BEC 3 Flashcards
Application of FOH.
Increase In what account
Decrease IN what account
Dr. WIP
Cr. FOH Applied (or the FOH Control Account)
What are the three inventory accounts used in mfg.
Raw Materials
WIP
Finished Goods - Where COGS or COGM is calculated
If Manufacturing OH Ends up over or under applied OH how is this handled
Closed out to COGS Allocated between WIP FIG (COGM) COGS
Now I seem to remember something else, not sure,
Entry for when you buy raw materials
Dr. Raw Mateirials Inventory
Cr. Accounts Payable
Entry for when you ask for RM and it’s direct and indirect RM
Direct RM 50,000
Indirect RM 2,000
WIP. 50,000
RM. 50,000
above for the direct RM
MOHead. 2,000
RM. 2,000
above for the indirect rm
How does COGS sold work: debit what and credit what
A/R
Sales
COGS
FG Inventory (or just Inventory)
What are the entries for FOH Over or Under Applied
Under Applied (COGS or WIP or FG)
COGS
FOH Control
The Control if you didn’t apply enough debit because that’s where all the real costs end up on that side of the ledger
OverApplied
FOH
COGS
You didn’t Apply enough so need to reduce COGS
COGS good (normal) Balance is what
Debit
COGS
Inventory
Credit for over applied FOH
FOH Control Balance is What
Debit for the Actual Costs
Use to Inventory because the real cost is - can’t be this cause you can’t do it twice
Electric Expense
Cash
So Must
FOH control Indirect Expense
Cash/A-P
Move goods from WIP to FG
Dr. FG
Cr. WIP
WIP
Dr. DL
Dr. DM
Cr. for what move to FG
Days of Sales Outstanding (also Known as)
Formula
Average Days to Collect Cash
365/AR T.O.
Acid Test Ratio is also Known AS
Also known as quick ratio
Formula: Quick Assets Cash, Marketable Securities, Net AR/Current Liabilities
No: Inventory or Pre-pairs
What should you notice in this question?
“The project is expected to increase sales by $100,000 and reduce costs by $50,000 annually. Depreciation expense is $30,000 per year.”
You should notice that increase sales and reducing costs are both increases in income.
You initially red it as increase sales and increase costs.
Price Elasticity of 2 means what
Price goes up by 10% demand will decrease by double
Over 1 means relatively elastic
Less than 1 means relatively Inelastic
0 means perfectly elastic
If stores inventory has a high risk of obsolescence, then what ratio is important
Quick because doesn’t include inventory.
In the payback model what’s included in the denominator’s income figure (or is it cash flow?)
Can’t figure this one out - seriously - Rule of Them
If it says payback and after tax cash flow just use that figure, don’t worry about the depreciation
If it says payback and Expense are and “depreciation is” net the depreciation out of the expenses
Never worry about the depreciation shield
Use salvage only to calculate depreciation
No present value
Well actually it’s not no depreciation, the question literally said “is the amount of depreciation over the life of the project” included in the payback model calculation.”
If you take it literally, the amount is not, I believe the amount is used to calculate the amount of inflows from the depreciation shield. The correct answer was (as far as what was included) “ the total amount of the initial outlay over the life of the project.
There’s a discussion on Another 71 which says depreciation is almost always included it’s that you have to be able to catch the terms “after tax inflows” - unless it has a net loss - or you look for “net cash inflows” which means they’ve included the shield in there already
Payback may include depreciation, but does it include salvage? You know I'm still not sure. They List like this: Initial Cost: $500K Life: 10 years Annual Net Cash Inflows: $200K Salvage: $100K
Woulda thought that this indicated that the salvage doesn’t mater because the answer is 2.5 years (500/200), but that may be because it says “NET Cash Inflows” and not Cash Inflows.
Here’s another payback question where you don’t use the tax shield because it says. Machine cost, blah, blah, useful life, 5 years, tax rate 20%. THE AFTER-TAX cash flows are as follows (lists them all for 5 years). No salvage. Company uses 8% hurdle rate, what is the payback period.
Again, “after-tax” so just use what they give you for inflows. Tax shield is irrelevant if they use after-tax, hurdle rate is irrelevant in Payback.
Here’s a payback question, do you consider depreciation or not?
Invested in a machine will generate revenues of $35,000 annually for seven years. Will have annual operating expense of $7,000 on the new machine. Depreciation expense included in the operating expense is $4,000 a year. The payback period is 5.2 years. What amount of money did the company pay for the machine.
Nothing in the question says anything about taxes. OK fine, it also doesn’t give the tax rate so I guess that means we don’t have to worry about calculating the depreciation shield. Which kind of means that the actual tax shield isn’t an issue so much as you won’t be paying cash out for the depreciation amount.
So we have $35,000 in new revenues and $7,000 in expenses. All those expenses are cash-out except for the depreciation. So really the cash in is 35,000 - 7000 then add the non-cash depreciation back of $4,000 and you get $32,000 X 5.2 and you get $166,400.
Cost indexes divide the new by the old and you get what
Example 120 year 1 becomes 126 year 2
126/120 = 5% so the cost will go up 5%
Payback period and salvage vale
Ignore it for once and for all payback doesn’t include cash flows after initial investment is recovered that’s one of it’s weaknesses
