BEC 1 Flashcards
Demand elasticity
(Change in demand/qty demanded)/(change in price/price change)
% change in qty demanded/ % change in price
when is demand elastic, neutral and inelastic
when
- elasticity > 1 = elastic
- elasticity = 1 = neutral
- elasticity < 1 = inelastic
factors that affect elasticity of demand
necessity or want
disposable income
substitutes
time lag after price change
elasticity of supply
(change in supply/prechange qty supplied)/(change in price/prechange price)
% change in qty supplied/ % change in price
Difference between Prime cost and Conversion cost
Prime Cost - direct materials and direct labor
Conversion cost - Direct labor and Manufacturing overheads
The formula for developing the overhead rate(overhead allocation rate or overhead application rate)
Estimated overhead costs / Estimated activity volume
Estimated amounts based on CURRENTLY ATTAINABLE capacity are always used for this formula—not historical, ideal, or theoretical amounts.
Applied OH
JE for including Applied OH in WIP
Application rate X ACTUAL units used in production
WIP Dr
Applied OH Cr
Actual OH
JE for actual OH (Example)
Actual OH charged to expense accounts and Factory OH control acct
Factory OH Control Utilities expense Acct Dr
Accounts payable Cr
JE for Closing out - Applied OH acct ad Actual OH control Acct
If Applied and Actual is the same - say - 50K
UNDER APPLIED OH
If Material differences - say - 25k
Prorate the difference among WIP, Finished Goods and COGS. **[NEVER On DM]**
If Immaterial differences - Say - 5K
Charge it to COGS
OVER APPLIED OH
Applied OH Dr 50k
Actual OH control Acct Cr 50k
Applied OH 50k Dr
WIP Dr
COGS Dr
FG Dr
Factory OH Control Acct Cr 75k
Reverse the above entry - Credit COGS
Schedule of COG Manufactured
Schedule of COGS
analyzes Raw Materials and manufacturing WIP
Beginning WIP+DM+DL+DOh-Ending WIP= COG Manufactured
analyzes finished goods inventory
What are the features of financial expert as per SOX sec 407
Knowledge of GAAP and FS
Application of this knowledge for reserves, accruals must have prepared FS for comparable companies
knowledge of internal controls and financial reporting procedures
must know audit committee functions
Risk reduction
Risk sharing
Risk avoidance
Risk tolerance
Risk Acceptance
managing risk to reduce its likelyhood or impact
Sharing with another party - insurance, hedging
avoiding risk
variation in risk in achievement of objectives
Risk appetite
Internal control
First ask what is a organization’s objectives? Operational efficiency and effectiveness, compliance with laws, regulations an policies and accurate financial reporting. Internal control is a process that helps you attain these objectives.
3 factors WHY is the aggregate demand curve negative. and HOW these factors cause it to be negative
Interest rates - Higher the interest rate, lower is the investment spending, which hugely affects AggD Demand
Inflation Rates - higher the inflation, lower is the purchasing power of money, Decrease in value of money causes low AggD.
Foreign Purchasing power - When inflation rises, domestic goods become more expensive and imports rise, thus reducing the AggD.
Explain the Multiplier Effect
Any increase in investment spending will increase aggD. This ‘Initial spending’ will cause ripple effects through the economy, further increasing AggD.
How? Due to the concept of ‘Marginal Propensity to Consume’
When Invt spending is 10Million and MPC is 0.8, [which means consumer will spend 80% of his increased income, which will be somebody else’s income, and so on and so forth.]
calculate the Multiplier effect =
Initial Spending * 1/1-MPC
10 Million * 1/1-0.8
10 Million * 1/0.20
10 Million * 5 = 50 Million
So the original spending of 10 M actually resulted in AggD of 50M
