Overall Flashcards
Define prime cost
Total direct costs
Cost object vs cost element
Cost object = output
Cost element = input
Contribution formula
Selling price - variable costs
Profit under marginal costing (2)
Contribution - fixed costs
OR
Sales - variable cost of sales - variable selling costs - fixed costs
Profit under absorption costing
Sales
Less cost of sales:
opening inv
variable production costs
fixed production overhead absorbed
closing inventory
+/- fixed overhead under/over absorbed
=gross profit
Less non-prod costs
=net profit
Which of the following describes a dual pricing system of transfer pricing
The receiving division is charged with the standard variable cost of transfers made and
The supplying division is credited with the market value
Reasons for budgeting
Planning
Responsibility
Integration and coordination
Motivation
Evaluation and control
3 Styles of performance evaluation in Hopwood’s studies
Budget constrained
Profit conscious
Non-accounting
4 perspectives of balanced scorecard
Financial
Customer
Internal business
Innovation and learning
Breakeven point formula (2)
Contribution required to breakeven / contribution per unit
OR
Total fixed costs / contribution per unit
Contribution ratio formula
Contribution per unit / sales price per unit *100%
Breakeven revenue formula
Contribution required to break even / contribution ratio
OR
Fixed costs / contribution ratio
Margin of safety formula (2)
Budgeted sales - breakeven sales
(budgeted sales - breakeven sales)/Budgeted sales *100%
Sales volume to achieve target profit (given required profit)
= (fixed costs + required profit) / contribution per unit
ARR
average annual accounting profit / initial (or average) investment *100%
where average investment is the (initial value + scrap value) / 2
IRR is equal to:
The interest rate that equates the present value of expected future cash inflows to the intiial cost of the investment outlay
If the IRR is greater than the cost of capital what does it mean?
Later cash flows have been discounted too much
How many IRRs can one project have?
It is possilbe for a project to have up to as many IRRs as there are sign changes in the cash flows
How to calculate the trend and seasonal variation under the additive model
Get a X month average depending on the length of the cycle specified in question, this gives you the moving average aka the trend
Then use formula
Total sales (TS) usually for a specific month= Trend (T) + Seasonal variation (SV)
To get the TV
What is budget bias
Any bias toward certain objectives in the setting of the budget that may lead to under or overestimation
Formula for residual income (RI)
RI = Controllable profit - Imputed interest charge on controllable investment
Formula for ROI
ROI = Controllable divisional profit / divisional capital employed *100%
Closing inventory under marginal costing
Units x production variable costs
How to remember which will leave a higher inventory value out of MC vs AC (SIAM)
SIAM
Stocks
Increase
Absorption
More
Formula: difference in marginal and absorption costing profit =
= change in stock units x OAR per unit
Optimum transfer price for transfer pricing
Optimum transfer price = external market price - cost savings with internal transfer
What is overtrading
Increased amount of cash required to fund the cash operating cycle increases as the cycle gets longer and sales rapidly increase. Leading to less liquidity
EOQ model
Root(2CoD/Ch)
Where
Co= cost of ordering (one time)
D = annual demand in units
Ch = Cost of holding one unit of inventory
How to get the reorder interval from the EOQ
Square root the EOQ (again)
Features of effective feedback
Only significant differences are highlighted
Controllable costs and revenues should be separately identified
Timely
Concise and accurate
Communicated to those with authority
What budget does variance reporting use
The flexed budget not the original budget
How do you calculate sales volume variance
Variance in sales volume x the budgeted contribution per unit
How to calculate net terminal value
NPV *1.discount rate^[years in question (not inc 0)]
Raw materials holding period
Avg inventory of raw materials / annual usage * 365
Average production period
Avg inventory of work in progress / annual cost of sales * 365
Average inventory holding period
Average inventory of finished goods / annual cost of sales * 365
Average receivables collection period
Avg receivables / annual sales revenue *365
Average payables payment period
Average payables / annual purchases * 365
Quick liquidity ratio
Current assets excluding inventory / current liabilities
What does a treasury dept do?
All about short term cash management, including credit control and short term investment but nothing long term
Define labour efficiency variance
L = V * R
V is variance in labour hours
R is standard rate per hour
Breakeven point =
contribution required to breakeven / contribution per unit
OR
total fixed costs / contribution per unit
Contribution ratio
Contribution per unit / sales price per unit *%
Breakeven revenue =
Contribution required to breakeven / contribution ratio
OR
Fixed costs / contribution ratio
Margin of safety
Budgeted sales - breakeven sales
OR put it over budgeted sales for a %
Sales volume (units) to acheive taget profit
Fixed costs + required profit / contribution per unit
Sales (£) to acheive target profit
Fixed costs + required profit / contribution ratio
Contribution per unit
Selling price - (all) variable costs
Current ratio
Current assets / current liabilities
Liquiditiy / quick ratio
Current assets excluding inventory / current liabilities
Residual income (RI)
Controllable profit - imputed interest charge ON controllable investment
