B3 Flashcards
Process Costing: FIFO
Process Costing: Weighted Avg
Customer Retention Rate
(Beginning Customers - Customers Added) / Customers at YE
Churn Rate
100% - Customer Retention Rate - % of Customers Lost
Employee Turnover Rate
of Employees that Leave / Avg # of Employees during the Year
Critical Success Factors for a Balanced Scorecard
Costs of Quality
Costs of Quality - Examples
Coefficient of Correlation
r - ranges from -1.00 to +1.00
Shows the strength and direction of the linear relationship between two variables.
Coefficient of Determination
R^2 - ranges from 0 to 1
The higher the R^2, the greater the proportion of the total variation in the dependent variable (y) explained by the indep. variable (x)
The better the fit of the regression line
High-Low Method
Difference of Highest - Lowest Units/Volume per Month
Divided by
Difference of Highest - Lowest Cost from those Months (likely same)
This is the calculated Variable Costs to use in this equation: Total Costs = Fixed Costs + (Calc. Variable Costs x # of Units)
so... Fixed Costs = Total Costs (you can use either High or Low month cost) - Calc. Variable Costs
The better the R^2 the more reliable the High-Low method will work.
Breakeven Analysis
Sales Price - VC = Contribution Margin per Unit
Contribution Margin per Unit / Sales Price = Contribution Margin Ratio
Fixed Costs / CM per Unit = BE in Units
BE in Units x Sales Price = BE in $
or
Fixed Costs / Contribution Margin Ratio - BE in $
Learning Curve
Production Time per Unit drops by a % as the production doubles.
Ex. Team took 50 hours to produce one unit. Assuming a 70% learning curve, what is the est. time per unit to produce 2.
1 = 50 hrs
2 = 50 x .7 = 35 hrs per unit
4 = 35 x .7 = 24.5 hrs per unit
Contribution Margin
Unit Contribution Margin = Sales Price - Variable Costs
Contribution Margin Ration = (S-VC)/S
Absorbtion Approach vs. Contribution Approach
Contribution Approach is NOT GAAP - Used for internal analysis purposes only.
Absorbtion Approach is GAAP.
SG&A expense are Period Costs under both.
Contribution Approach - Variable SG&A is included are part of Total Variable Costs to calculate Contribution Margin.
Absorbtion Approach - Variable SG&A are not included.
Sales Volume for Target Profit
Calculated just like Breakeven Analysis.
Add Desired Profit to Fixed Costs and calculate BE point.
Fixed Costs + Desired Profit / Contribution Margin Ratio = Sales Target in $
Absorbtion Approach vs. Contribution Approach
SG&A are period costs (expensed as incurred) in both.
Contribution (Variable) Approach - SG&A are included in Total Variable Costs for Contribution Margin calculation.
Absorbtion Approach - Both Fixed and Variable SG&A are not included.
Contribution Approach - Fixed Costs are treated as Period Costs
Absorbtion Approach - Fixed Costs are capitalized into Inventory and expensed via COGS
When more units are produced than sold (FGs are sitting in inventory) Absorbtion Approach will lead to higher Net Income.
Target Costing
Target Cost = Margin Price - Required Profit
Order to prepare the four types of budgets.
Sales - Production - DM Purchases - Cash Disbursements
Fixed Cost / Month - 2,500
Unit Selling Price - 100
Variable Cost as a % of Sales - 60%
What amount of annual sales must the company achieve to break even?
$75,000
Partial Productivity Ratio
Total Quantity of Production Units / Quantity of Specific Materials Used (Only Iron for ex.)
Total Factor Productivity Ratio
Total Quantity of Units Produced / Cost of all Raw Materials (Units x Cost)
Economic Value Added (EVA)
NOPAT minus:
Investment x Cost of Capital (Required Return)
