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BEC > Formulas > Flashcards

Formulas Flashcards

1
Q

Price Elasticity

A

% change in quantity demanded / % change in price; note that the absolute value of the calcuation is considered when elasticity problems are posed on the CPA exam, as it is assured that price elasticity is negative for a normal demand curve when the price elasticity of demand is less than 1.0 it is considered inelastic.

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2
Q

Consumer Price Index

A

[CPI (this period) - CPI (last period) ] / CPI last period; negative is deflation; positive is inflation

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3
Q

Cash Conversion Cycle

A

Inventory conversion period + receivable conversion period - payables deferral period; measures the time period from the time the firm pays for materials/labor to the time it collects its cash from sales of goods; the longer the cycle, the more tied to financials

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4
Q

Inventory conversion period

A

average inventory / cost of goods sold per day (or in some references sales per day); measures the average time required to convert materials into finished goods and sell those goods

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5
Q

Receivable collection period (day sales outstanding)

A

average receivables/credit sales; measures the average time required to collect accounts receivable

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6
Q

Payable deferral period

A

average payables / purchases per day or average payables / (cost of goods sold/365)

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7
Q

Internal rate of return (IRR)

A

initial payment / after tax net cas inflows = present value factor (same as payback period)

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8
Q

Accounting rate of return

A

Increase in accounting net incoe / investment; investment may be initial investment; long-term average = (initial investment + salvage value)/2; short term average = beg (carrying value + ending carrying value) / 2; accounting rate of return does not consider time value of money

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9
Q

Payback method

A

initial investment / after tax net cash inflow; traditional payback method does not take into account time value of money; PV payback method considers the time value of money ; don’t factor in salvage value

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10
Q

Net Present Value

A

After tax net cash inflow x present value factor for annuity @ target rate = present value of investment - initial investment = net present value; if salvage value calculate PV of salvage value

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11
Q

Effective interest rate

A

(1 +(r/m)^m) - 1; r = stated interest rate; m=compounding interest

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12
Q

Margin of safety

A

breakeven sales = contribution margin or fixed cost/sales; argin of safety = sales - breakeven sales

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13
Q

Price elasticity of demand

A

% change in quantity demanded / % change in price

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14
Q

Real GDP

A

(nominal GDP / GDP deflator) x 100

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15
Q

Cost of preferred stock

A

Total dividend amount / total issuance price

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16
Q

Weighted average unit cost inventory

A

Units completed + ending WIP % complete = total units; total cost = prior month + current month; total costs / total # of units

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17
Q

WIP Inventory FIFO

A

Beginning WIP (% units to complete) + units completed & transferred out - units in beginning invetory + WIP ending units (% complete)

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18
Q

Degree of financial leverage

A

% change in EPS / % change in EBIT

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19
Q

Degree of operating leverage

A

% change in operating income / % change in unit volume

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20
Q

Economic order quantity

A

squareroot (2SO/c; S=annual sales in units; O=cost per order; C = carrying cost per unit

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21
Q

Efficiency variance

A

Standard rate x (actual hrs - standard hrs) or qty

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22
Q

Sales volume variance

A

standard rate x (actual units - standard units)

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23
Q

Cost of preferred quity

A

1,000 shares @ $8/SH preferred stock issued @ $102,500; cost of preferred stock = 8,000/102,500 = 7.8%

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24
Q

CAPM

A

risk free rate + beta (market rate - risk free rate); krf + bi(km - krf)

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25
Q

Spending variance or labor rate variance

A

actual hours x (actual rate - standard rate); may need to calculate OH rate = variable actual OH / actual hrs

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26
Q

Day sales outstanding

A

receivables / sales per day

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27
Q

Cost of not taking discount

A

discount percent / (100% - discount %) x 365 days / (total pay period - discount period)

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28
Q

Dividend yield plus growth rate

A

Ks = (D1/P0) + expected growth rate

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29
Q

Cost of new common stock

A

Kx = [D1 / (P0 - F)] + expected growth; F= floating cost per share

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30
Q

Economic value added

A

Step 1: calculate required rate of return; Step 2: anything above rate of return is economic value added

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31
Q

Average collection period

A
  1. calc receivables turnover = sales / average receivables; 365 days / receivables turnover
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32
Q

Gross domestic product (expenditures approach)

A

government purchases + gross domestic investments + personal consumption +/- net exports (exports - imports)

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33
Q

Gross domestic product (income approach)

A

Income of proprietors + corporate profits + net interest + rental income + adj for net foreign inc + indirect business taxes + employee wages + depr.

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34
Q

Capital budgeting

A

cash inflos b/4 tax - depr on investment = increase in taxable income - tax = increase in acctg net income cash inflows b/4 tax - tax = after tax net cash inflow; or increase in acctg net income + depr on investment = after-tax net cash inflows

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35
Q

Cost of bond issue

A

interest rate x (1-effective rate)

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36
Q

Traditional costing (application of overhead)

A

Step 1: calculate overhead rate = budgeted overhead cost / estimated cost driver (DL $, DLH, MH); step 2: applied overhead = actual cost driver x overhead rate (from step 1)

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37
Q

Prime cost

A

direct labor + direct marketing

38
Q

Conversion cost

A

direct labor + manufacturing overhead

39
Q

Cost accounting systems are designed to meet the goal of measuring cost objectives or objectives. The most frequent objectives include

A

Product costing (inventory and cost of goods manufactured and sold); Income determination (profitability); Efficiency measurements (comparisons to standards)

40
Q

Absorption approach - Product

A

COGS = DM + DL + O/H (fixed & variable)

41
Q

Contribution approach

A

all fixed factory overhead is treated as a period cost and is expensed in the period incurred. Inventory values include only the variable manufacturing costs, so cost of goods sold includes only variable manufacturing costs.

42
Q

Variable (Direct) Costing

A

Direct material + director labor + variable manufacturing overhead; fixed manufacturing overhead is a period costs

43
Q

Cost accumulation systems

A

are used to assign costs to products. If the cost object is a custom order, job costing is used. IF the cost oject is a mass-produced homogeneous product (e.g. steel), process costing is used.

44
Q

Job-order costing

A

Is the method of product costing that identifies the job (or individual units or batches) as the cost objective and is used when there are relatively few units produced and when each unit is unique or easily identifiable. Cost is allocated to a specific job as it moves through the manufacturing process.

45
Q

Process costing

A

Process costing is a method of product costing that averages costs and applies the to a large number of homogeneous items.

46
Q

Inventory: raw materials

A

Beginning inventory of raw materials + purchases of raw materials - raw materials used * = ending inventory of raw materials

47
Q

Inventory: work in process

A

Beginning inventory of work in process + raw materials used plus direct labor and overhead used - inventory transferred to finished goods = ending inventory of work in process

48
Q

Inventory: finished goods

A

Beginning inventory of finished goods + *inventory transferred from work in process - cost of goods sold = ending inventory of finished goods

49
Q

DM price variance

A

Actual quantity pruchased x (actual price - standard price)

50
Q

DM quantity usage variance

A

Standard price x (actual quantity used - standard quantity allowed)

51
Q

DL rate variance

A

Actual hours worked x (actual rate - standard rate)

52
Q

DL efficiency variance

A

Standard rate x (actual hours worked - standard hours allowed)

53
Q

Four types of variances for raw materials and direct labor

A

Price variance (for DM; Usage (quantity) variance (for DM); Rate variance (for DL); Efficiency variance (for DL) memorize DADS with PURE DA Difference x Actual; DS Difference x Standard; DA Difference x Actual; DS Difference x Standard

54
Q

VOH rate (spending) variance

A

Actual hours x (Actual rate - Standard rate)

55
Q

VOH efficiency variance

A

Standard rate x (actual hours - standard hours allowed for actual production volume)

56
Q

FOH budget (spending) variance

A

Actual fixed overhead - budgeted fixed overhead

57
Q

FOH volume variance

A

Budgeted fixed overhead - Standard fixed overhead cost allocated to production* ; (*based on actual production x standard rate)

58
Q

Sales price variance

A

[(actual sp/unit) - budgeted sp/unit)] x actual sold units

59
Q

Sales volume variance

A

[(actual sold units - budgeted sales unit)] x standard contribution margin per unit

60
Q

Discounted cash flow is the basis for net present value methods:

A

Step 1: calculate after-tax cash flows = annual net cash flow x (1-tax rate); Step 2: add depreciation benefit = depreciation x tax ate; Step 3: multiply results by appropriate present value of an annuity; Step 4: subtract initial cash outflow; Result: net present value

61
Q

Profitability Index

A

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

62
Q

Present Value

A

FV / (1+r)^n

63
Q

DOL

A

% change in EBIT / % change in sales

64
Q

% change in operating income

A

% change sales x DOL

65
Q

DFL

A

Asset/Equity

66
Q

DTL

A

DOL x DFL or % change EPS / % change in sales

67
Q

Cost of debt (after tax)

A

Interest rate x (1-tax rate)

68
Q

Debt

A

carries the lowest cost of capital and is tax deductible; the higher the tax rate, the more incentive exists to use debt financing.

69
Q

Cost of preferred stock

A

Preferred stock dividends / net proceeds of preferred stock or preferred stock dividends / selling price - flotation cost

70
Q

ROA

A

Net income / Average total assets

71
Q

ROI

A

NI / (D+E)

72
Q

ROE

A

Net income / total equity

73
Q

DuPont ROE

A

Net profit margin x asset turnover x financial leverage or (net income/sales) x (sales/average total assets) x (average total assets/equity) or net income/total equity

74
Q

Extended DuPont ROE

A

Tax burden x Interest burden x Operating income margin x asset turnover x financial leverage; (net income/pretax income) - (pretax income/EBIT) x (EBIT/sales) x (sales/average total assets) x (average total assets/equity) or NI/sales x sales/average total assets x average total assets/equity

75
Q

ROE (DuPont and extended DuPont)

A

Produces the same result however, management can get a better understanding of what factors are driving ROE and how those factors compare relative to competing companies and to the industry overall.

76
Q

Economic value added

A

NOPAT - WACC

77
Q

Debt to total capital ratio

A

total debt/total capital; the lower the ratio, the greater the ability of firm to pay debt. The debt-to total capital ratio is alternatively expressed as the debt-to asset ratio.

78
Q

Debt to total asset ratio

A

total debt/total assets; indicates long-term debt -paying ability. The lower the ratio, the better protection afforded to creditos.

79
Q

Debt-to-equity ratio

A

total debt/total shareholders’ equity

80
Q

Times interest earned

A

earnings before interest and taxes (EBIT)/interest expense; measures the ability of the company to pay its interest charges as they come due

81
Q

Quick (Acid Test) Ratio

A

(cash + marketable securities + receivables)/current liabilities

82
Q

Drafts

A

The use of drafts or checks serves to delay cash disbursements. Using drafts instead of checks increases the payable float.

83
Q

Zero-balance accounts

A

helps to slow cash disbursements because a disbursement is made only when there is a demand for it.

84
Q

Inventory turnover

A

cost of goods sold / average inventory

85
Q

Inventory conversion period

A

365/inventory turnover

86
Q

Accounts receivable turnover

A

sales / average accounts receivable

87
Q

Receivables collection period

A

Days sales outstanding (DSO) = 365/accounts reeivable turnover

88
Q

Accounts payable turnover

A

cost of goods sold/average accounts payable

89
Q

accounts payable deferral period

A

365/accounts payable turnover

90
Q

Reorder point

A

safety stock + (lead time x sales during lead time)

BEC (12 decks)

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