Formulas

Question 0

Contribution ratio

Answer 0

Contribution/sales

Question 1

Overhead spending variance

Answer 1

(Actual direct labor hour (cost driver) x predetermined variable overhead rate + budgeted fixed overhead) - actual overhead

You can take out budgeted fixed overhead and subtract actual variable overhead to get variable overhead spending variance

Question 2

Break even point in dollars

Answer 2

Total fixed costs / cm ratio

Question 3

Fixed oh volume variance

Answer 3

Standard cost driver or labor hours x predetermined overhead rate - budgeted fixed oh

Question 4

Variable overhead efficiency variance

Answer 4

Standard overhead rate x ( actual hours - standard hours)

Question 5

Overhead volume variance

Answer 5

(SDLH X PFOHR) - budgeted fixed overhead

Question 6

Profitability index formula

Answer 6

Present value of future cash inflow / present value of net initial investment

Question 7

Payback period

Answer 7

Net initial investment outflow / annual annuity = payback period

Question 8

Financial leverage

Answer 8

Degree to which a firms use of debt to finance the firm magnifies the effect of a given percentage change in earning before interest and taxes on the percentage change in its earnings per share

Degree of leverage = % change in eps / % change in edit

Question 9

Degree of combined leverage

Answer 9

% change in eps / % change in sales.

Or

degree of operating leverage x degree of financial leverage

Question 10

Optimal capital structure

Answer 10

One with the lowest wacc (weighted average cost of capital

Mixture of debt and capital equity financing that produced the lowest wacc maximizes the value of the firm.

Question 11

Wacc

Answer 11

Cost of capital multiplied by the percentage equity in capital structure + weighted average cost of debt multiplied by the percentage debt in capital structure

Question 12

Weighted average interest rate

Answer 12

Effective annual interest payments / debt cash available

Basically outflow / net inflow

Question 13

Capm formula

Answer 13

Risk free rate + [beta x (market rate - risk free)

Question 14

Discounted cash flow

Answer 14

Cost of re = div1 / P0 + g

Where D1 is dividend per share expected at the end of the year
Po is current market value or price of the outstanding common stock and
G is the constant growth in dividends

Div1 = div0 (1+g)

Question 15

The bond yield plus risk premium

Answer 15

Pretax yield to maturity or cost + risk premium

Question 16

Return on investment

Answer 16

Income / investment capital

Avg asset = investment capitAl or po&me or average working capital

Or

Profit margin x investment turnover

Income / sales. And. Sales / investment

Question 17

Return on asset

Answer 17

Net income / average total assets

Strictly assets. For roi, investment capital can be assets

Question 18

Residual income formula

Answer 18

Net income - required return in $

Required return = net book value x hurdle rate

Question 19

Economic value added

Answer 19

Same as residual income accept that the hurdle rate is wacc and not an arbitrary number

Net income - required return

Required return= net book value x wacc

Question 20

Debt to total capital ratio

Answer 20

Total debt / total capital

Total capital is debt plus equity

Question 21

Debt to asset ratio

Answer 21

Total debt / total assets

Question 22

Debt to equity

Answer 22

Total debt / total shareholders equity

Question 23

Quick ratio

Answer 23

Cash+marketable securities+receivables / current liabilities

Question 24

Apr of quick payment discount

Answer 24

(360/pay period - discount period) x ( discount / 100 - discount %)

Question 25

Cash conversion cycle

Answer 25

Inventory conversion period + receivables collection period - payables deferral period

Question 26

Inventory conversion period

Answer 26

Cogs/average inventory = inventory turnover

365/inventory turnover = icp

Question 27

Receivable collection period

Answer 27

Ar turnover = sales / avg ar

365/ar turnover = rcp

Question 28

Payables federal period

Answer 28

Ap turnover = cogs / average ap

365 / accounts payable turnover = pdp

Question 29

Optimal credit policy

Answer 29

The one the has the lowest operating cycle. Operating cycle is the combination between inventory conversion cycle and the rcp which is the receivables collection period

Question 30

Reorder point

Answer 30

Safety + ( lead time x sales during lead time)

Question 31

Economic order quantity

Answer 31

E= square root (2so/c)

2soc

Annual sales
Order cost
Carrying cost per unit

This is the formulae to get the ordering amount

Question 32

Optimal level of inventory is affected by?

Answer 32

The time required to receive inventory
The cost per unit of inventory, which will have a direct impact on inventory carrying cost

The cost of placing an order for merchandise, which affects order size and optimal inventory levels

Question 33

Aggressive working capital management

Answer 33

Current ratio goes down and working capital goes down. Increase the ratio of current liabilities to non current liabilities. More current assets financed with current liabilities.

Cash available and marketable securities goes up and rush goes down but return is small

Question 34

Conservative working capital

Answer 34

Current ratio is high and working capital is high.

More current assets than non current assets.

More current assets are financed by non current liabilities

Question 35

Days’ sales

Answer 35

Ending ar/ avg daily sales

Question 36

Investment turnover

Answer 36

Sales / avg investment