BEC II BLAKE CPA Flashcards
Costs that would have been saved or profits that would have been earned if another decision had been selected defines which of the following?
Opportunity Cost
Net benefit given up from the best alternative use of the capacity
Implicit costs are opportunity costs and ignored in financial accounting
What is correct sequence for preparing budgets?
Sales budget, Production budget, Materials budget, budgeted income statement, budgeted balance sheet
R Squared “coefficient of determination”
If 1 truly variable
If 1 Truly Fixed Costs
used to understand if a cost is fixed, varaible or mixed
Y = a +bx
Y = Dependent Variable
X = Independent variable
b = Slope
a = Fixed Cost
What describes a regression equation?
Estimates the dependent variable based on changes in the independent variable
Variable Costing Income Statement - only applies to product costs
Sales
-VC
=Contribution Margin
-FC
=Net profit
Absorption Costing - split between product costs & Period Costs - Income statement
Revenues
- COGS
= Gross Margin
- Variable SG&A
- Fixed SG&A
=Net Income
Target Price Formula
Step 1) Total Sales Target
Traceable costs/ (1 - Target profit %) = Total Sales
Step 2) Target Selling Price
Total Sales / Total Sales Units
Margin of Safety & Margin of Safety Ratio
Step 1) Margin of Safety in Dollars
Total Sales - Break Even Sales (FC / CM %)
=Margin of safety ($’s)
Step 2) Margin of safety Ratio
Margin of safety ($’s) / Total Sales = %
Monitoring
1) ongoing and/or separate evaluations
2) Communication of deficiencies
Components of Internal Control
C - Control Environment
R - Risk Assessment
I - Information & Communication
M - Monitoring
E - Existing control activities
Information & Communication
1) Obtain and use information
2) Internally communicate information
3) Communicate externally
Existing Control Activities - 3 Principles
Select and develop
Implement
1)Select & Develop control activities - control that help mitigate risk of IC not working properly
2) Select & develop technology controls - Organization will select adequate controls to function properly
3) Disposition of policies and procedures - Deploy policies that help establish expectations
Control Environment - 5 components COOCA
Core & Foundation of any Internal control
1) Commitment to ethics & integrity
2) Board independence and oversight
2) Organizational structure - Internal auditor reports to BOD
4) Commitment to competence - Hire competent CPA
5) Accountability
FishBone Diagram
Cause & Effect diagram
Elements: Manpower, method & machinery
Not MOH since it is allocated
ROI
Firm’s Income / Investment Capital
Economic Value Added
Firm’s investment center’s net operating profit AFTER taxes (NOPAT) - Required return (after-tax cost of capital on the investment)
NOPAT = EBIT x (1 - Taxes)
Required Return = Investment (Total Assets) X Cost of Capital or WACC
Cost of Jobs completed (Total cost for COGM)
DM used + DL + Overhead APPLIED + Beginning WIP - Ending WIP
Performance Reports vs strategic plans
Specific & Shorter term compared to strategic plans that are broad based and L/T in nature
Include: User focus, Specific time horizon & exceptional items that are controllable
The essence of responsibility accounting is
Developing performance reports emphasizing costs and revenues that manager can control
Not held accountable for revenues and costs out of their control
What are operating budgets used for?
Operating budgets: sales budget, production budget, selling and administrative expense budget ect
Used to create proforma F/S & Cash budget
Total Debt Ratio
Total Debt / Total Asset
Total Debt / (Debt + Equity)
What is the first step of the budget development process?
Forecast of Sales Volume
Accounting profit
Total Revenue - Total explicit costs
Implicit costs are opportunity costs and ignored in financial accounting
Selling Price Variance
Actual Sold Units X (Actual Selling price - Budgeted selling price)
Risk Assessment
Part of COSO
1) Identify and assess changes
2) Consider potential for fraud
3) Specify financial Objectives
4) Identify & analyze risk
3 COSO Operating Objectives ORC
Reporting objectives - pertain to the reliability, timeliness and transparency of a company’s external and internal financial/nonfinancial reporting.
Operating Objectives - relate to the effectiveness and efficiency of an entity’s operations
Compliance objectives - following all related laws and regulations
Enterprise Risk Management
Outlines methods and processes to assist a company in managing risk
Everyone is involved, works alongside the COSO Frame work
Four Objectives of ERM - ORCS
Reporting
Operations
Compliance - compliance with laws and regulations (External)
Strategic
Financial Expert Criteria
Knowledge of GAAP & experience in preparing or reviewing F/S
Experience in designing and maintaining an effective internal control system
General understanding of audit committee functions
