Budgeting, Forecasting Flashcards
In regression analysis, what is meant by r^2?
The coefficient of determination indicates the degree to which the behavior of the independent variables predict or explain the dependent variable.
In order to perform break-even analysis, what must hold true over the relevant range?
Variable costs are constant: if they are not assumed to be constant, this form of analysis is not possible.
What is the importance of the contribution margin in a break-even analysis?
CM represents the portion of revenues that are available to cover fixed costs.
What is the basic formula to perform break-even analysis?
(QuantitySales Price) = FC + (QVC/unit)
What is the contribution margin approach to calculate break-even in units?
Sales Revenue - Variable Costs = Contribution Margin
on a per unit basis:
Sales price per unit - VC per unit = CM per unit
What elements are included in the formula for economic order quantity?
This formula is the square root of
2annual demandcost to place an order / carrying cost per unit per year
How is residual income calculated?
Operating Income - (Investment * rate of return required)
Often used as an alternative to ROI
What is economic depreciation?
The required annual cash investment needed to replace fixed assets.
What is the DuPont method of ROI? How is it different from regular ROI?
Formula: Return on Sales*Asset TO
(ROS: Net Income/Sales
Asset TO: sales/total assets)
This method separates ROI into 2 parts, allowing separate evaluation of profitability and asset utilization efficiency.
What is the Contribution Margin format Income Statement?
Sales less: VC = CM less: FC = Operating Income
What is another term used to describe market risk?
Systematic risk - associated with large-scale economic events or natural disasters.
What is strategic risk?
Involves the possibility of failure of the basic action plan that guides a company to achieve its mission. Rigorous long-term forecasting and planning are necessary to mitigate this type of risk.
In the context of project management, what is meant by the term ‘crashing’?
The process of adding resources to shorten selected activity time on the critical path.
What is PERT?
A planning tool ‘program evaluation and review technique’ that measures project completion time by pessimistic, optimistic, and most probable estimates. A weight of 1 is assigned to the optimistic and pessimistic outcomes and a weight of 4 goes to the probable estimate, and dividing the sum by 6 to provide the estimated project time.
What are prevailing thought processes regarding the new value based metrics?
Accrual based metrics are discredited since they are not designed to reflect true economic substance.
