3/4 Flashcards
Absolute conformance
demands compliance with the most rigorous standards.
represents ideal, perfect level of compliance.
Goalpost conformance
assumes a range of acceptable results.
represents compliance within an established range of tolerable error.
Conforming costs are the
preventative and appraisal costs invested to detect and prevent errors.
Nonconforming costs are the
external and internal failures associated with correcting quality errors.
Operating leverage is the degree to which a firm uses
fixed costs as opposed to VC.
Financial leverage is the degree to which a firm uses
debt to finance the firm.
Galax had operating income of 5mil before interest and taxes. Galax’s bv of assets were 22mil and 18mil at Jan 1 and Dec 31. Galax achieved a 25% return on investment with an investment turnover of 2.5. What were sales for the year?
investment turnover = sales / avg investment
2.5 = s / ((22mil + 18mil)/2)
2.5 = s / 20mil
s = 2.5 * 20mil
s = 50mil
In a traditional cost system, the issue of indirect materials to a production department increases:
-work in process control
-factory overhead applied
-stores control
-factory overhead control
factory overhead control
Calculate the acquisition of PPE
Beg PPE 6,240,000
Depr prior year 870,000
Depr current year 1,000,000
end PPE 7,040,000
6,240,000 - 1,000,000 = 5,240,000
7040,000 - 5,240,000 = 1,800,000
Broad categories of risk are identified using the DUNS system. What is DUNS?
Diversifiable - can be eliminated through diversification.
Unsystematic - non market
Non-Diversifiable - inherent to the market.
Systematic - inherent to the market.
there are only two broad categories - Diversifiable, unsystematic or undiversifiable, systematic
under variable costing system only
variable manufacturing costs are assigned to inventory. Variable OH is not.
A company has the following information
Sales 200
Net income 100
Depr 20
Interest 10
Taxes 5
What is the operating profit margin?
100 + 10 + 5 = 115
115 / 200 = 57.5%
calculate the forward P/E
the forward P/E is P0 / E1
P0 is market capitalization / shares outstanding
E1 is can be from forecasted EPS
calculate the current price of xxx’s stock applying the method of comparable to the earnings multiplier model.
peer group P/E times E1
e1 can be a forecasted EPS
Calculate the firms justified forward P/E based on the firm’s fundamentals and Gordon growth model
pe would be P0/E1
to do this we start with P0 = d1/r-g and divide it by e1
p0 / e1 = (d1 / e1) / r-g
d1 / e1 can be subbed for the dividend payout ratio
estimate the current price of stock using the PEG ratio and the company’s forecasted earnings
p0 = PEG x E1 x g
PEG might be given to you
e1 can be a forecasted EPS
g can be given to you or it is ROA x Retention % / (1 - (ROA x retention%))
calculate the price to sales ratio
this is p0 / s1
p0 is the current stock price. can be calc’d using market cap / shares outstanding
s1 is the growth in sales / shares. s0 x (1+growth) / shares
calculate the price to book ratio
this is p0/b0
p0 is the current stock price. can be calc’d using market cap / shares outstanding
b0 is the book value of equity = CS + APIC + RE
calculate the price to cash flow ratio
this is p0/CF1
p0 is the current stock price. can be calc’d using market cap / shares outstanding
CF1 is the cash flow x 1+growth then divided by shares outstanding
calculate the current intrinsic price of the stock price using the price to cash flow ratio and method of peer group comparables
p0 = (p0/CF1 of the peer group) x CF1 of company
the peer group number should be given to you.
CF1 of the company is CF0 x 1+ growth / shares outstanding
examples of prevention costs
employee training
preproduction inspections
process redesign
product redesign
examples of appraisal costs
postproduction inspections
laboratory maintenance
product testing
examples of internal failure costs
rework
scrap
tooling changes
examples of external failure costs
returned goods
liability claims
warranty costs
