APP Financial Analysis & Reporting 3

Question 1

Which costing method assigns manufacturing overhead to products based on the activities that drive costs, rather than volume measures like direct labor hours?

Accepted Answer

Activity-based costing (ABC)

Answer

ABC traces overhead to specific activities (e.g., machine setups, inspections), giving a more accurate picture of true product cost.

Question 2

When a supplier's balance sheet shows a high proportion of intangible assets relative to total assets, a purchasing practitioner should be concerned about:

Accepted Answer

Asset valuation reliability and liquidation value in case of insolvency

Answer

Intangibles like goodwill can lose value rapidly and have little liquidation value, making the supplier's net worth less reliable.

Question 3

A make-or-buy financial analysis should include all of the following EXCEPT:

Accepted Answer

Sunk costs already incurred

Answer

Sunk costs are irrelevant to future decisions because they cannot be recovered regardless of the choice made.

Question 4

In financial ratio analysis, a debt-to-equity ratio greater than 2.0 for a supplier generally signals:

Accepted Answer

High financial leverage and potential solvency risk

Answer

A D/E ratio above 2.0 means the supplier relies heavily on debt financing, increasing vulnerability to interest rate changes and economic downturns.

Question 5

Which type of cost remains constant per unit but changes in total as production volume changes?

Accepted Answer

Variable cost

Answer

Variable costs are constant per unit but their total rises or falls proportionally with output volume.

(APP) Accredited Purchasing Practitioner Certification Practice Test

(APP) Accredited Purchasing Practitioner Certification Practice Test

APP Financial Analysis & Reporting 3