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BEC > B2- Strategic Planning: Techniques for Forecasting, Budgeting, and Analysis > Flashcards

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

1
Q

Contribution Margin

A

Contribution Margin:

Sales - Variable Costs

Var. Costs include = var. manufacturing costs (DM+DL+VMO), and variable selling costs.

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2
Q

Margin of Safety

A

In Break even analysis (accounting), margin of safety is how much output or sales level can fall before a business reaches its breakeven point.

=Sales - BE Sales

Current Sales Level – Breakeven Point /
Current Sales Level

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3
Q

Breakeven Sales

&

Margin of Safety

A

BE Sales = Fixed Costs / (contrib. margin / sales)

=90K/(120/200) = 90K/.6 = 150K BE Sales

Margin of Safety = Sales - BE sales

200k-150K = 50K

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4
Q

How to get to units of breakeven?

A

“Additional Fixed Costs” / Contrib .Margin

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5
Q

Absorption Costing Method

A

Fixed MO + DM + DL +Var.Man.Costs

GAAP approved

Encourages larger inventories since it “Absorbs” fixed overhead cost into units produced

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6
Q

Variable Costing Method

aka Direct Costing

A

DM + DL + Var. Man. Overhead

Fixed M.O. is treated as a period cost and expensed

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7
Q

Breakeven Analysis

A

Sales = Fixed Cost / Contrib. Margin Ratio (contrib. margin expressed as a % of revenue)

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8
Q

Which costing method provides lowest inventory value?

A

Variable Costing

since only var. costs are capitalized, there is nothing fixed, such as inventory

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9
Q

Operating Margin

A

=Contribution Margin - Fixed Costs

where CM is sales rev - var.

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10
Q

Relevant Range

A

Range of activity levels in which cost behavior characteristics (fixed or variable) are valid. Within a relevant range, fixed costs are assumed to remain the same (IE they do not change.)

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11
Q

Fixed Costs

A

= Contribution Margin per unit * BE units

so PY Fixed Cost = 5.25 * 20,000

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12
Q

Breakeven Units Calculation

A

Fixed Cost / Contrib. per Unit

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13
Q

What does “higher contribution margin” mean?

A

More profitable

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14
Q

Relevant Range

A

Relevant range is the range of activity within which fixed costs and variable costs are meaningful and valid

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15
Q

Marginal Analysis

A
  • Marginal Cost (change in total cost due to a one unit increase in output)
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16
Q

Opportunity Cost

A

Cost that would have been saved / Profit that would have been earned IF another decision alternative would have been accepted.

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17
Q

What is the “minimum accepted selling price”?

A

Should include only incremental costs associated with the order. EG:

Var + Other

(ignore: fixed costs; idle capacity)

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18
Q

When considering alternative costs, what do you consider?

A

A: Relevant costs… or costs that will change under different alternatives

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19
Q

What is the High-low method?

A

[Highest Cost - Lowest Cost] / [corresponding unit amnt - corresponding unit amnt.]

Y= a(fixed) + bx(var)

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20
Q

Coeff. of Determination

r2

A

Percentage of variation in the DEP. variable explained by the variation of the INDEP. variable

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21
Q

Regression Equation?

A

statistical model that estimates the DEP. variable based on changes in the INDEP. variable

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22
Q

Gross Margin

A

Gross margin is the difference between revenue and cost of goods sold, or COGS, divided by revenue, expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially).

Rev - COGS / Rev

23
Q

COGS Feb?

A

Est. Sales (given) at $650K

“COGS avg. 40% of sales volume”

$650K*.4 = $260K COGS

24
Q

What’s in COGM?

A

Materials Used
Direct Labor
Overhead Applied
WIP inventory budgets

NO FG Inventory budget!!!

25
Q

Calculate Flexible Budget

A 
Actual Units (Given) * CM/unit (budg.) 
- Budg Fixed

12,000 * (40K/10K)
-30K

26
Q

Order of Budgets

A

First, Goals of Company are established and Communicated
Sales
Production
Direct materials
(can be followed by budgeted inc. stat and budgeted bal. sheet)
Cash disbursements
(incl. cash flow statement)

27
Q

What is true about a Relevant Range?

A

Within a relevant range, fixed costs remain constant. Fixed costs per unit DECREASE as production increase.

Var. cost per unit remains Same.

28
Q

Financial Budget Process

A

Includes:

1) Cash and Capital Purchases Budget
2) Balance Sheet and Stmnt. Cash Flows

Operating Budget Process Includes:

1) All budgets except cash and cap. purchases
2) The pro forma income statement

29
Q

Variable Overhead Efficiency Variance

A

VOH Eff. Var. = Standard Rate x (actual hours - standard hours)

30
Q

Material Price Variance

A

= Actual QUANTITY x (actual price - standard price)

31
Q

Var. Overhead Spending Variance

A

= Actual HOURS x (actul price - standard price)

32
Q

Selling Price Variance

A

= Actual QUANTITY x (actual price - standard price)

33
Q

Direct Labor Usage Variance

A

= (standard hrs - actual hrs) X standard RATE

34
Q

PURE DADS..

Or how to calculate DM and DL variances

A

P - Price Variance (for DM) = Actual Q purch * [actual $price - stnd. $price]
U - Usage / Quant. Variance (for DM) = Stnd. Price$ * {actual quantity - stdrd. quantity]
R - Rate Variance (for DL) = Actual Hrs Work * [actual rate - stndrd rate]
E- Efficiency Variance (for DL) = Standard Rate * (actual hrs worked - standard hrs)

DA = Diff x Actual
DS = Diff x Standard
P = DA
U = DS
R= DA
E = DS
35
Q

Variable Cost Flex. Budg. Var

A

Var. Costs - Budg. Var. Costs

where Budge Var Costs =

1) determine unit price
2) multiply times Actual Sold

1) Budg. Var Total Costs Budg Items Sold

=145,000 Actual Var costs (LESS) (180,000 total budg var/6,000 total budge sale) = $30/u * 5000 actual sale

145K - 150K = 5K unfavorable

36
Q

Production volume variance?

A

Applied Overhead = (st. var. OH * st. hours) + (St FO rate* actual production)

Budg. Overhead = (st. var OH rate * st. hours) + (St. FO rate * std. production)

Applied Overhead - Budge Overhead = Prod. Volume Variance

37
Q

What is variable overhead efficiency based on?

A

Budgeted Var. OH (based on standard hours) - Budgeted OH (based on actual hours)

38
Q

Market Share Variance

A

=Budgeted Contrib. Margin per Unit * Actual Units Sold * (act. market share - budg. market share)

39
Q

How to calculate Market Share?

A

Actual = Actual units produced // mkt share

Budg Mkt Share = Budg units produced / mkt share

get Mkt. Share Percentages

40
Q

Balanced Scorecard Elements

A

Innovation
Customer Satisfaction
Internal Business Process
Finance

41
Q

What is relevant to a make-or-buy decision? what isn’t?

A

Is: var. labor, var. materials, avoidable fixed costs

Is NOT: depreciation, factory management costs, property taxes

42
Q

Relevant Range

A

Range within which the relationship between a cost and its cost driver remains valid.

Within the range, the FIXED COST WILL REMAIN FIXED and var cost per unit WILL NOT CHANGE.

43
Q

Economic Order Quantity

A

In corporate finance, economic order quantity (EOQ) is the order quantity that minimizes the total holding costs and ordering costs. It is one of the oldest classical production scheduling models.

EOQ is the Denominator – use it to divide Total Units to be Purch. (based on BASE formula)

44
Q

Cash Receipts vs. Cash Disbursments

A

receipts = collections

disb = outlays

45
Q

When production is greater than sales, absorption costing income > var. costing income. WHY?

A

Production in EXCESS of sales results in increases in inventory that include capitalization of fixed product costs that are immediately expensed under variable costing.

46
Q

How do you calculate CM per U?

How to calculate BE?

A

CM per U = Sales price Per Unit - Var. Cost per Unit

BE Formula = Fixed Costs / CM/u

47
Q

BE in Sales Dollars

A

BE In Sales $ = Fixed Costs / (CM/sales)

So if Var Costs are 25% of sales – than CM/sales is 75%

48
Q

Which is reportable for GAAP purposes - variable or absorption?

A

A: Absorption

Represents GAAP and for benefit of external users

49
Q

TOTAL SALES COST

A

= Breakeven + Margin of Safety

50
Q

SELLING PRICE (using Gross Margin concept)

A

Sell Price = Costs / (1-MS)

=$89 / .6
= $148.33

51
Q

Contrib. Margin

VS.

Operating Income

A

CM = Net Sales Revenue (LESS) Variable Costs

Operating Income = Contrib. Margin (LESS) Fixed Costs

52
Q

What is the best transfer pricing model?

A

To Charge Market Price

even among divisions

53
Q

Throughput Resources

A

conversion of resources into finished product

54
Q

Budgeted Income Statement

A

Anticipated Accrual Basis Net Inc./Loss; and added to beg. owner’s equity to generate owner’s equity section of budgeted balance sheet

BEC (7 decks)

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