Planning, Control, and Analysis Flashcards
Business analysis that provides management with profitability estimates at all levels of production in the relevant rannge; based on the firm’s profit function (Profit=Sales-VC-FC)
Cost-Volume-Profit (Breakeven) Analysis
The amount of contribution margin (Sales-VC) required to cover the fixed costs
Breakeven point
A form of inventory costing that applies variable costs to products sold but considers fixed manufacturing costs as aperiod rather than product cost, expensing all fixed MOH in the period incurred
**not GAAP
Variable (Direct) Costing
Inventory costing that treats fixed MOH as product costs and expenses them in the period in which the products are sold (so if not production>sales, some of the MOH will not be expensed that period)
Absorption Costing
The process of analyzing hte investment and financing alternatives available, forecasting the furture consequences of hte alternatives, decidng which to undertake, and measuring subsequent performance against established goals
Financial Planning
Outputs of the fianncial planning process
Pro forma financial statements
Operating and financial budgets
Scenario analysis
Summarizes the results of all of hte firm’s individual budgets into a set of projected financial statements and schedules
Master budget
The budgeted income statement and supporting schedules
Operating budget
The capital budget, cash budger, and budgeted balance sheet and statemtn fo cash flows
Financial budget
Budgets that are continualy updated as time passes
Rolling budgets
A budget in which upper-level managment establishes the budget paramters and passes it down through the organization to each operating unit
-quick and clear but doens’t involve lower-level employees
Top-Down mandated approach
Budget approach in which the budget is driven by involving lower-level management and employees
–more readily accepted budget by all employees, but management may try to pad their budget
Bottom-up (participative) approach
Displays the financial effects of purchases and retirements of long-lived assets–these budgets tend to span several years
Capital budget
A form of budgeting that projects costs on teh basis of improvements yet to be implmeented rather than upon current conditions
Kaizen budgeting
A form of budgeting that complements ABC by focusing on the costs of activities necessary for production and sales–budgets are formulated around each activity
–gives managfement better insight into what causes costs sothey are in a better position to control them
Activity-based budgeting (ABB)
A structured approach to qualitative forecasting that develops consensus among a group about the future through a series of structured questionnairesa nd an iterative process
Delphi technique
A quantitative forecasting approach based exclusively o historical observation of sales or other variables
Naive model
A quantitative forecasting technique that simply uses the average of sales for hte most recent periods to predict hte next period’s sales
Moving average
A quantitative forecasting technique that is similar to moving average but weights more recent sales data more heavily than otder data
–based on the belief that more recent data is more relevant
Exponential smoothing
A quantitative forecasting technique that examines prior sales data and estimtaes seasonal and cyclical efects to observe historical trends
Decomposition of time series
A quantitative forecasting technique that estimates sales based on an observed relationship between sales (dependent variable) and one or more predictors of sales (independent variable)
Regression analysis
A quantitative forecasting techinque that involves the use of regression analysis to model the firm’s sales ased on economic data (i.e. disposable income, interest rates, etc.)
Econometric models
A quantitative forecasting technique that attempts to frecast consumer purchasing by considering factors such as brand loyalty and brand switching behavior–wich is used to predict changes in teh firm’s market share
Markov technique
The violatin of hte regression analysis assumption that the variance of hte error (residual) term is constant–reduces the reliability of the estimate
Heteroscedasticity
Using regression analysis to fit a trend line ot a time series of data
Trend analysis
Measures how well the predicted values of hte dependent variable match the actual amounts
goodness of fit (measured by the coefficient of determination–Adjusted R Squared)
A measure of significance of the relationship in trend analysis for each indpendent variable
T-statistic
A measure of the probablity that the relationship of a variable in a trend anlysis occurred by chance (i.e. if less than 5%, means there is a
P-value
Used when management wishes to forecast sales using two or more associated variables
Multiple regression
The standard deviation of the regression–can be used to establish confidence intervals aroudn the estimate of sales
Standard Error
Provides an overall measure of hte significance of th eregression equation
–% chance htat hte overall relationship occurred bychance
Significanace F
In multiple regression when 2 indpendent variables are highly correlated, causing an error in the equation
–signs include lowt-Stats, and negative relationships when they should be positive
Multicollinearity
In multiple regression, when the errors (regressions) are serially correlated, distorting the results
–a sign would be if a major indpenednet variable is not included in the model
Autocorrelation
A budget adjusted for changes in volume
Flexible budget
A manager’s area of responsibility if he/she is only responsible for costs; typically non-revenue generating departments
Cost center
Area of responsibilty if a a manager is responsible for both revenues and costs
Profit center
Manager is responsible for revenues, costs, and asset investment
Investment ccenter
Allocating those revenues and/or assets which a manager can control to that manger’s responsibility center and holding htat manger accountable for operating results
Responsibility Accounting
Sales- Variable manufacturing costs
Manufacturing contribution margin
Manufacturing contribution margin (Sales-VC)-Variable S&A
Contribution Margin
CM-Fixed costs controllable by segment managers
Controllable contribution
Controllable Contribution-Fixed costs controllable by others
Segment contribution
Predetermined target costs which should be attainable under efficient conditions; used to aid in the budget process, pinpoint trouble areas, and evaluate performance
Standard Costs
Standards that reflect hte absolute minimum costs which could be achieved under perfect operating conditions
Ideal standards
Standards that should be achieved under efficient operating conditions
Currently attainable standards
The standard quantity of input that should have been used for hte good units produced
Standard Quantity
AQ (AP-SP)
Unfavorable if AP>SP
Price Variance
SP(AQ-SQ)
Unfavorable if AQ>SQ
Quantity (usage) Variance
The most common base used to apply overhead to production
direct labor hours (DLH)
REquires that fixed overhead costs be allocated based on normal capacity and variances related to fixed overhead volume should be allocated only to COGS (i.e. treated as a period cost)
SFAS 151
A document that authorizes the project and sets forth the project managers authority and responsibility
Project charter
A document that sets forth the scope of the work jn a narrative description of the work to be performed and the deliverables
Statement of Work (SOW)
A detailed listing of the man hour, equipment, and material requirements
Project specs
Sets forth the start date, the end date, and other major milestones involved in completing the project
Milestone schedule
Breaks the project into manageable, independent, and measurable elements that can be budgeted and for which responsibility can be assigned
Work breakdown structure (WBS)
A project planning approach in which project planning is divided into defined phases and an assessment is done at the end or each phase
Life-cycle approach to project planning
A type of bar chart that illustrated the scheduled start and finish of elements of a project over time
Gantt chart
A type of chart that illustrates the milestones for a project over time
Milestone chart
A type of chart that illustrates the series of activities that are related–appropriate where a project has a series of repetitive actions
Line of balance
Illustrates the logical representation of activities that defines the sequence of the work of a project–lots of advantages
Network diagram
A network diagram that formally focuses on the interdependence of activities and the time required to complete an activity to schedule and control the project
Program evaluation and review technique (PERT)
The shortest amount of time necessary to accomplish the project
Critical patt
In PERT analysis, the difference between the expected time and te latest time the activity can be completed without delaying the project
Slack time
Similar to PERT, but only use one time estimate that represents the normal time to complete an activity-used for projects where there is less variability in time estimates
Critical Path Method (CPM)
Similar to PERT but has the advantage of allowing looping and branching based on the results of a particular activity–useful for projects that can be completed multiple ways
Graphical Evaluation and Review Technique (GERT)
A term used describe the practice of adding resources to shorten selected activity time on the critical path of a project —in effect trading money for time
Project crashing
A short run pricing approach that considers all relevant variable costs plus any additional fixed costs needed to sustain the new production level
Contribution margin approach
A pricing decision model in which prides are set at variable costs plus a percentage markup
Cost-plus pricig
Setting prices at the amount customers are wiling to pay based on their perceived value of the product, and then setting target costs based on that and target income
Target pricing
Examines al components of the value chain to find opportunities for improvements and cost reduction
Value engineering
When transfers are recorded by the selling subunit at one price while the purchasing subunit records the transfer at a different price
Dual transfer pricing
