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MI > Improvments > Flashcards

Improvments Flashcards

1
Q

High-Low budgeting process?

A
  1. Note highest and lowest activity levels
  2. Work out variable cost per unit
  3. Work out fixed cost per unit
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2
Q

High-Low: Variable cost per unit

A

(Ch-Cl)/(Ah-Al)

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3
Q

High-Low: Fixed cost

A

Total cost (at activity level) minus variable cost (at activity level)

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4
Q

Time series analysis

A
  1. Calculate trend
  2. Calculate seasonal variation
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5
Q

Time series analysis: Ways to calculate trend

A
  1. High-Low
  2. Linear regression
  3. Moving averages
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6
Q

Time series analysis: Ways of calculating seasonal variation

A
  1. Additive (diff)
  2. Multiplicative (%)
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7
Q

Time series analysis: Moving averages

A
  1. Select appropriate cycle length
  2. Note cycle one total
  3. Note cycle one average
  4. Repeat , moving one PERIOD
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8
Q

What is linear regression?

A

Line of best fit

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9
Q

Payback period

A

Initial payment/Annual cashflow

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10
Q

Initial ARR

A

Average annual profit/Initial investment

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11
Q

Average ARR

A

Average annual profit/Average investment

Average investment = (initial + Final/Scrap)/2

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12
Q

Terminal value

A

X(1+r)^n

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13
Q

Present value

A

X/(1+r)^n

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14
Q

PV of annuity

A

(X/r)(1-(1/(1+r)^n))

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15
Q

PV of perpetuity

A

Cashflow/Rate

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16
Q

Delayed annuities

A
  1. Annuity for no. years
  2. Then discount
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17
Q

Discounted NTV =

A

NPV

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18
Q

Discounted payback period

A

Time for NPV to be positive.

Use trial and error or table.

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19
Q

What is IRR?

A

The discount rate where the NPV is zero

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20
Q

When should you accept a project using IRR?

A

When the discount rate is lower than the IRR.

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21
Q

IRR by linear interpolation

A
  1. Calculate NPV at 2 DRs
  2. IRR = L + Ln((H-L)/(Ln-Hn))
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22
Q

IRR with even cash flows

A
  1. Cumulative DF = Initial investment/Annual Cashflow
  2. Look at year column of life of project for closest value to cumulative DF
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23
Q

IRR of perpetuity

A

Annual inflow/Initial investment

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24
Q

What will pay rises improve?

A

Performance, so efficiency.

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25
Q

ZBB

A
  1. Managers may not have skills
  2. Discretionary spending at risk
  3. Every manager included
  4. Only discretionary spending budgeted
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26
Q

Is transfer pricing related to consumer cost of capital?

A

No - Unrelated to customers.

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27
Q

Receivables days at period end

A

(Closing receivables/Sales)x365

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28
Q

When calculating amount extra to buy of a material, what do you need to look at?

A

Contribution MINUS that material

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29
Q

What is the difference between marginal and absorption COS?

A

The ABSORPTION cost of the CHANGE in inventory

Absorption will be higher
Because it is attached to the unit

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30
Q

What is the difference in profit between marginal and absorption costing?

A

Change in inventory * overhead cost per unit

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31
Q

Which costing method includes non-production costs?

A

None

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32
Q

Production costs are based on what?

A

Based on amount PRODUCED, not sold.

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33
Q

Markup

A

% of COST

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34
Q

Margin

A

% of SALES

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35
Q

Expenditure

A

PER hour

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36
Q

Efficiency

A

NUMBER of hours

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37
Q

Sales volume variance

A

Units sold x CONTRIBUTION

38
Q

Coefficient of determination

A

(Correlation coefficient)^2

39
Q

Changing a flexed cost’s sales

A

You need to work you the part that is fixed costs first

40
Q

Prime costs

A

Materials and labour
Doesn’t include production costs

41
Q

Can IRR be calculated without knowing cost of capital?

A

Yes

42
Q

Is IRR a measure of absolute profitability?

A

No

43
Q

Equal Annual Cost (EAC)

A

NPV/Annuity factor (for no. years of investment)

44
Q

By what % would it have increased by? 140% or 40%?

A

140%

45
Q

Undiscounted cash flows =

A

When DF is zero

46
Q

IRR Graph

A

Y: NPV
X: DF/ROR

47
Q

2 IRRs

A

Assume either a u or n shaped graph
Accept if DF gives +ve NPV
(Normally when less than IRR)

48
Q

Is absorption rate based on production or sales?

A

Completely based on production. Because absorption = absorbed fixed PRODUCTION overheads.

49
Q

Is closing inventory proportional to absorption or marginal profit?

A

Absorption profit

50
Q

What to not forget when calculating profit with absorption costing?

A

Under/Over absorption

51
Q

How to calculate something increasing by 0.5 a month

A

The second month ISNT 1, it’s 0.5^2 because it’s 0.5 of next month.

52
Q

ABC

A

Based on ONE factor LIKELY to drive that cost.

53
Q

Are financial or non-financial measures ultimately more important for an established business?

A

Financial

54
Q

May non-financial measures discourage dysfunctional behaviour?

A

Yes
By staff AND managers

55
Q

Is no. sales a good measure of satisfaction?

A

No

56
Q

Is resignation a good measure of morale?

A

No

57
Q

Equations to maintain the rank A,B,C

A
  1. A>B
  2. B>C

Just 2 equations
Can then be added e.g. 5>x>10

58
Q

Supplier payment

A

Opening cost + Cost - Closing cost

59
Q

What does a creditor mean in terms of payments?

A

They AREN’T paid that period
So the REST IS

  1. This is my trade creditors at the start
  2. This is my trade creditors at the end
  3. This is the extra cost in the month
  4. So this is what I must have paid
60
Q

Absorption cost

A

The TOTAL cost, including marginal/variable costs, not just the absorption rate.

Rate v Cost

61
Q

Rate variance

A

How much SHOULD actual production cost at BUDGET RATE
Minus: How much it actually costs

62
Q

Efficiency variance

A

(How many hours that SHOULD take at BUDGET NO. HOURS minus how many hours it actually took) times BUDGET RATE

63
Q

NTV

A

Works BACKWARDS from end time (in the future)
But is still x(1+r)^n (not x/(1+r)^n)

64
Q

Is NPV based on cash flow or profit?

A

Cash flow

Not (pre-depreciation) profit

65
Q

Using limiting factor analysis, should you still produce units even when the contribution per limiting factor is less than the cost of buying the limiting factor?

A

Yes

66
Q

Does contribution include absorbed fixed costs?

A

No

67
Q

How to work out profit from contribution

A

Contribution - Fixed overheads

I.e. Selling price - Variable costs - Fixed overheads

68
Q

“40% of sales of £3m”
Are the sales £3m or 40%?

A

The sales are £3m

69
Q

Does bad debt provision go on a cash budget?

A

No

Neither does depreciation etc.

70
Q

If a company receives a loan of £10k on 30 Jun, and their bank balance on 1 Jul is £5k, what is their opening balance in Jul?

A

£5k

71
Q

If batch size is x, how many batches will you need?

A

Total/x

72
Q

What output is relevant to planning rate variance?

A

Actual output (still)

Budgeted hours (and rate), but actual production

73
Q

What unit is margin of safety in?

A

No. units
Not £

74
Q

What are direct expenses related to?

A

A single unit sold

75
Q

Working out actual profit compared to budget with marginal costing

A
  1. Work out budgeted profit (for actual sales)
  2. Adjust for under/over absorption (fixed overhead variance). For each fixed cost so if there are 2 (e.g. sales and production) work out the under/over absorption separately for each)
76
Q

How to work out actual absorption costing profit from budget

A
  1. Work out marginal costing profit
  2. Adjust for change in inventory * OAR
77
Q

What three things does marginal costing take into account?

A
  1. Relevant costs
  2. Opportunity costs
  3. Scarce resources
78
Q

Is marginal costing useful in times of scarce capacity?

A

Yes
Because it is good at short term one-off decisions

79
Q

Return On Capital Employed (ROCE)

A

Profit margin x Asset turnover

80
Q

Profit margin

A

Profit/Turnover (revenue)

I.e. How much turnover is profit

81
Q

Asset turnover

A

Turnover/Capital employed

82
Q

Calculating margin of safety

A
  1. Work out (total) contribution per (total) sales
  2. Work out break even point in terms of sales
  3. Work out margin of safety: Budgeted sales - Break even point (in terms of sales)
83
Q

Does transfer pricing based on marginal cost +10% prevent dysfunctional behaviour?

A

No

84
Q

Are transfers based on opportunity cost unduly complicated in practice?

A

Yes

85
Q

Are transfers based on market price unfair to buyers?

A

Yes
Because it’s cheaper to sell to internal customers

86
Q

Will transfers at marginal cost alone give the seller an unfair proportion of profit?

A

No
They will give the buyer and unfair proportion of profit. Because they will take all the fixed costs.

87
Q

What to not forget in cash budgets?

A

Removing deprecation, even if included in a payment

88
Q

What is rate variance based on?

A

HOURS

Not units

89
Q

How to work out break even sales

A
  1. Work out break even contribution
    Because breakeven point is in terms of contribution to fixed costs
  2. Work out sales from contribution
    E.g. by contribution ratio
90
Q

How to find out the amount to invest regularly now to reach a certain amount later

A
  1. Discount later amount to now
  2. Divide by annuity factor
    +1 if first payment is immediate
91
Q

What is sales volume variance in terms of?

A

CONTRIBUTION

92
Q

What is the goal PV of an alternative investment to achieve the same PV as the first investment?

A

NPV of first investment plus initial outlay of alternative investment

MI (3 decks)

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