1. (TCO 10) Not all pricing methods apply to the market place. In manufacturing it is common practice to determine the cost of a product as it moves through it
transformation to a finished product. (1) Explain why a transfer price is required (10 points) and (2) provide an example of the application of a transfer
price (10 points). (Points : 20)

2. (TCO 11) Terry LeMay is unclear as to the difference between the balance sheet of a merchandising company and a manufacturing company. (1) Describe and
provide an example of a balance sheet of a merchandising company and (2) compare to an example of a balance sheet of a manufacturing company (10 points).
(Points : 20)

3. (TCO 3) Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how adequate
records can satisfy the purpose of internal control (10 points) and (2) provide an example of how this control could be implemented (10 points). (Points :
20)

4. (TCO 7) To promote better management control of business centers financial responsibilities are assigned to managers. There are three basic types of
responsibility centers. (1) Explain how a cost center operates (10 points) and (2) provide an example of its application in business. (10 points). (Points :
20)

5. (TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for Current Ratio and explain how it is
computed (10 points) and (2) provide an example of how this ratio can be used in decision making in business (10 points). (Points : 20)

1. (TCO 8) Planning for capital investments is an important function of management. You are provided with the following data concerning a proposed capital
investment: cash cost $220,000, net annual cash flows $40,000, present value factor of cash inflows for ten years 5.65 (rounded). Determine the net present
value, and indicate whether the investment should be made. (1) Explain the pros and cons of using this method to evaluate a capital expenditure (10 points) and
(2) show all computations required to arrive at the correct solution. (15 points). (Points : 25)

2. (TCO 6) To adequately plan for the success of the business a budget must be developed. (1) Indicate the benefits of budgeting (10 points) and (2) state the
essentials of effective budgeting (15 points). Include textbook page references to identify where the correct answer was located. (Points : 25)

3. (TCO 4) Financial statement analysis is used by investors, creditors and managers of business to evaluate the operation and health of the business. This
information is in part the basis for decision making. (1) Identify ratios used to evaluate the profitability of a company (10 points) and (2) provide an
example of how the results of this analysis could be used to make business decisions. (15 points). (Points : 25)

4. (TCO 2) There are three different forms of business; sole-proprietor, partnership and corporation. (1) Explain why a corporation’s separation of ownership
and management may be a benefit (10 points) and (2) as a stockholder explain why preemption may be a benefit. (15 points). (Points : 25)

5. (TCO 5) Ajax Company has a unit selling price of $520, variable costs per unit of $286, and fixed costs of $187,000. Compute the break-even point in units
using (a) the mathematical equation and (b) contribution margin per unit.. (1) Explain how the determination of the break-even point is to be performed (10
points) and (2) Show the computations of both methods required to arrive at the correct answers. (20 points or 10 points per solution). (Points : 30)

6. (TCO 9) Warsaw Products has a factory machine with a book value of $90,000 and a remaining useful life of 4 years. A new machine is available at a cost of
$250,000. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to
$500,000. Prepare an analysis showing whether the old machine should be replaced or retained. (1) Explain how the analysis is to be performed (10 points) and
(2) Show all computations required to arrive at the correct answer. (20 points). (Points : 30)