11 Questions and Answers About Accounting and Finance

Answer all 11 questions following the instructions (if there are any). Plagiarism free, accurate answers required. Examples would be greatly appreciated.

1. What is EBITDA? What does it measure? Why is this such a useful accounting/financial number?

2. What is the Balance Sheet equation? What does it signify?

3. Explain the difference between gross profit and contribution margin.

4. What is the basic difference between a franchise and a license under intellectual property?

5. What is the impact on net income of using accelerated depreciation methods as opposed to straight-line depreciation?

6. Which of these inventory methods (FIFO, LIFO, Average cost, Specific identification) most closely parallels the real-life operations of a grocery store? Why?

7. We learned that the financial statements are based on the concept of original cost. When determining the total original cost of a new piece of equipment, what items are included in this cost calculation? Give examples.

8. How does the relevant range affect total fixed costs? Provide an example to help you explain.

9. What is implied by the break-even point (BEP)? What does this signify to you?

10. Payback is one of the 3 major capital budgeting techniques used. What are the 2 major disadvantages of using this method?

11. Cherry Hill Sports Company makes basketballs. The company makes only one ball and it sells for $25 each. The ball is manufactured at a small plant that it owns in nearby Collingswood, and it relies heavily on direct labor costs since it is mostly a manual operation. Variable product costs (direct material, direct labor, and variable factory overhead) add up to $15 per ball. Sixty percent of these variable product costs are direct labor. Last year, the company sold 30,000 balls with the following results:

Revenue (Sales) (30,000 balls)            $750,000

Variable product costs                         450,000

Contribution margin                            300,000

Fixed expenses                                     210,000

EBIT/NOI                                              90,000

1. Calculate the break-even point (BEP) in balls.
2. Due to a new labor contract the company estimates that direct labor costs will increase by $3 per ball next year. The company is unable to pass on this increase in the form of higher selling price per ball due to market competition. If the labor cost increase materializes, what will be the new unit contribution margin (UCM)? What will be the new break-even point (BEP) in balls?
3. Refer to the original data in the problem. The company is discussing the construction of a new automated manufacturing plant that would slash the total variable product costs per ball by 40%, but would cause the doubling of total fixed expenses, due to the cost of the new factory and equipment. Under this scenario of the new plant, what is the new break-even point (BEP) in balls?
4. Using quantitative analysis and factors only, which course of action between “b” and “c” would you recommend? Why?
5. What qualitative factors would you consider after doing your quantitative analysis, that might lead you to a different conclusion?