Exam 3 Chp 8/9 Flashcards
Is Target Costing a (Price-Taker) or (Price-Setter)
Target Costing is Price-Taker
Is Cost-Plus Pricing a (Price-Taker) or (Price-Setter)
Cost-Plus Pricing is a Price-Setter
What is the definition of Relevant Information
Information that differs among alternatives that incur in the future
What is the definition of Irrelevant Information
Past information that we cannot change.
Example Sunk cost.
When do you use Target Costing and What is the Formula?
You use Target Costing when the product is not unique and the competition is fierce and the company has no influence on the market.
Revenue at Market Price
(-) Desired Profit
———————————-
Target cost
When do you use Cost-Plus pricing and what is the Formula?
You use Cost-Plus pricing when you are the Price setter you have influence in the market and can set your own prices.
(Unique Product)(Monopoly Market)
Total Cost
(+) Desired Profit
——————————-
Cost-Plus Price
What is a Special Order? What are key considerations on whether to accept or deny?
A One time order at a reduced price for a large quantity.
Key considerations-
- Do we have excess capacity to fill the order
- Will the reduced sale price be enough to cover costs
- Will the special order affect regular sales
How do you calculate return on assets?
Operating income (Divided by) Assets
If the plant is producing 630,000 cases a month, yet only operating at 90% of capacity, it must have a capacity level of? How do you find the total capacity?
Divide 630,000/.90 = 700,000 which is the total capacity
How do you calculate target variable cost? and Target fixed cost per unit)
Target total cost
(-)Fixed cost
———————-
Target Variable Cost
(Divide # of units)
—————————-
Target Variable cost per unit
To get Target total cost you would do target costing
How do you calculate target fixed cost?
Target total cost
(-)Variable cost
———————-
Target Fixed Cost
____ is extra inventory of finished goods that is kept on hand in case demand is higher than predicted or problems in the factory slow down production
Safety Stock
Managers will sometimes build _____ into their budgets to protect themselves against unanticipated expenses or lower revenues.
Slack
The sales budget and production budget are examples of _____
Operating Budget
The ______ is used to forecast how many units should be made to meet the sales projections.
Production Budget
_____ is a budgeting process that begins with departmental managers and flows up through middle management to top management.
Participative Budgeting
_____ is a budget that is continuously updated by adding months to the end of the budgeting period.
Rolling Budget
The _____ is the difference between actual and budgeted figures and is used to evaluate how well the manager controlled operations during the period.
Variance
The ______ is the all-inclusive planning document for the entire organization.
Comprehensive Budget
When an organization builds its budgets from the ground up, it’s using _____
Zero-based Budgeting
The _______ project both the collection and payment of cash and forecast the company’s budgeted balance sheet.
Financial budget
______ is the process of setting long-term goals that may extend several years into the future
Strategic Budgeting
What is the order of the operating budget?
1- Sales budget
2- production budget (In Units)
3- Operating Expenses
4- Income statement
What is the order of a Financial budget?
1- Capital Expenditure budget
2- Cash collections
3- Cash payments
4-Combined Cash budget
5- Budgeted balance sheet
What are the components of a Comprehensive (Master) Budget?
Operational budget and Financial Budget
What’s the structure of the Production budget?
Sales Units
(+) Desired end inv
—————————-
Total units needed
(-) Beginning Inv
——————————
Budgeted units to produce
What’s the structure of the Budgeted income statement?
Revenue
(-)COGS
—————-
Gross Profit
(-)Operating Expenses
——————————-
Operating Income
(-) Interest expenses
(-) Income Tax
—————————-
Net Income
What’s the structure of the Cash Collection Budget?
Beginning cash
(+) Collections
————————-
Total cash available
(-) Payments
—————————
End Cash before financing
(+) Financing
——————————-
Ending Cash
What is the name of the budget that is prepared by top management and passed down to the company?
Top-Down budget
What is the name of the budget that is created with the help of departments?
Participative budget
What are the benefits of a Top-Down budget?
It’s simple and less time consuming
What are the benefits of a Participative budget?
More accurate and managers will have higher preferences
What is a comprehensive budget?
It encompasses all budgets, including operating and financial budgets
What is an operating budget?
It is related to day to day operations such as production budget, sales budget, Income statement
What is a Financial Budget?
It is related to capital expenditure.
Example - Cash budget, budgeted balance sheet
What’s the structure of the Direct Materials Budget?
Quantity of DM needed for production
(+) Desired ending DM inventory
——————————————————
Total quantity of DM needed
(-) Beginning DM inventory
——————————————-
Quantity of DM to purchase
(X) cost per unit of DM
———————————————
Budgeted total cost of DM purchases
What’s the structure of the Direct Labor Budget?
Budgeted units to produce
(x) DL hours per unit
—————————————
Total DL hours required
(x) DL cost per hour
—————————————
Total budgeted DL cost
What is a Capital Expenditure budget?
It provides information about when the expenditure is made at what cost
What is a Cash Collections Budget?
(Receipts) It is generally prepared from credit sales
What is a Combined Cash budget?
Merges the budget cash collections and cash payments to forecast the companies ending cash position
What are the six V’s in Big data
1- Volume
2- Velocity
3-Variety
4- Veracity
5-Value
6-Vulnerability
Which of the following is a benefit of budgeting which helps a manager motivate employees and evaluate performance?
Benchmarking
What is relevant data?
Data that will be used in the future and data that defers among alternatives
What is Prescriptive Analytics?
Prescriptive analytics help guide managers to what they should do to make the business more profitable. Prescriptive analytics seek to determine what should be done.
What is Diagnostic Analytics?
Diagnostic analytics help uncover the root cause of the current state. In business, a company might use diagnostic analytics to uncover why the current customer order fulfillment time is slow.
What is Predictive Analytics?
Predictive analytics seek to forecast what will happen in the future. In business, companies can use predictive analytics to build models that will predict the future state.
What is Descriptive analytics?
Descriptive analytics describe what has happened or what is happening. This type of analytics is useful for understanding the current state.
