exam Flashcards
explain the process of doing CVP with more than one product
work out the proportion of each product out of the total as a decimal.
work out the contribution margin for each of the products.
multiply each of the contribution margins by the sales mix decimal proportion worked out in the first step.
add the dollar amounts this gives of all the products to get the weighted average contribution margin per unit.
put this WACM on the bottom of the formula instead of P-V and work out breakeven.
Take the decimal proportions of the total breakeven units to find out how many there are of each.
what are the assumptions and limitations of CVP analysis
- Linear revenue and cost functions
- Production = sales (i.e. we can sell everything we produce)
- Fixed and variable costs can be identified
- The sales mix is known
Selling price is known and constant
what is a budget
a plan showing how resources are to be acquired and used over a specified time interval
what are the advantages of budgets
- Helps to identify future problems and opportunities
- Compel management planning which the whole organisation has to partake in
- Provides a measure for comparing actual performance
- Promotes communication and coordination
what are human factors in budgeting
If managers are held accountable for the budget, they should only be accountable for the performance they can control and should participate in setting targets (although there is a tendency to set them at a level you think you can easily meet then).
what is included in the operating budget
sales budget
(production costs) production budget, direct materials purchases budget, direct labour budget, overhead budget
= cost of goods manufactured budget
(period costs) selling and administrative budget
= budgeted income statement
what types of financial budgets are there
cash budget, budgeted balance sheet, capital expenditures budget
what should you consider when projecting sales
- Past experience
- Pricing policy
- Market research
- Economic conditions
- Industry outlook
- Market share
where can you find examples of all the different budgets to follow??
your notes babes
what things go into a cash budget
beginning cash balance, plus cash collections including cash and credit sales = total cash available, less disbursements = total cash needs, = cash deficiency/surplus or closing balance
all non-financial information in statements is?
voluntary
formula: environmental burden = population x affluence x ?
technology
what are the two paradigms for environmental thinking
dominant social paradigm - growth, materialism is good
new environmental paradigm - nature is good
what are the beliefs of promethean optimists
- We need economic development to create surpluses to share back out in order to afford environmental protection
- They believe in infinite possibilities through substitution - the stone age ended because oil was more efficient, oil will become uneconomic and we will just substitute it for something else
what is the counter position of the promethean optimists
survivalism, new environmental paradigm - - We live in a world of finite ecosystems and resources so we can’t simply go on forever the way we have existed in the past
- There are reports telling us the state of the planet is dire - Some have referred to this as the planetary boundaries
what are the three aspects of the triple bottom line?
social, environmental, economic
scale can swamp ?
efficiencies, eg: 6 times better fuel consumption but 600 times more cars
sustainability is not about incremental reform, it is about ?
radical redesign
define tax
a compulsory transfer of resources from the private to the public sector
what is Oliver Wendell Holmes say about taxes
“taxes are the price we pay for civilized society”
80% of government revenue comes from?
taxation
what type of tax does most (49%) of tax revenue come from
individual income tax
what is the marginal tax rates
if i earn another dollar what tax rate would i be subject to on that dollar
what is the average tax rate
total tax paid/income
why do we need taxes?
- To finance government
- To provide public goods
- To redistribute income
To effect fiscal policy
what is involved in the interdisciplinary nature of taxation
accounting, law, economics and psychology, political science
what are the olden days random types of taxes
the window tax, hearth tax, candle tax, brick tax, hat taxes
what are the current pieces of legislation for taxation
Income Tax Act 2007, Tax Administration Act 1994, Taxation Review Authorities Act 1994 and the Goods and Services Tax Act 1985.
a persons tax liability is determined by
Gross income - deductible expenses = net income x tax rate
what is income
- Salary and wages
- Rent
- Dividends from companies
- Interest
Profits from carrying on a business
are illegal activities taxed
yes
do taxes differ between countries?
yes
what is the main goal of firms
to maximise shareholder value
“a dollar today is worth ?
more than a dollar tomorrow”
what is FVIF
future value interest rate factor, (1+r)^n
what is pvif
present value interest rate factor, 1/(1+r)^n
how do you rearrange present/future value to get n
use natural logs to multiply each side by them and bring the n out the front
what is an annuity
a stream of equally spaced, even (equal) cash flows for a finite period
what is a perpetuity
a stream of even cash flows that extends to infinity
what is multiple uneven cash flows
a stream of (usually) equally spaced, uneven cash flows for a finite period of time
what is an ordinary annuity
first cash flow occurs at the end of the first period eg: interest earned on savings
what is an annuity due
first cash flow occurs at the beginning of the first time period eg: premiums paid on an insurance policy
what is an amortised loan
these are loans paid off in equal instalments over time
reducing the balance of amortised loans through annuity payments is called?
amortisation
at the beginning of the loan more of the payment is going towards ___ than the ____
interest , principle
what are the steps to work out amortised loans
Step 1: Find the required annual payment
Step 2: Find the interest paid in year 1
The borrower will owe interest upon the initial balance at the end of the first year. Interest to be paid in the first year can be found by multiplying the beginning balance by the interest rate.
Step 3: Find the principle repaid in year 1
Principle repayment = payment - interest
Step 4: Find the ending balance after year 1
Subtract the amount paid towards the principal from the beginning balance.
what is the stated (quoted) rate
APR (annual percentage rate)/m (number of compounding periods)
periods, n, is given by?
m * y
what is the effective annual rate
The effective annual rate is a comparable measure that reflects the number of times per year that interest is paid or compounded (m). We do not use this in TVM calculations, but rather for comparing rates if they are compounded differently
what is capital budgeting
the process of evaluating and selecting long-term investments that are consistent with the firms’ goal of maximising owner wealth.
what is capital expenditure
an outlay of funds by the firm that is expected to produce benefits over a period of time greater than 1 year
what is an individual project
cf’s are unrelated to one another, the acceptance of one does not eliminate the other from further consideration
what is a mutually exclusive project
projects compete with one another so the acceptance of one eliminates the other from further consideration
what is the accept-reject approach
evaluating capital expenditure proposals to determine whether they meet the firm’s minimum acceptance criterion
what is the ranking approach
ranking projects on the basis of some predetermined measure such as the rate of return
what is unlimited funds
where a firm is able to accept all independent projects that provide an acceptable return
what is capital rationing
where a firm has a fixed number of dollars available for capital expenditure and numerous projects compete for these dollars
what is the payback period method
This method is widely used as it is very simple to calculate. It shows the time required for a firm to recover its initial investment in a project.