QUIZ 1 Flashcards
It involves the systematic evaluation of the costs and benefits of proposed technical projects
engineering economics
inherent to these decisions are ___ among different types of costs and performance of the alternative
tradeoffs
The mission of engineering economy is to ____ in the most economical manner
balance these tradeoffs
The balance sheet indicates everything the company ____.
owns, owns, and value of the ownership stake in the company
Owns = Owes to creditors + owes to stockholders
___ = ___ + ___
Assets = Liabilities + Owners’ Equity
Assets and liabilities are separated between ___ and ____.
current; long term
Amounts customers owe the company for provided services
Accounts receivable
Items held for sale to customers
Inventory
Paid before service is provided
Prepaid Expenses
Items used in daily operations
Supplies
Notes owed to company
Notes Receivable
Amounts the company owes to suppliers
Accounts Payable
Expenses not yet paid that the company owes
Accrues Expense/Liabilities
Expenses not yet paid that are large enough to be mentioned in the balance sheet
____ Payable
Cash received from customers before the service is provided
Unearned Revenues
Portion of long-term debt repaid within 1 year
Current Maturities of Long Term Debt
Amounts owed to banks and other financing companies paid not within 1 year
Long-term Notes Payable and Long-term Debt
Amounts borrowed from investors
Bonds Payable
Funds received from investors in exchange for ownership
Common Stock
Amounts over and above par raised from investors from the sale of stock
Additional Paid in Capital
Remaining profits after dividends are paid to owners
Retained Earnings
The company buys and holds its own stock
Treasury Stock
Time it takes a company to spend cash to do business and get the cash back again; usually less than one year
operating cycle
The balance sheet is listed in the _____ or how soon it will impact cash
order of liquidity
cash is expected to be collected/paid within 1 year
Current
cash is expected to be collected/paid not within 1 year
Long-term
Assets consist of ___, Liabilities consist of ____, Stockholder’s Equity consists of ___. Assets must equal to the sum of liabilities and stockholder’s equity.
- Cash, receivables, prepaid expenses, inventory, investments, property/plant/equipment less accumulated depreciation, intangible assets
- Payables, Accrued liabilities/expenses, Unearned Revenues, long-term debt
- Common stock, additional paid in capital, retained earnings, less treasury stock
This accounting relationship defines the format of the income statement
Revenues - Expenses = Profit
Money gained from providing goods/services
Revenues
Money spent providing goods/services
Expenses
Sales price - cost to buy/manufacture goods sold = ____.
Gross Profit
Directly related to daily business operations
Operating Expenses
Sales - Cost of Goods Sold - Operating expenses = ____
Operating Income
Revenues/Expenses not part of daily business
Other Revenues/Expenses
Government-mandated expenses
Tax expense
Indication of income that can be earned in future years; used for trend analysos
Income from Continuing Operations
Selling or disposing of a major part of the business
Discontinued Operations
Unusual and Infrequent, not expected to happen again
Extraordinary Item
Total earnings of the company for this period
Net Income
Multi-step income statement example: prepare an income statement for the month of January
a. paid 16,000usd in salaries and wages incurred during the month
b. sold 100,000usd of goods costing 48,000usd in January
c. collected 69,000usd from customers for transactions made last month
d. paid 900usd for rent for this month and the next 2 months
e. received 100usd for interest earned last month
f. recorded depreciation expense of 500usd for this month
g. received a bill for utilities for this month for 1,100usd
h. paid the utility bill for last month for 950usd
i. the company’s tax rate is 30%
Sales: 100,000
Cost of goods sold: (48,000)
Gross Profit = 52,000
Operating expenses:
Salary and wage expense: (16,000)
Rent expense: (900/3)
Depreciation expense (500)
Utilities expense: (1,100)
Income from operations = 34,100
Other revenues and expenses:
Interest income: 0
Income before tax: 34,100
Tax expense: (10,230)
Net income = 23,870
Cost unaffected by changes in activity level; changes when large changes in usage of resources occur (plant expansion or shutdown)
fixed cost
Cost varies in total with number of output units
variable cost
additional cost resulting from increasing output of a system by one or more units; involves a limited change in activity level
incremental cost
easily traced: directly related to the providing of goods/services
e.g. car - engine, assembly time
direct cost
not easily traced: indirectly related to the providing of goods/services
e.g. car - power tools, electricity
indirect cost
not direct labor or direct material costs; hence, indirect costs
overhead cost
established in advanced of production or service delivery
standard cost
involves cash payment
cash cost
doesn’t involve cash payment, represents recovery of past expenditures over time
book cost
money spent for something planned and stays spent when the buyer changes plans
sunk cost
If you choose to do something, you choose to not do something else and thus lose the value you could gain from that alternate choice. That value you lost is considered an ___.
opportunity cost
sum of all costs, recurring and nonrecurring
life-cycle cost
directly used by people to satisfy wants
consumer goods and services
consumed by producers to produce consumer goods and services
producer goods and services
a large number of supplier of goods and services, no restriction on additional suppliers entering the market
perfect competition
single supplier which prevents entry of all others into the market
monopoly
price-demand relationship
p = a-bD
where:
p = price
D = demand
a & b are constants
total cost formula
TC = Cf + Cv
TC = Cf + cvD
where:
Cf = fixed cost
Cv = variable cost
cv = unit cost
D = demand
TC = total cost
total revenue formula
TR = aD - bD^2
