BEC 1 Flashcards

1
Q

What is the price elasticity of supply?

A

Percentage change in quantity supplied / Percentage change in price

  • Greater than 1, relativey elastic
  • Equal to 1 means unitary elastic
  • Less than 1, demand is relatively inelastic
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2
Q

What is the price elasticity of demand?

A

Sensitivity of the quantity demanded to a change in its price

  • Greater than 1, relativey elastic
  • Equal to 1 means unitary elastic
  • Less than 1, demand is relatively inelastic
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3
Q

What is the Point Method?

Elasticity of Demand

A

Measures the price elasticity of demand at a given point on the demand curve.

  • %Q = [Quantity demanded after the change - Quantity demanded before the change] / Quantity demanded before the change
  • %P = [Price after the change - Price before the change] / Price before the change
  • %Q/%P = Percentage change in quantity demanded / Percentage change in price
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4
Q

What is the Midpoint Method (Arc Method)

A

The midpoint method measures the price elasticity of demand of a range for a specified change in a product’s price.

(Q1 - Q2) / (Q1 + Q2)
%
(P1 - P2) / (P1 + P2)

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5
Q

How is the annualized cost of not taking a trade discount calculated?

Offered by suppliers on trade receivables.

A
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6
Q

What is the effective rate of interest?

A

Effective interest rate = Interest expense (interest to be paid) / Usable funds (net proceeds)

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7
Q

How do you compute totwal borrowings for a discounted loan?

A

Total borrowings = Amount needed / (1.0 - stated rate)

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8
Q

In financing arrangements, how do you calculate the effective rate on a discounted loan?

A

Effective rate on discounted loan = Stated rate / (1.0 - Stated rate)

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9
Q

How do you compute total borrowings with a compensating balance?

A

Total borrowings = Amount needed / (1.0 - compensating balance)

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10
Q

How do you compute effective rate with compensatory balance?

A

Effective rate with compensatory balance = Stated rate / (1.0 - Compensating balance %)

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11
Q

What is target operating income?

A

Target sales in units = (Fixed costs + Target operating income) / (Contribution margin per unit)

Target sales in dollars = (Fixed costs + Target operating income) / (Contribution margin ratio)

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12
Q

How do you compute the equivalent units of production (EUP) under weighted average?

A

EUP = Total Units Completed this Period + EWIP x Percent Complete

Note: No beginning inventory in calculation

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13
Q

How do you calculate EUP under weighted average?

A

Total units completed (transferred out) during the current period
+Ending WIP x Percent completed
=EUP under weighted average

First start by determining physical flow.
Physical flow = Beginning WIP + Units started this period = Units transferred out + Ending WIP

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14
Q

How do you calculate weighted average per EUP?

A

(Beginning WIP costs + Current period costs) / Weighted average EUP

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15
Q

How do you compute the equivalent units of production (EUP) under the FIFO method?

A

Beginning work in process x Percent left to complete
+Units started and completed during the current period
+Ending work in process x Percent complete
=EUP under FIFO

First start by determining physical flow:
Physical flow = Beginning WIP + Units started this period = Units transferred out + Ending WIP
EUP in beginning work-in-process (work done in the prior period) must be excluded from the calculation.

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16
Q

How do you calculate FIFO cost per EUP?

A

FIFO Cost Per EUP= Current period costs / FIFO EUP

17
Q

What are the steps in activity based costing?

A
  1. Activity analysis - identify value adding activities
  2. Assign resource costs to activities
  3. Allocate costs in activity cost pools to final cost objects
18
Q

How do you compute breakeven point in units?

A

Breakeven point in units = Fixed costs / unit contribution margin

19
Q

How do you compute breakeven point in dollars?

A

Breakeven point in dollars = Fixed costs / contribution margin ratio

Contribution margin ratio is the contribution margin as a percentage of sales

20
Q

Margin of safety in dollars

A

Total sales in dollars - Breakeven point in dollars

21
Q

Margin of safety (%)

A

Margin of safety (in dollars) / Total sales (in dollars)

22
Q

Target sales in units

A

(Fixed costs + Target operating income) / UCM

23
Q

Target sales in dollars

A

(Fixed costs + Target operating income) / Contribution margin ratio

24
Q

Operating income

A

Sales - Variable Costs - Fixed Costs

25
Q

What are the steps in a disinvestment decision?

A
  1. Identify the fixed costs that will be eliminated
  2. Determine revenue needed to justify continuing operations
  3. Establish opportunity costs of funds
  4. Determine whether the carrying amount of assets is equal to their economic value
26
Q

How do you address a keep or drop decision question?

A

Prepare a new income statement with impacts of decision:

Sales
-Variable Expenses
=Contribution Margin
-Fixed Costs
=Operating income

May be either asked for new operating income or change in operating income

27
Q

What is the value of common stock and the dividend growth model?

A
28
Q

What are the differences between price and efficiency variances?

A