6. Planning, Control, Analysis Flashcards
Strategic planning vs Tactical
Strategic = long term Tactical = short term
Master budget parts
Master = summary, all parts together, static budget for whole corp incl: Operating = income stmt Financial = other fin stmts, B/S, etc
Flexible budget vs Static
Static = planning, specific level of activity, usually a single division Flexible= can change with input changes
Master budget steps
Order of budget creation:
- Sales budget
- Production
- DM/Raw mat purch
- CASH! LAST
Basic difference between master and flexible budget is:
- Flexible can be prepared at any production level in a relevant range, master is static
- Flexible is only used after the budget period, master is before
-Flexible can be prepared at any production level in a relevant range, master is static
Budget data:
COGS= $300k, AP 1/1= 20k
Inv- 1/1 - 30k, Inv-12/31- 42k
Purchases will be made in twelve equal monthly amounts and paid the following month. What are the budgeted cash pmts?
$306,000 PAID IN THE FOLLOWING MONTH: Beg + Purch = Avail - End = COGS 30 + P = 342 (from->) - 42 = 300 P = 312 div by 12 mth = 26 But have 20 a month from old AP as Jan. So (20 x 1) + (26 x 11) = $306,000
Correlation Analysis
Find best cost driver
Range between 1 and -1, pos = strong direct relationship ($/dates) (superior/normal good), then neg = strong inverse relationship (study/fun) (inferior good), Zero is no relationship
Coefficient of Determination
Used for line of best fit after Correlation Analysis
Zero to 1, closer to 1 is line works better
Responsibility Accounting
Cost Center = manage cost incurred by them
Profit Center = manage cost, revenue
Invest Center= manage costs, revenues, capital investments
Activity based costing
Accumulate costs by activity, not dept
Groups activities as costs: employee costs, OH type costs
Reduce non-value added cost
Service Dept Costs
ex) support center, not adding real revenues
1. Direct allocation- allocate all service dept costs directly to production depts
2. Step method- trickle down, service to service to production
Probability analysis
Revenue ($) x Probability (%) = Weighted value ($)
Probability sections must total 100%
Sum of weighted values is your est value of the project
When production levels increase with a flexible budget what would the effect be on these costs:
1) Fixed per unit, 2) Var per unit:
- down, down
- no change, no change
- no change, down
- down, no change
-down, no change
Production increases = more units to spread cost over so fixed per unit goes down since var/unit, variable per unit stays same cuz its fixed per unit
Negative sloping line graph has what type of correlation coefficient?
a) -9
b) -.93
c) +.93
d) +9
b) -.93
Indirect relationship, between 1 and -1, but indirect relationships are on the -1 side
Controllable revenue would be included in a performance center report for: (I, II, neither, both)
I. Cost center
II. Profit center
II. Profit center only
cost only deals with cost, profit is cost and revenue
In ABCosting cost reduction is accomplished by identifying and eliminating: (I, II, neither, both)
I. All cost drivers
II. Non-value adding activities
II. Non-value adding activities
It increases cost drivers actually, by grouping activities instead of just using depts
It tries to remove non-value added activities to lower cost
Gordon Growth Model
[Dividend yield (aka next divid / stk price)] + growth rate
Average return: arithmetic (ST) and geometric (LT)
arithmetic- just averages
geometric- compounds, always lower rate
Standard Deviation
Higher SD, higher risk (measures volatility)
Uses sigma, shown as %
Coefficient of Variation
how much does it vary
-1 to 1
Positive= direct (but riskier), Neg= indirect (balanced portfolio) (negs are hedge-like)
Risk: unsystematic, systematic
UNsystematic- avoidable
Systematic- unavoidable, market factors (inflation, int rate)
CAPM
Risk free int rate + (expected mkt rate - risk free) x Beta
Beta= 2.0 is double risk, 1 is normal risk/reward
Risks
Credit: risk that borrowers will default
Sector: ex) tech, risky, avoidable, diversify to avoid
Concentration of credit: only loaning to one sector, could hurt you in crash
Market risk: that market crashes
Int rate risk: value of bond down cuz of int rate increase in mkt
Yield Curve
Interest rate changes:
normal (steady increase)
inverted (down, then up more LT)
Flat (similar across line)
A company is trying to hedge the risk of a current investment. What coefficient of variation should the hedge be? Pos .91 Neg .91 Neg .19 Post .19
Neg .91
Cuz you want opposite to protect, indirect relationship
Coefficients go -1 to 1
What measures volatility of an investment?
- Expected return
- Standard Deviation
- Graphical Evaluation Technique
- Coefficient of Variation
-Standard Deviation
Which is a risk taken by a lender that the value of the loan will decline as a result of a general economic decline?
- Credit risk
- Economy risk
- Market risk
- Concentration of credit risk
-Market risk
Which is not a theory that describes the reasons for differences in the yields associated with int rates?
- Expectations
- Mkt segmentation
- Behavioral finance theory
- Liquidity preference
-Behavioral finance theory
NOT, for stocks
All others have to do with yields and affect yield curves
Project Mgmt: 5 Processes
Proj: -Initiation- choice of goals/proj
- Planning- tasks, when, who. Stmt of Work (what to do), Prgrm Eval & Review Technique (scheduling/time is realist, determines slack time)
- Execution- continue, direct activities
- Monitor & Control- check on, see how its going, make adjustments
- Closure- all accomplished, finalize $/paperwork
Project Mgmt: 4 Basic Elements
Resources- personnel, material
Time- how long
Money- $
Scope- proj size/goals
Which of the following are involved in project management? (any combo)
I. Proj reporting
II. Proj planning
III. Proj funding
II. Proj planning ONLY
Initiation, Planning, Execution, Monitor/Control, Closure
A company determined that there is a total of 6 hours slack time on a proj. This means:
- It will be completed in 6 hours less than expected
- 6 hours of down time is included in budgeted hours
- 6 hour difference between the time to be completed and the time it will avoid delay
- The process can be shortened by 6 hours with maximum worker capacity
-6 hour difference between the time to be completed and the time it will avoid delay
Derivatives
Investment that derives its value from something else, to hedge against risk. Enter for speculation, hedge
Derivative: NUNS
- NO net investment
- UNDERLYING (price) and NOTIONAL (hypothetical) amt
- net SETTLEMENT amt
Types of Derivatives
Option: able but not req to take contract, buy/call (expect prices up) and sell/put (thinking price drop)
Forward: agree to purch/sell in future, unregulated
Future: forward thats regulated (standardized amts)
Swap: Currency, int rate (fixed/var)
Which is not a characteristic of derivatives?
- It can be settled in its net amount for cash or other liquid assets
- It has an original maturity of 3 months or less
- There is an underlying and notional amount
- There is either no intitial payment or an insignificant amount in comparison with the cost of the investment
-It has an original maturity of 3 months or less
IT IS NOT!! All others true
Cash flow hedge that increased by $60k. The hedge is highly effective, 95% offsets future $ flows. How is the $60k increase reported?
- 57k gain in Other comprehensive income, remainder in income
- 57k gain in income, remainder in OCI
-57k gain in Other comprehensive income, remainder in income
60k x 95% = 57k
Cash flow goes to Other comprehensive income, the remaining 3k goes to income stmt immediately
Company wants an int rate swap but thinks the other party won’t perform. This is:
- Performance risk
- Legal risk
- Market risk
- Credit risk
-Credit risk
Legal = law invalidated, so not option
Performance= not for derivatives
Theory of constraints (bottleneck)
Capacity is less than demand (can’t put stuff out fast enough)
Prevention is cheaper than….
Failure
Costs of Quality
Prevention- use good mat, inspection, quality focused
Detection- before production is complete
Internal Failure- after production, before shipping
External Failure- consumer
Business Process Management
Design- look and improve
Modeling- what ifs? before production
Execution- start implementing, everything good to move forward
Monitoring- see if everything is working well
Optimization- remove bottlenecks, improve process and product
