BEC Formulas Flashcards
Roxy’s Ice Cream Shoppe sells 100 quarts of chocolate a day at $6 each. If it lowers the price to $3 per quart, it will sell 300 quarts.
Point Method
Roxy’s Ice Cream Shoppe sells 100 quarts of chocolate a day at $6 each. If it lowers the price to $3 per quart, it will sell 300 quarts.
Midpoint (Arc) Method
Explicit Costs
Actual cash payments for out-of-pocket costs.
Implicit Costs
An opportunity cost passed on.
Economic Costs
Explicit costs + Implicit costs
Accounting Profit
Sales revenue - Explicit costs
Economic Loss
Accounting profit - Implicit costs
Short Run Costs
= Variable costs + Fixed costs
Long Run Costs
= Variable costs
Total Costs
= total fixed costs + total variable costs
Average Total Costs
= average fixed costs + average variable costs
Price Index Rate of Inflation
Nominal Interest Rate
= Real interest rate + Expected inflation
M1 and M2
Amount of money banks can potentially create
Is approximated by the money multiplier
Exchange rates….
Exchange rates: Cross rate
Exchange rates: Cross rate
Required rate of return regarding investment risk
Return on an investment
Rate of return of an investment %
Coefficient of correlation, r
What does the r stand for?
Is a measure of the relative relationship between two variables.
Simple regression
High-Low Method
A regression line using only the highest and lowest from data.
Expected rate of return
Standard deviation
Coefficient of variation (CV): risk per unit of return
The lower the ratio the better.
Bonds at a premium are sold for more than par value. Stated rate is higher than the market rate.
Bonds at a discount are sold for less than par value. Stated rate is lower than the market rate.
Degree of operating leverage (DOL)
Degree of financial leverage (DFL)
Degree of total leverage (DTL)
Required rate of return (cost of common stock)
Dividend payout ratio
Dividend yield ratio
Shareholder return
Times-interest-earned ratio
Total debt ratio
The lowest ratio is the least risky
Cost of long-term debt
Cost of preferred stock
Cost of common equity
Component Cost of Capital for Common Stock
Mortgage Weighted Cost
Debentures Weighted Cost
WACC
Weighted Average Cost of Capital
Average AR for Year 4, Year 3, and Year 2 with only info given:
Year 4 = $5,327,000
Year 3 = $5,074,000
Year 2 = $4,832,000
Ending AR for Year 4, Year 3, and Year 2 with only info given:
Year 4 = $5,456,000
Year 3 = $5,198,000
Year 2 = $4,950,000
Days’ Sales in AR for Year 4, Year 3, and Year 2 with given info:
Year 4 = 321
Year 3 = 343
Year 2 = 356
Four components of total costs
Effective rate of discounted loans
Effective rate with compensating balances
Relevant Cash Flows: After-tax annual cash flows (two ways)
Free cash flow
It ignores the time value of money
Future value
PV - Single amount
FV - Single amount
Ordinary annuity
Payments at the end of the period
Annuity due
Payments at the beginning of the period
Net present value (NPV)
Positive - accept the project
Negative - reject the project
IRR example:
A company is considering a project that calls for an initial cash outlay of $50,000. The expected net cash inflows from the project are $7,791 for each of 10 years.
What is the IRR of the project?
A. 9%
B. 7%
C. 8%
D. 6%
A. 9%
To determine the IRR:
Comparing the payback period with the PV factors given, a payback period of 6.418 years corresponds with an IRR of 9%.
Return on Common Equity (ROCE) example:
Fact Pattern: The information below pertains to Devlin Company.
Assuming there are no preferred stock dividends in arrears, Devlin Company’s return on common equity for the year ended May 31, Year 2, was
A. 10.5%
B. 7.5%
C. 6.3%
D. 7.8%
A. 10.5%
The return on common equity equals income available to common shareholders divided by average common equity. Net income available to common shareholders is $45 [$54 – ($150 par value of preferred stock × 6%)]. Average common equity is $429.5 {[$574 – $150 preferred stock) + ($585 – $150 preferred stock)] ÷ 2}. Thus, the return is 10.5% ($45 ÷ $429.5).
Similar to Pareto diagrams, but histograms display a continuum for the independent variable.
Direct Materials (DM)
Direct Labor (DL)
Direct Labor (DL)
Manufacturing overhead (OH)
Assigns costs to specific units, lots, or batches.
Assigns costs to large numbers of homogenous products with costs accumulated by processes, departments, or cost centers.
Refines an existing costing system like job-order and process costing.
Indirect costs are assigned to activities then rationally allocated to end products.
Beginning WIP (BWIP)
Units started and completed
Ending WIP (EWIP)
Weighted-average EUP
First in, First out (FIFO) EUP
First in, First out (FIFO) EUP
FIFO cost per EUP
Contribution margin per unit (UCM)
UCM divided by unit selling price
Operating income
Make-or-Buy Decisions - Opportunity Cost
Abbreviations for variance calculations
Direct materials price variance
Direct materials quantity variance
Direct labor rate variance
Direct labor efficiency variance
Variable overhead (VOH) flexible budget variance
VOH over or underapplied
VOH spending variance
VOH efficiency variance
Fixed overhead (FOH) over or underapplied
FOH spending variance
FOH volume variance
Sales price variance
Sales volume variance
Volume
Variety
Velocity
Veracity
