Which of the following best describes vertical analysis
Course:- Managerial Accounting
Reference No.:- EM131162707

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1. If a company's current ratio (current assets / current liabilities) is 2.5, which of the following statements is false?

None of the answers listed are false.

The company's quick ratio (acid-test) must be more than 2.5.

The company has 2.5 times the number of current assets as it does current liabilities.

The company's short-term solvency appears to be better than the standard benchmark value of 2.

2. The price/earnings ratio is used for which kind of evaluation?

calculation of a company's market price

the ability of a company to pay its long-term liabilities

the solvency of the company

evaluating potential growth in a company from an investor's perspective

3. Which ratio would be the best measure of the overall profitability of a company?

return on investment

earnings per share

working capital

debt to equity ratio

4. Which ratio analysis classification addresses a company's ability to repay debt due within one year?

long-term solvency



short-term solvency

5. Under an ABC system, indirect manufacturing costs are categorized into which of the following?

activity pools

batch orders

none of the answers listed are correct

overhead groupings

6. Two capital budget projects are being considered at Alpha Co.  Both projects are acceptable choices, but they have different required initial investments.  Given the following information decide which project is BEST and why?

                        net present value           profitability index

Project A              $100,000                    1.38

Project B              $200,000                    1.14

Project B is best because it has the lower profitability index.

Project B is best because it has the higher net present value.

Project A is best because it has the higher profitability index.

Project A is best because is has the lower net present value.

7. Which of the following best describes vertical analysis?

showing each figure as a percentage of some other amount, such as total assets

comparing financial information from one year to the next

comparing a company's financial figures with other companies in the same industry

calculating key ratios to evaluate performance

8. If the present value of net cash inflows of a project is $672,960 and the investment in the project is $447,047, what is the profitability index?

9. Which of the following statements is CORRECT regarding activity-based costing systems?

They accumulate labor costs by pprocessing departments.

They are less complex, and, therefore, less costly than traditional systems.

They are not as accurate or precise as traditional costing systems.

They have separate indirect cost allocation rates for each activity.

10.  Under an activity-based costing system how are direct material costs handled?

Direct material costs must be assigned using an activity driver similar to the allocation of overhead.

Direct material costs due not apply to an activity-based costing system.

Direct material costs are handled in the same manner as was used in a traditional cost system.

Direct material costs are expensed as incurred rather than included as a component of product costs.

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