B2: Forecast & Projection Flashcards
Contribution Margin ratio formula
Contribution margin / Revenue
contribution approach vs. absorption approach
the difference is the treatment of fixed factory overhead
Formula for Gross profit margin
GM(or GP)/ Net sales
Break even point in units formula
total FC/CM per unit
Break even point in sales dollar ( 3 ways)
1) unit price X BE in UI
2) total FC/ CM ratio
3) BE UI * SP per unit
formula for CM per unit
SP per UI - VC per UI
Formula for CM ratio
cm/sales
Define Margin of safety
excess of sales lover Break even sales
Compute Margin of safety in sales dollars
total sales- breakeven sales=MOS
Margin of safety formula as a %
MOS in $$/total sales
Another name for operational analysis
marginal analysis
When is marginal analysis used?
introduction of new product or changes in output levels, acceptance/rejection of special orders, making or buying product service, adding/dropping segment
Name the 4 types of Relevant cost
- incremental
- opportunity cost
- controllable cost
- Marginal cost
Name the 2 types of not relevant cost
- Sunk costs
2. uncontrollable cost
Define sunk cost
unavoidable cost because they happen in the past
define incremental cost
additional cost incurred to produce an additional amount of unit over present output
Define marginal cost
sum of cost required for a one-unit increase in activity
includes all VC and avoidable FC associated w/ a decision
when to make vs. buy?
if relevant cost to make(including oc) <outside purchase
When to sell or process further
if incremental rev> increm. cost
When to keep or Drop a product line
Keep if :
lost CM> avoided fixed cost
*only consider cost that will change
Define Sensitivity analysis
process of experimenting w/ different parameters and assumptions
Sensitivity analysis formula
change TC/ change volume
Define Forecasting analysis
predicts future values of dependent variables (ex. TC)
What is regression analysis formula
y=A+BX
Coefficient of Correlation (r)
measures strength of linear relationship between IV & DV
Coefficient of Correlation (r2)
proportion of total variation in the TC dependent variable (y) explained by IV (volume)
Define High-Low Method
technique used to estimate fixed and variable portions of cost, usually production cost.
