management accounting Flashcards
fixed cost d
costs that do not change with output
semi variable costs d
costs with a fixed element as well as a variable element
unit contribution equation
selling price - unit variable cost
total contribution equation
total revenue - total variable cost
total profit equation using contribution
profit = contribution per unit x number of units - fixed costs
number of units for profit equation
(fc+profit) / contribution per unit
breakeven point equation
fixed cost / contribution per unit
margin of safety equation
margin of safety = budgeted sales - breakeven point,
as a percentage just divide by budgeted sales and times by 100
contribution / sales ratio
contribution per unit / selling price per unit
assumptions of breakeven analysis
fixed costs are constant not stepped,
variable cost per unit is constant,
selling price per unit doesn’t change
what do you do with sunk and opportunity costs in relevant costing
ignore sunk costs,
include opportunity costs
what is a relevant cost defined ass
future, incremental, cash flow
formula for calculating annuities
1/r(1-1/(1+r)^n),
then multiply by the cash amount
criteria for calculating annuities
repeated cash flow which is the same amount,
first payment has to be in a years time
formula for calculating perpetuities and what is it
annuity that lasts forever,
as n gets increasingly large from annuity formula it becomes 1/r ,
(first cash flow has to be in a years time)
what is present value of £1000 receivable annually in perpetuity starting one year from now at discount rate of 5.5%
1/r so 1/0.055 * 1000= 18182
how to calculate the annuity lasting for three years starting at time 5, discount rate 10%
annuity year 7-annuity year 4 = annuity 5-7
if the npv of a project is positive then the project should be ______
accepted
if the npv of a project is negative then the project should be _______
rejected
sensitivity equation
(npv/pv of cashflow) * 100%,
ex (41400/520000)*100=8% price could go up 8% before become negative
does lower sensitivity mean more or less risky
more
internal rate of return (IRR) d
the discount rate at which the npv of the project is zero
IRR equation
r1 + ((NPV1(r2-r1))/(NPV1-NPV2))
if irr higher than discount rate _____ the project
accept
if irr lower than discount rate ______ the project
reject
evaluation of payback period
simple and useful if company has liquidity problems,
ignores the time value of money
accounting rate of return (ARR) formula
average annual profit after depreciation / average investment to earn that profit * 100
How to work out month of payback
Last negative / average monthly cash flow,
-232/(244/12)=11.4 months
