Projection & Forecasting

Question 1

Show multiple hypothetical scenarios and courses of action

Answer 1

Projections

Question 2

Is a risk management tool that experiments with different parameters and assumptions to determine which variables are the most sensitive to change

Answer 2

Sensitivity analysis

Question 3

Ridge company projects the following scenarios for revenue:

30% likely - 5% sales growth
20% likely - 5% sales decline
50% likely - no growth/decline

If sales were previously $40M, project the sales for next year:

Answer 3

(30% X 5%) + (20% X -5%) + 0 = .5% growth
.5% X 40,000,000 = 200,000
200,000 + 40,000,000 = 40,200,000

Question 4

Driven by historical data and actual expectations and is prepared for both internal and external users. Can be broken out into qualitative or quantitative methods:

Answer 4

Forecasting

Question 5

Explains the variation in dependent variable as a linear function of one or more independent variables:

Answer 5

Regression analysis

Question 6

Formula used for regression analysis:

Answer 6

Y = a + Bx

Question 7

Measures the strength of the linear relationship between the independent variable (x) and the dependent variable (y):

Answer 7

Coefficient of correlation

Question 8

Management’s expectation is that the correlation coefficient will be:

Answer 8

Between 0 - 1 (negative 1 is great, but unlikely)

Question 9

The proportion of the total cariation between the dependent variable (y) explained by the independent variable (x)

Answer 9

Coefficient of determination (R^2)

Question 10

Formula to calculate the variable cost per unit:

Answer 10

Change in total cost / change in total volume

Question 11

Series of budgets that are prepared for a range of activity levels rather than a single activity:

Answer 11

Flexible budget

Question 12

As workers become more familiar with a specific task, the per-unit labor hours will decline. Variable cos per unit should decline until a steady state period is achieved. The activity must be repetitive in nature, involve intense labor, and have little to no labor force turnover or breaks in production.

Answer 12

Learning curve

Question 13

The interceptor on the Y axis of a regression analysis represents

Answer 13

The fixed cost

Question 14

Forecast profits at different levels of sales and production volume

Answer 14

Cost-volume profitanalysis

Question 15

Equation for what approach is below?

Revenue
- COGS
= Gross Profit Margin
- operating expense
=Net income

Answer 15

Absorption approach

Question 16

Equation for what approach is below?

Revenue
- Variable Costs
= Contribution Margin
- Fixed costs
= Net Income

Answer 16

Contribution approach

Question 17

Contribution margin ratio is

Answer 17

(Revenue - variable costs) / Revenue

Question 18

If units produced exceed the units sold, the operating income would be higher under what method? Absorption or Contribution?

Answer 18

Absorption

Question 19

If units sold exceed the units produced, the operating income would be higher under what method? Absorption or Contribution?

Answer 19

Contribution

Question 20

Formula for breakeven point in units

Answer 20

Total fixed costs / Contribution margin per unit

Contribution margin = SP - Variable cost

Question 21

Formula for breakeven point in dollars

Answer 21

Unit price X breakeven point in units

OR

Total fixed costs / contribution margin ratio

Contribution margin ratio = CM/SP

Question 22

Formula for sales units needed to obtain a desired profit

Answer 22

(Fixed costs + pretax profit) / Contribution Margin per unit

Question 23

Formula for sales dollars needed to obtain a desired profit

Answer 23

Variable costs + fixed costs + pretax profit

OR

(Fixed costs + pretax profit)/Contribution Margin Ratio

Question 24

Formula for predicting profits based on volume

Answer 24

Units above breakeven point X Contribution Margin per Unit

Question 25

Formula for setting selling prices based on assumed volume

Answer 25

(Fixed costs + variable costs + pretax profit) / Number of units sold

Question 26

Formula for finding the margin of safety (the excess of ales over the breakeven sales)

Answer 26

Total sales in dollars - breakeven sales in dollars

Question 27

Formula for finding the margin of safety percentage

Answer 27

Margin of safety in dollars / total sales

Question 28

Formula for calculating the target cost:

Answer 28

Market price - required profit

Question 29

Main differences between Absorption Approach and the Contribution Approach (variable costing):

Answer 29

Absorption approach: is GAAP, takes into account inventory and includes fixed and variable costs in its Gross Profit.

Contribution approach (variable costing): is NOT GAAP, does not take into account inventory and only includes variable costing in its Contribution Margin.