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AICPA CPA Business Environment and Concepts Exam
- Topic 1: Auditing and Attestation
- Topic 2: Business Environment and Concepts
- Topic 3: Financial Accounting and Reporting.
Free AICPA CPA Business Environment and Concepts Exam Actual Questions
The questions for CPA Business Environment and Concepts were last updated On Apr. 18, 2024
A company has total costs of $100,000, of which 40% is variable costs. What is the operating leverage?
Choice 'c' is correct. A shortcut computation for operating leverage is the ratio of fixed costs to variable costs. If total cost is $100,000 and variable cost is 40% of total costs (or $40,000), then fixed costs must be 60% (or $60,000). Operating leverage is then calculated as follows:
$60,000/$40,000 = 1.5
Choice 'a' is incorrect. .4 is obtained by dividing $100,000 into the variable cost of $40,000.
Choice 'b' is incorrect. .6 is obtained by dividing total costs into fixed costs.
Choice 'd' is incorrect. 2.5 is obtained by dividing total costs by variable costs.
The following information pertains to Quest Co.'s Gold Division for 1993:
Quest's return on investment was:
Choice 'c' is correct. Return on investment equals net income divided by average invested capital:
Choices 'a', 'b', and 'd' are incorrect, per the above calculation.
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified four alternative sources of funds, which are given below.
A: Pay a factor to buy the company's receivables, which average $125,000 per month and have an average collection period of 30 days. The factor will advance up to 80 percent of the face value of receivables at 10 percent and charge a fee of 2 percent of all receivables purchased. The controller estimates that the firm would save $24,000 in collection expenses over the year. Assume the fee and interest are not deductible in advance.
B: Borrow $110,000 from a bank at 12 percent interest. A 9 percent compensating balance would be required.
C: Issue $110,000 of six-month commercial paper to net $100,000. (New paper would be issued every 6 months.)
D: Borrow $125,000 from a bank on a discount basis at 20 percent. No compensating balance would be required.
Assume a 360-day year in all of your calculations.
The cost of Alternative D . is:
Choice 'c' is correct.
Choices 'a', 'b', and 'd' are incorrect, per the above calculation.
Which one of the following would not be considered a carrying cost associated with inventory?
Choice 'd' is correct. Shipping costs (which are selling costs) would not be considered a carrying cost associated with inventory.
Choices 'a', 'b', and 'c' are incorrect. Each of the following would be considered a carrying cost associated with inventory.
A Insurance costs.
B Cost of capital invested in the inventory.
C Cost of obsolescence.
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified four alternative sources of funds, which are given below.
A: Pay a factor to buy the company's receivables, which average $125,000 per month and have an average collection period of 30 days. The factor will advance up to 80 percent of the face value of receivables at 10 percent and charge a fee of 2 percent of all receivables purchased. The controller estimates that the firm would save $24,000 in collection expenses over the year. Assume the fee and interest are not deductible in advance.
B: Borrow $110,000 from a bank at 12 percent interest. A 9 percent compensating balance would be required.
C: Issue $110,000 of six-month commercial paper to net $100,000. (New paper would be issued every 6 months.)
D: Borrow $125,000 from a bank on a discount basis at 20 percent. No compensating balance would be required.
Assume a 360-day year in all of your calculations.
The cost of Alternative D . is:
Choice 'c' is correct.
Choices 'a', 'b', and 'd' are incorrect, per the above calculation.
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