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)
What order are the budgets prepared?
Total Variance
Volume Variance
Flex Budget Variance
Master Budget Operating Income - Actual Operating Income
Budget Sales (Units x Price) - Actual Units@Budget Price
Flex Budget (Actual Units@Budget Price) - Actual (Units&Price)
Flex Budget
Actual Units X Budget Price
Gross Profit Margin
Sales(net) - COGS / Sales(net)
Return on Sales
EBIT / Sales(net)
Return on Assets
NI / Avg Total Assets
DuPont Return on Assets
Profit Margin X Asset Turnover
NI / Sales(net) X Sales(net) / Avg Total Assets
Operating Cashflow Ratio
Cashflow from Operations / Current Liabilities
Current Ratio
Current Assets / Current Liabilities
Quick Ratio
Cash + ST Securities + Receivables(net) / Current Liabilities
No Inventory
AR Turnover
Sales(net) / Avg AR(net)
Days Sales in AR
Ending AR(net) / (Sales(net) / 365)
Inventory Turnover
COGS / Avg Inventory
Days in Inventory
Ending Inv / (COGS/365)
AP Turnover
COGS / Avg AP
Days of Payables Outstanding
Ending AP / (COGS/365)
Cash Conversion Cycle
Days in AR + Days in Inventory - Days of Payables Outstanding
Total Debt Ratio
Total Liabilities / Total Assets
Equity Multiplier
Total Assets / Total Equity
Times Interest Earned
EBIT / Interest Expense
How many times you could pay your interest expense with your Operating Income
Which of the following does not change the current ratio or total current assets?
A cash advance to a divisional office - the reduction in cash is offset by the receivable.
Materials Price Variance
(Actual Price - Standard(Budget) Price) x Actual Quantity
Direct Labor Usage (Efficiency) Variance
(Budget - Actual Hours) x Budget Rate
Variable OH Efficiency Variance
Budgeted Var OH Rate x Budget Driver - Budgeted Rate x Actual Driver
Production Volume Variance
Selling Price Variance
(Actual Selling Price - Budgeted SP) x Actual Units Sold
Perpetuity (Zero Growth Stock) Equation
PV = Fixed Dividend / Required Return Rate
Baker pays a $5 annual dividend, I want to make a 20% return. How much should I pay for the stock?
= $5 / .2 = PV $25
Constant (Gordon) Growth Dividend Discount Model
Basically, the price of a share at a point in time should be:
D x (1+g) / R - g
The expected dividend payment one time period after P, divided by the Required Return (often calculated by CAPM) minus the assumed Growth Rate.
Horizontal Merger
Merger of two companies in the same industry
Vertical Merger
Merger of a company with one of its suppliers
Circular Merger
Merger of two companies in unrelated industries
Diagonal Merger
Merger of two companies that provide ancillary support
Merger
A mergers with B to create a new company C
Acquisition
A acquires B, leaving only A. B no longer exists
Tender Offer
Sell-Off
Spin-Off
Equity Carve Out
It has multiple lines of business, if they are only interested in the Cat and Dog food segment, then a Purchase of Assets is most appropriate.
Operating Cycle
Days in Inventory + Days in AR
Ending Inv / (COGS/365) + Ending AR(net) / (Net Sales/365)
Job Costing vs Process Costing
Job Costing - Custom/Unique Products
Process Costing - Mass Produced, Homogeneous Products
Types of Data Analytics
Descriptive
Diagnostic
Predictive
Prescriptive
Backwards Looking
Descriptive - describing what has occured; Simmary Statistics
Diagnostic - Diagnosing or explaining why it occured; Profiling customer behaviors
Forward Looking Predictive - Predicting what will occur; Regression Analysis Prescriptive - Prescribing what could or should occur; AI or Scenario Modeling
A static budget contains…. ?
Budgeted costs for budgeted outputs.
