09 Financial Planning

Question 1

What is a Static Budget?

Answer 1

Budget targeted for a specific segment of a company.

Question 2

What is a Maser Budget?

Answer 2

Budget targeted for the company as a whole

Includes budgets for Operations and Cash Flows

Includes set of budgeted Financial Statements

Question 3

How do Fixed Costs affect budgeting?

Answer 3

Costs independent of the level activity within the relevant range

Property Tax is the same whether you produce 100-000 units or zero units

However - Fixed Costs per unit vary given the amount of activity

If you produce fewer units- fixed costs per unit will be greater than if you produce more units - i.e. less units to spread the cost over

Question 4

How do Variable Costs affect budgeting?

Answer 4

The more Direct Materials or Direct Labor used- the more Variable Costs per unit

However - Variable Costs per unit don’t change with the level of activity like Fixed Costs per unit

Question 5

How are Material Variances calculated?

Answer 5

SAM:

Standard Material Costs
- Actual Material Costs
= Material Variance

Question 6

How are Labor Variances calculated?

Answer 6

SAL

Standard Labor Costs
- Actual Labor Costs
= Labor Variance

Question 7

How are Overhead Variances calculated?

Answer 7

OAT

Overhead Applied
- Actual Overhead Cost
= Total Overhead Variance

Question 8

How does Absorption Costing compare to Variable Costing?

Answer 8

Absorption Costing - External Use- Cost of Sales- Gross Profit- SG&A

Variable Costing - Internal Use- Variable Costs- Contribution Margin- Fixed Costs

Question 9

How is Contribution Margin calculated?

Answer 9

Sales Price (per unit)
- Variable Cost (per unit)
= Contribution Margin (per unit)

Question 10

How is Break-even Point (per unit) calculated?

Answer 10

Total Fixed Costs / Contribution Margin (per unit)
= Break-even Point Per Unit

Assumption: Total Costs & Total Revenues are LINEAR

Question 11

What is the focus in a Cost Center?

Answer 11

Management is concerned only with costs

Question 12

What is the focus in a Profit Center?

Answer 12

Management is concerned with both costs and profits

Question 13

What is the focus in an Investment Center?

Answer 13

Management is concerned with costs- profits- and assets

Question 14

What is the Delphi technique?

Answer 14

Forecasting technique where Data is collected and analyzed

Requires judgement/consensus

Question 15

What is Regression Analysis?

Answer 15

A forecasting technique where Sales is the dependent variable.

Simple Regression - One independent variable

Multiple Regression - Multiple independent variables

Question 16

What are Econometric Models?

Answer 16

Forecast sales using Economic Data

Question 17

What are Naive Forecasting Models?

Answer 17

Very Simplistic

- Eyeball past trends and make an estimate

Question 18

How does a Moving Average compare to Exponential Smoothing?

Answer 18

Both project estimates using average trends from recent periods

Difference: Exponential Smoothing weighs recent data more heavily

Question 19

What are the characteristics of Short-term Cost Analysis?

Answer 19

Uses Relevant Costs Only

Ignore Sunk Costs

Opportunity Cost is a Must