Financial Planning & Analysis Flashcards
What is a Static Budget?
Budget targeted for a specific segment of a company.
What is a Maser Budget?
Budget targeted for the company as a whole
Includes budgets for Operations and Cash Flows
Includes set of budgeted Financial Statements
How do Fixed Costs affect budgeting?
Costs independent of the level activity within the relevant range (Property Tax is the same)
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
How do Variable Costs affect budgeting?
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
How are Material Variances calculated?
SAM: Standard Material Costs - Actual Material Costs = Material Variance
How are Labor Variances calculated?
SAL: Standard Labor Costs - Actual Labor Costs = Labor Variance
How are Overhead Variances calculated?
OAT: Overhead Applied - Actual Overhead Cost = Total Overhead Variance
How does Absorption Costing compare to Variable Costing?
Absorption Costing - External Use, Assigns fixed OH as product costs
Variable Costing - Internal Use, Assigns Fixed Cost as expense in period occurred
How is Contribution Margin calculated?
Sales Price (per unit) - Variable Cost (per unit) = Contribution Margin (per unit)
Ratio: Contribution margin per unit / sales price per unit
How is Breakeven Point (per unit) calculated?
Total Fixed Costs / Contribution Margin = Breakeven Point Per Unit
Assumption: Total Costs and Total Revenues are LINEAR
What is the focus in a Cost Center?
Management is concerned only with costs
What is the focus in a Profit Center?
Management is concerned with both costs and profits
What is the focus in an Investment Center?
Management is concerned with costs, profits, and assets
What is the Delphi technique?
Forecasting technique where Data is collected and analyzed
Requires judgement/consensus
What is Regression Analysis?
A forecasting technique where Sales is the dependent variable.
Simple Regression - One independent variable Multiple Regression - Multiple independent variables
What are Econometric Models?
Forecast sales using Economic Data
What are Naive Forecasting Models?
Very Simplistic “Eyeball” past trends and make an estimate
How does a Moving Average compare to Exponential Smoothing?
Both project estimates using average trends from recent periods
Difference: Exponential Smoothing weighs recent data more heavily
What are the characteristics of Short-term Cost Analysis?
Uses Relevant Costs Only
Ignore Sunk Costs
Opportunity Cost is a Must
What is the sensitivity analysis?
“what if?” technique that asks how a result will change if the original predicted data changes or if an underlying assumption changes
What is the the coefficient of correlation, r?
Part of the regression analysis.
The coefficient of correlation, r, is a measure of the relative relationship (not the variance) between the two variables
- The dependent variable, the values that we would like to predict
- The independent variable, the values that we would like to use in the prediction process
Range is between -1 and 1
What is the Incremental cost approach?
The extra cost associated with manufacturing One additional unit. (A company has room for additional units of production)
Ignores fixed cost.
Variable manufacturing cost = incremental cost
What is a disadvantage of the sensitivity analysis?
Implicit assumption that variables are independent
In a simple linear regression model, what is the basic assumption?
Increase in # of units produced will increase total costs
