Formulas Flashcards
Chapter 1:
How do you calculate Direct Product Profit?
Selling price - bought in price - direct product costs.
Examples of direct product costs: Transport, Warehouse, Store
Chapter 2:
How do you calculate throughput?
Sales revenue - Direct material cost
Chapter 2:
How do you calculate throughput accounting ratio?
Return per hour = throughput per unit/product time on bottleneck
Cost per hour = total factory costs/total time on bottleneck
Throughput accounting ratio = return per hour/cost per hour
Chapter 3:
How do you calculate total cost gap?
Estimated product cost - target cost
Chapter 4:
How do you calculate the relevant cash flow during decision making?
Cash position if accepted - cash position if rejected
Chapter 5:
How do you calculate compound interest?
V = X(1+r)^n
V = future value
X = Initial investment
r = interest rate
n = number of time periods
Chapter 5:
How do you calculate the present value?
Future value x Discount Factor
Chapter 5:
How do you calculate discount factor?
1/(1+r)^n
r = interest rate
n = number of time periods
Chapter 5:
How do you calculate the internal rate of return?
L% + NPVl/(NPVl-NPVh) x (H% - L%)
L% = Lower discount rate
H% = Higher discount rate
NPVl = NPV at lower discount rate
NPVh = NPV at higher discount rate
Chapter 5:
How do you calculate the Modified Internal rate of return (MIRR)?
(Terminal value of inflows/present value of outflow)^1/n - 1
Chapter 5:
How do you calculate the present value on an annuity?
PV = Annual cash flow x AF
AF = (1 - (1+r)^-n)/r
r = cost of capital
n = number of periods
Chapter 5:
How do you calculate present value of a perpetuity?
PV = annual cash flow/r
OR
PV = annual cash flow x 1/r
Chapter 5:
How do you calculate the profitability index?
NPV/Initial Investment
OR
Present value of net cash inflows/initial investment
Chapter 5:
How do you calculate the discounted payback probability index (DPBI)?
Present value of net cash inflows/initial cash outlay
Chapter 6:
How do you calculate the accounting rate of return?
Average annual profit/average value of investment
Average value of investment = (initial investment + residual value)/2
Chapter 6:
How do you calculate the impact of inflation on cash flows?
(1+m) = (1+r)(1+i)
r = real rate of return
i = inflation rate
m = money cost of capital
Chapter 6:
How do you calculate equivalent annual cost when considering the replacement of an asset?
PV of costs/annuity factor for year n
Chapter 7:
How do you calculate the price elasticity of demand?
Change in quantity demanded, as a % of demand/Change in price, as a % of price
Chapter 7:
What is the marginal revenue equation?
MR = a - 2bQ
P = Price
Q = quantity demanded
b = slope of curve calculated, change in price/change in quantity
a = maximum price
Chapter 7:
How do you calculate the gradient (b)?
Change in price / change in quantity
Chapter 7:
After finding the gradient how do you find a?
P = a - bQ
P = price
b = gradient
Q = quantity demanded
Chapter 7:
After finding ‘a’ how do you calculate the maximising quantity ‘Q’?
MC = a - 2bQ
MC = Variable cost
b = gradient
Chapter 7:
How do you find the optimum price for profit maximisation?
P = a - bQ
Chapter 8:
How do you calculate ROCE?
Operating profit/capital employed
Chapter 8:
How do you calculate operating profit margin?
Operating profit/turnover
Chapter 8:
How do you calculate the asset turnover?
Turnover/capital employed
Chapter 8:
How do you calculate the current ratio?
Current assets/current liabilities
Chapter 8:
How do you calculate the acid test (quick ratio)
(Current assets - inventories)/current liabilities
Chapter 8:
How do you calculate return on investment?
Controllable operating profit/controllable capital employed x 100
Chapter 8:
How do you calculate residual income?
Controllable profit - notional interest on capital
Chapter 10:
How do you calculate the optimum transfer price as general rule?
marginal cost of selling division + opportunity cost of selling division
Chapter 10:
How do you calculate the optimum transfer price in a perfectly competitive market for an intermediate product?
Market price - any small adjustment
Chapter 10:
How do you calculate the optimum transfer price if the selling division has surplus capacity?
Marginal cost of the selling division
Chapter 10:
How do you calculate the optimum transfer price if the selling division does not have surplus capacity?
marginal cost of the selling division + lost contribution
Chapter 11:
How do you calculate sensitivity margin?
NPV/PV of flow under consideration
Chapter 11:
How do you calculate the expected value?
EV = Epx
x = future outcome
p = probability of outcome occuring
