B2 Strategic Planning: Techniques for Forecasting, Budgeting, and Analysis-Profitability and Pricing analysis Flashcards

Question

Forecasting and Projection The Coefficient of Determination (R²)

Answer 1

is the proportion of the total variation in the dependent variable (y) explained by the independent variable.

Answer 2

used to estimate fixed and variable portions of cost 1. Compare high and low volumes and costs 2. divide difference between high and low dollar total costs by the difference in hgih and low volumes to obtain VC per unit 3. use either high or low volume to calc VC by multiplying the volume times the VC per unit 4. subtract total calculated VC from total costs to obtain fixed costs formula TC=FC + (VC per unit x # of units)

Answer 3

Documents specific short-term operating performance goals for a period, normally one year or less aka as static budgets, annual business plans, profit planning, or targeting budgets

Answer 4

1. Balance Sheet 2. Income Statement 3. Statement of Cash Flows

Answer 5

Operating: 1. *Sales budgets*-first budget prepared and drives the development of most other components of the master budget. 2. Production budgets 3. Selling and Admin budgets 4. Personnel budgets Financial: 1. Pro forma f/s 2. Cash budgets

Answer 6

Budgeted sales +Desired ending inventory -Beginning Inventory =Budgeted Production

Answer 7

1. Units of DM needed for a production period + Desired ending inventory at the end of the period _- Beg Inv at the start of the period_ =Units of DM to be purchased for the period 2. Units of DM to be purchased for the period _x cost per unit_ =cost of DM to be purchased for the period 3. Beg inv at cost + purchases at cost _- end inv at cost_ =DM usage (cost of material used)

Answer 8

Cost of goods manufactured + Beg finished goods inventory _- Ending finished goods inv_ =COGS example DM used - 1,432,000 DL - 1,480,000 FactoryOH (variable)- 370,000 Factory OH (fixed)- 300,000 Finished Goods Beg- 1,000,000 Finished goods End- 750,000 Compute COG Manufactured DM used 1,432,000 DL 1,480,000 FOH Variable 370,000 _FOH Fixed 300,000_ =Total cost of goods manufactured 3,582,000 _Plus finished goods, beg 1,000,000_ =Goods Available for Sale 4,582,000 _Less finished goods, ending (750,000)_ =COGS 3,832,000

Answer 9

1. Beginning Cash 2. + Cash collections from sales (add) 3. - Cash Disbursements for purchases and operating expenses (subtract) 4. =Computed Ending Cash 5. -Cash requirements to sustain operations (subtract) 6. =Working Capital loans to maintain cash requirements

Answer 10

Allow mgmnt to evaluate the capital additions or the org, often over a multi year period. Highly dependent on the availability of cash or credit, and they generally involve L-T commitments by the org

Answer 11

Use in conjunction with master budget. Allows for adjustments for changes in production or sales and accurately reflects expected costs for the adjusted output.

Answer 12

Benefits 1. display different volume levels within the relevant range to pinpoint areas in which efficiencies have been achieved or waste has occurred. Limitations 1. highly dependent on the accurate indentification of fixed and variable costs and the determination of the relevant range.

Answer 13

tool for comparing some measure of performance to a plan, budget, or standard for that measure. Used for planning and control purposes and can be used to evaluate revenues and costs. Comparison of actual results to the annual business plan is the first and most basic level of control and evaluation of operations.

Answer 14

Actual results may be easily compared with budgeted results. However, usefulness is limited by the existence of budget variances that may be strictly related to volume Example _Budgeted_ Sell 10,000 units at $15 a piece CM % = 20% FC= $25,000 _Actual_ Actual units sold= 8,000 (totaling $112,000 in revenues) Variable expenses= $100,800 and FC = $24,000 Units: 10,000 8,000 _Budget_ _Actual_ Variance F/U Revenue 150,000 112,000 (38,000) U Variable Exp _(120,000) (100,800) 19,200 F_ CM 30,000 11,200 18,800 U Fixed Costs _(25,000) (24,000) 1,000 F_ Net Income(loss) 5,000 (12,800) (17,800) U Variances need significant analysis before they are useful. The favorable variance in varaible expenses, for example, don't represent efficiencies. Budgeted CM ratios are 20%; actual cm ratio are 10%. Sales in units were off budget by 20%, yet revenues are down by 25%. Something is wrong but what? Step 2: see page 50

Answer 15

Std costs in aggregate, measure the costs the firm expects that it should incur during production.

Answer 16

1. Cost control 2. Data for performance evaluations (variance analysis) 3. Ability to learn from standards and improve various processes.

Answer 17

* DM **P**rice Variance*= Actual Quantity purchased x (Actual price - Standard Price) * DM quantity **U**sage variance* = Standard Price x (Actual quantity used - Std quantity allowed) DL **R**ate variance= Actual hours worked x (Actual rate-Std rate) DL **E**fficiency Variance= Std rate x (Actual hours worked-Std hours allowed) Difference x Actual **(DA)** Difference x Actual **(DS)** Difference x Actual **(DA)** Difference x Actual **(DS)**

Answer 18

VOH Rate (spending) variance= Actual Hoursx (Actual Rate-Std Rate)-tells managers whether more or less was spent on Variable OH than expected. VOH Efficiency variance= Std Rate x ( Actual hours - Std hours allowed for actual production volume)-tied to the efficiency with which labor hours are utilized. FOH Budget (spending) variance= Actual Fixed OH-Budgeted fixed OH- FOH Volume Variance=Budgeted Fixed OH - Std Fixed OH cost allocated to production\* \*Based on Actual production x Std Rate

Answer 19

gathers information on multiple dimensions of an org's performance defined by critical success factors necessary to accomplish the firm's stragtegy.

Answer 20

1. Financial-Responsibility segment/SBU 2. Internal business processes-Efficient/effective operations 3. Customer Satisfaction-customers happy 4. Advancement of innovation and human resource development (learning and growth)