $10.00

Price-Earnings Ratio 20 x earnings per share $2.00 equals estimated price per share of $40.00

10. What is the price-earnings (P/E) ratio of the average public company in the United States across all industries?

Select an answer:

• 15

1

less than 1

30

11. If ABC Co. is in an industry where the average price-to-sales ratio is 1.0, how could ABC achieve a higher price per share than its competitors?

Select an answer:

• lower its return on equity

lower its profit per dollar of sales

have a higher expected sales growth

have a lower expected sales growth

12. To provide more credible income forecasts in order to sell the company, what would ABC Co. do to enhance its reputation for honesty and fair dealing?

Select an answer:

• create relationships with banks and customers

construct forecasts for internal planning purposes

identify factors that lead to better forecasts

avoid relationships with banks and customers

PA5-4 Predicting Cost Behavior, Calculating Contribution Margin and Contribution Margin Ratio, Calculating Profit [LO 5-1, 5-5]

Presidio, Inc. produces one model of mountain bike. Partial information for the company follows:

Required:
1. Complete Presidio’s cost data table. (Round your Cost per Unit answers to 2 decimal places.)

2. Calculate Presidio’s contribution margin ratio and its total contribution margin at each sales level indicated in the cost data table assuming the company sells each bike for $600. (Round your Margin Ratio percentage answers to 2 decimal places (i.e. .1234 should be entered as 12.34%.))

3. Calculate net operating income (loss) at each of the sales levels assuming a sales price of $600. (Round your answers to the nearest whole dollar amount.)

Toledo Pump Company manufactures two different types of pumps: centrifugal and displacement. The Company uses an activity-based costing system to allocate production overhead costs. The following are the estimated cost data for the period.

The number of units to be produced during the period are Centrifugal 1,800 units; Displacement 1,200 units.  

Raw materials and direct labor costs per unit are as follows:

Production overhead costs for the period are as follows:

Required:

1. Compute the total cost for each of the two products (including raw materials, labor, and production overhead).

2. Compute the costs per unit for each product (round amounts to two decimal places).

3. What sales price should be set for each of the two products if Toledo Pump Company seeks to price its products at cost plus 35 percent.

Luebke Inc. has provided the following data for the month of November. The balance in the Finished Goods inventory account at the beginning of the month was $59,000 and at the end of the month was $30,700. The cost of goods manufactured for the month was $215,500. The actual manufacturing overhead cost incurred was $57,100 and the manufacturing overhead cost applied to Work in Process was $60,800. The company closes out any underapplied or overapplied manufacturing overhead to cost of goods sold. The adjusted cost of goods sold that would appear on the income statement for November is:

Multiple Choice

• $240,100

• $187,200

• $243,800

• $215,500

Question 2

Annenbaum Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 1,400 units. The costs and percentage completion of these units in beginning inventory were:

A total of 8,500 units were started and 6,900 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

The ending inventory was 50% complete with respect to materials and 35% complete with respect to conversion costs.

The cost per equivalent unit for materials for the month in the first processing department is closest to:

Multiple Choice

• $13.10

• $13.70

• $15.86

• $12.28

1. Which of the following is the step in which materials, labor, and overhead are detailed?

Group of answer choices

A) allocating the costs to the units transferred out and the units partially completed

B) determining the equivalent units of production

C) determining the units to which costs are assigned

D) determining the cost per equivalent units

2. Activity-based costing is preferable in a system:

Group of answer choices

A) with multiple, diverse products

B) where management needs to support an increase in sales price

C) when multiple products have similar product volumes and costs

D) with a large direct labor cost as a percentage of the total product cost

3. Which of the following is a reason a company would implement activity-based costing?

Group of answer choices

A) They want to improve the data on which decisions are made.

B) A company only has one cost driver.

C) The additional data obtained through traditional allocation are not worth the cost.

D) The cost of record keeping is high.

4. Which is not a step in analyzing the cost driver for manufacturing overhead?

Group of answer choices

A) analyze the effect on manufacturing overhead

B) identify the cost

C) identify the correlation between the potential driver and manufacturing overhead

D) identify non-value-added costs

5.The most common budget is prepared for a ________.

Group of answer choices

A) month

B) week

C) quarter

D) year

i) Imagine that sound is incident directly on the fluid(electrolyte in the inner ear. Calculate the percentage of the sound energy that is reflected and the percentage that is transmitted into the fluid. ii) how is the human ear structured to overcome this impedance mismatch problem?

The manufacturer of aspirin claims that the proportion of headache suffers who get relief with just two aspirins is 53%. The probability is 90% that the sample percentage (for a sample of 400) will be contained within what symmetrical limits of the population percentage?

Which one of the following is the most accurate method for estimating uncollectible accounts?

Select one:

a. Aging of Accounts Receivable

b. Indirect write-off method

c. Percentage of Accounts Receivable

d. Percentage of sales