Financial Planning

Question 1

What is a Static Budget?

Answer 1

Budget targeted for a specific segment of a company.

Question 2

What is a Maser Budget?

Answer 2

Budget targeted for the company as a whole

Includes budgets for Operations and Cash Flows

Includes set of budgeted Financial Statements

Question 3

How do Fixed Costs affect budgeting?

Answer 3

Costs independent of the level activity within the relevant range

Property Tax is the same whether you produce 100-000 units or zero units

However - Fixed Costs per unit vary given the amount of activity

If you produce fewer units- fixed costs per unit will be greater than if you produce more units - i.e. less units to spread the cost over

Question 4

How do Variable Costs affect budgeting?

Answer 4

The more Direct Materials or Direct Labor used- the more Variable Costs per unit

However - Variable Costs per unit don’t change with the level of activity like Fixed Costs per unit

Question 5

How are Material Variances calculated?

Answer 5

SAM:

Standard Material Costs
- Actual Material Costs
= Material Variance

Question 6

How are Labor Variances calculated?

Answer 6

SAL

Standard Labor Costs
- Actual Labor Costs
= Labor Variance

Question 7

How are Overhead Variances calculated?

Answer 7

OAT

Overhead Applied
- Actual Overhead Cost
= Total Overhead Variance

Question 8

How does Absorption Costing compare to Variable Costing?

Answer 8

Absorption Costing - External Use- Cost of Sales- Gross Profit- SG&A

Variable Costing - Internal Use- Variable Costs- Contribution Margin- Fixed Costs

Question 9

How is Contribution Margin calculated?

Answer 9

Sales Price (per unit)
- Variable Cost (per unit)
= Contribution Margin (per unit)

Question 10

How is Break-even Point (per unit) calculated?

Answer 10

Total Fixed Costs / Contribution Margin (per unit)
= Break-even Point Per Unit

Assumption: Total Costs & Total Revenues are LINEAR

Question 11

What is the focus in a Cost Center?

Answer 11

Management is concerned only with costs

Question 12

What is the focus in a Profit Center?

Answer 12

Management is concerned with both costs and profits

Question 13

What is the focus in an Investment Center?

Answer 13

Management is concerned with costs- profits- and assets

Question 14

What is the Delphi technique?

Answer 14

Forecasting technique where Data is collected and analyzed

Requires judgement/consensus

Question 15

What is Regression Analysis?

Answer 15

A forecasting technique where Sales is the dependent variable.

Simple Regression - One independent variable

Multiple Regression - Multiple independent variables

Question 16

What are Econometric Models?

Answer 16

Forecast sales using Economic Data

Question 17

What are Naive Forecasting Models?

Answer 17

Very Simplistic

- Eyeball past trends and make an estimate

Question 18

How does a Moving Average compare to Exponential Smoothing?

Answer 18

Both project estimates using average trends from recent periods

Difference: Exponential Smoothing weighs recent data more heavily

Question 19

What are the characteristics of Short-term Cost Analysis?

Answer 19

Uses Relevant Costs Only

Ignore Sunk Costs

Opportunity Cost is a Must

Question 20

Cash Conversion Period

Answer 20

cash conversion cycle measures the time period from the time the firm pays for its materials and labor to the time it collects its cash from sales.

Inventory Conversion Period + Receivable Conversion Period - Payable Deferral Period

Question 21

Average Account Receivable Balance

Answer 21

Average Credit Sales Per Day * Average Collection Period

company sells 10,000 skateboards a year at $66 each. All sales are on credit, with terms of 3/10, net 30, which means 3% discount if payment is made within 10 days; otherwise full payment is due at the end of 30 days. One half of the customers are expected to take advantage of the discount and pay on day 10. The other half are expected to pay on day 30. Sales are expected to be uniform throughout the year for both types of customers. Assume that the average collection period is 25 days. After the credit policy is well established, what is the expected average accounts receivable balance for the company at any point in time, assuming a 365-day year?
$684.93
$1,808.22
$27,123.30
$45,205.48
This answer is correct. The average accounts receivable balance is calculated as: Credit sales per day x Average collection period = (10,000 units × $66 unit price) / 365 × 25 days = $45,205.48.