Business Environment and Concepts Flashcards

A company's current ratio is 2.5 and its quick ratio is 1.1. Which conclusion is most supported?

Answer: The company has significant inventory relative to current assets

A large gap between current ratio and quick ratio indicates substantial inventory in current assets, since quick ratio excludes inventory.

Under COSO's Enterprise Risk Management framework, which component involves identifying potential events that could affect the entity?

Answer: Event identification

Event identification is the COSO ERM component focused on identifying internal and external events that may affect the entity's objectives.

Which type of organizational structure groups employees by function such as marketing, finance, and operations?

Answer: Functional structure

A functional structure organizes employees into departments based on their specialized roles or functions within the organization.

In a make-or-buy decision, which cost is most relevant to the analysis?

Answer: Incremental variable costs of manufacturing

Incremental variable costs are relevant because they change depending on whether the product is made internally or purchased externally.

A firm has operating leverage of 4. If sales increase by 10%, operating income will increase by approximately:

Answer: 40%

Operating leverage multiplies the percentage change in sales by the degree of operating leverage: 10% × 4 = 40%.

Which IT control is designed to prevent unauthorized users from accessing a system?

Answer: Preventive control

Preventive controls, such as passwords and access restrictions, are designed to stop unauthorized access before it occurs.

Porter's Five Forces model analyzes industry competitiveness. Which force refers to the ability of customers to negotiate lower prices?

Answer: Bargaining power of buyers

Bargaining power of buyers describes how much leverage customers have to push for lower prices, better quality, or more services.