Operationsl Finance, Feedback control, Resource Planning Flashcards
What is a Line Item Expense Budget
reviewing expenses from previous period, possible changes for the next period, and budgeting at the line level
when does a line item expense budget work best?
in a consistent work environment with stable activity, and selected accounts
what is a program budget
budgeting approach associated with large scale projects or programs
when is a program budget best?
Not for profit organizations, and when it’s more than just one department, so a line item expense budget doesn’t work
What is performance based budgeting
budgeting that is can flex resources to meet changes.wh
when is performance based budgeting best?
uncover waste or hidden costs, review WHY resources are being sent, and provide a way to evaluate the resource impact of process and technology changes
what is activity based planning
a type of performance budget that focuses on workload, not headcount.
why is activity based planning beneficial?
budgets resources through flexing activities,
providing greater granularity on what’s going on
helps understand what the understanding between resources and activities
what is object costing
connecting resources to activities
generally done with a chart and connecting lines
what is activity based budgeting
connecting activities back to resources
what is the feedback control loop
planning, execution, feedback control, repeat.
what is profit reporting
revenue - variable costs = contribution margin
what is Management control
Price x Quantity - (price costs) x Quantity = contribution margin
what are the five things that explain the delta to contribution margin
Sales Price
Sales Volume
Variable Cost Price
Variable Cost Volume
Variable Cost Efficiency
what is price deflation
the sales that would have occured if prices didn’t drop, expressed as a percent.
in other words, change in sales if you keep the price the same
what is cost inflation
the expenses that would have occurred if costs didn’t rise, expressed as a percent.
what do you do with price deflation and cost inflation
you take the percentages +/- of 100, to get the “adjusted price”
what do you do with “adjusted price” (for price deflation and cost inflation)
you find out “price/cost variance” which is how much of a sales/cost penalty from the change in demand
how do you find the volume ratio
yr x adjusted price / (yr x - 1) actual
how do you find the cost volume dollars?
use the (yr x - 1) costs and multiply them by the sales volume ratio to get the yr x volume adjusted cost. find the difference for cost volume variance$s
what is the productivity formula
(deflated yr x sales X Historical cost/sales ratio) - Adjusted yr x costs
what is a margin bridge
it starts with (yr x - 1) margin, then goes through all the contribution margin calculations to get to the yr x margin
what is Planned Value (PV)
estimated value of the work planned to be done
what is Earned Value (EV)
estimated value of the work actualy acomplished
what is the Actual Cost (AC)
actual cost incurred to date
what is Budget at Completion (BAC)
currently expected total cost of a project
what is Estimated cost at completion (EAC)
estimated total project cost at completion
what is estimated cost to complete (ETC)
how much more to finish
what is variance at completion (VAC)
How much over/under are we expected to be at completion
what is the planned value formula
Planned % complete * BAC
what is the earned value formula
Actual % complete * BAC
what is the schedule performance Index (SPI) formula
EV/PV
(>1 is ideal)
What is the schedule variance formula
EV - PV
(Positive is ideal)
what is cost performance Index (CPI) Formula
EV/AC (>1 is favorable)
What is the cost variance formula
EV - AC (Positive is favorable)
what is the Estimate at completion formula
BAC/CPI
what is the estimate to complete formula
EAC - AC
what is the Variance at completion
BAC - EAC
