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ETH: AFM (dense) > ⭐️ RECITATION 4 / MOCKUP-EXAM (L14) > Flashcards

⭐️ RECITATION 4 / MOCKUP-EXAM (L14) Flashcards

1
Q

Contribution Margin,
general explaination (2)

  • seperates ..
  • usefull for ..
A
  • separates,
    a company’s costs into
    variable & fixed categories
  • useful for,
    analyzing the profitability
    of individual products
    or services.
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2
Q

Contribution Margin Income Statement format

A

Sales Revenue
− Variable Costs
= Contribution Margin
− Fixed Costs

———— Net Profit / Loss ————
= Operating Income (before Tax)
− Income Tax
= Operating Income (after Tax)

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3
Q

Contribution Margin

A

Contribution Margin = Sales Revenue − Variable Costs

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4
Q

Break-Even point
(units)

A

Break-Even point (units)
=
Fixed Costs
/
Contribution Margin per Unit

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5
Q

Margin of Safety
(units)

A

Margin of Safety (units)
=
Actual Sales
-
Break-Even Point (units)

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6
Q

Required Sales in Units,
to Achieve a Target Net Income

(Unit sales required for a monthly after-tax profit of $X)

A

Unit Sales, Required
=
(Target Profit + Fixed Costs + Taxes)
/
(Contribution Margin, per Unit)

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7
Q

Current Monthly Profits Formular

A

R = QP - (QV - F)

  • Total Revenue (QP) =
    Current Sales Volume ×
    Unit Selling Price
  • Total Variable Costs (QV) =
    Current Sales Volume ×
    Variable Costs per Unit
  • Fixed Costs (F)
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8
Q

What is the content of the
Contribution Income Statement?

  • behavior (2)
  • contribution margin (2)
A
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9
Q

What is the content of the
Functional Income Statement? (2)

A

The natural classification of expenses involves categories such as salaries, rent, supplies, and travel.

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10
Q

Break-Even Analysis:
Break-Even Unit Sales Volume (2)

A

FIXED COSTS /

  • (Selling price per unit -
    Variable costs per unit)
  • Contribution Margin
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11
Q

Target Unit Sales Volume

A
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12
Q

Before-tax profit

A
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13
Q

Break-Even Point

A
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14
Q

Target Sales Volume

A
  • Fixed Costs + Profit
  • Contribution Margin
    = (Selling Price per Unit - Variable Cost per Unit)
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15
Q

Total Liabilities

  • Assets
  • Liabilities
  • Stockholders’ Equity
A
  • Assets =
    Liabilities
    + Stockholders’ Equity
  • Liabilities =
    Assets
    − Stockholders’ Equity
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16
Q

How to calculate
Cash from Financing Activities (FA)?

A

Cash from FA =
Change in Cash - Cash from OA - Cash from IA

__
The formula for the change in cash is: Change in Cash = Cash from OA + Cash from IA + Cash from FA

The statement of cash flows is divided into three sections:

  • operating activities,
  • investing activities,
  • financing activities.
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17
Q

Degree of Operating Leverage (DOL)

  • DOL (% Changed)
  • Function
A

DOL = (% Change in Operating Income) / (% Change in Sales)

The degree of operating leverage (DOL) measures the sensitivity of a company’s ..

  • operating income to
  • changes in sales.
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18
Q

To determine the impact of a special order on profits, follow these 3 steps:

A
  1. Calculate
    Contribution Margin per Unit
    = Selling Price per Unit - Variable Cost per Unit
  2. Calculate
    Change in Profits per Unit
    = Contribution (Special Order) − Contribution (Regular)
  3. Calculate
    Change in Profits Total
    = Change in Profits per Unit x Number of Units in Special Order
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19
Q

Income Statement formats?
What is the typical format?

A

Revenue
- Cost of Goods Sold
(if applicable)
= Gross Profit
- Operating Expenses
= Operating Income
- Interest and Taxes
(if applicable)
= Net Income

20
Q

How to determine the weekly production schedule for products under a short-run profit-maximizing strategy?

📲🥇📈

A
  1. Calculate
    Contribution Margin per Labor-Hour:
    CM per Labor-Hour = Unit CM / Labor-Hours per Unit
  2. Rank
    the Products Based on Contribution Margin per Labor-Hour: Rank the products in descending order of their contribution margin per labor-hour.
  3. Allocate
    Labor-Hours Based on Ranking and Demand: Allocate the limited labor-hours to the products starting from the one with the highest contribution margin per labor-hour, until the labor-hour limit is reached or the demand for a product is fulfilled.
21
Q

The formula for net cash flow from operating activities using the indirect method is: (4)

A
  • Net Income
  • (+) Non-cash expenses Depreciation & Amortization
  • [ (-) Non operating Gains ]
  • (+) Changes in Working Capital current assets & liabilities
  • = Net cash flow from operating activities (indirect method)

___
Non operating Gains = sale of property or investments, interest income, and gains from foreign currency exchange.

22
Q

Break-Even Point (2)

A

Break-Even Point = Total Fixed Costs / Contribution Margin Ratio
Contribution Margin Ratio = (Selling Price - Variable Costs) / Selling Price

23
Q

How to get the total liabilities from financial statements?

A
  • Assets = Liabilities + Stockholders’ Equity
  • Liabilities = Assets − Stockholders’ Equity
23
Q

Cash Flow from Financing Activities,
Income Statement

A

Change in Cash = Cash from OA + Cash from IA + Cash from FA

24
Q

Gross Profit & Gross Profit Margin (2)

A
  • “gross profit” is technically an absolute monetary amount,
  • “gross margin” is technically a percentage or ratio.
25
Q

Difference between Contribution Margin and Gross Profit Margin

  • Calculation
  • Purpose
A

Calculation:

  • Contribution Margin:
    (Total Revenue - Variable Costs) / Total Revenue.
  • Gross Profit Margin:
    (Total Revenue - COGS) / Total Revenue.

Purpose:

  • Contribution Margin:
    Assess individual product profitability.
  • Gross Profit Margin:
    Evaluate production efficiency.
26
Q

Cost of Goods Sold (COGS)
general explaination were to find it and example

A

On the income statement,
the cost of goods sold (COGS) line item is the first expense following revenue (i.e. the “top line”).

Examples (COGS)

  • Purchase of Inventory/Merchandise
  • Cost of Raw Materials
  • Cost of Direct Labor
27
Q

Period Cost vs Product Cost (5)

A

Both terms are important in the development of an income statement.(COGS, SG&A)

28
Q

How to calculate the net cash flow from operating activities? (4)
Income Statement Input

A

The formula for net cash flow from operating activities using the indirect method is:

Net Cash Flow from Operating Activities =

  • Net Income
  • (+) Non-cash Expenses
    (Depriciation Expense)
  • (–) Non operating Gains
    (Gain on Sale of Investments)
  • (+) Changes in Working Capital
    (COGS, SG&A | → | Accounts Receivable, Inventory, Prepaid Rent, Accounts Payable, Income Tax Payable)
29
Q

EBITDA vs. Operating Profit (3)

A
  • In the income statement, depreciation is typically subtracted as an operating expense.
  • EBIT (Earnings Before Interest and Taxes) is the same as operational income or operating profit.
  • While EBITDA and operating profit are similar, EBITDA further eliminates depreciation and amortization, offering a more focused perspective on a company’s operational efficiency.
30
Q

What is the format of income statement (Basic)?

A
  • COGS = Opening Inventory + Purchases − Closing Inventory
  • Remember: Dividend is a Expense
31
Q

Working Capital
in Cash Flow Statement

  • Definition
  • Formula
  • Components
  • Significance
A

Working capital is a measure of a company’s short-term financial health and operational liquidity. It is calculated as the difference between current assets and current liabilities.

Working Capital = Current Assets − Current Liabilities

Current Assets
Include cash, accounts receivable, inventory, short-term investments, and prepaid expenses.

Current Liabilities
Include accounts payable, short-term debt, accrued expenses, and the current portion of long-term debt.

  • Positive working capital indicates liquidity and the ability to meet short-term obligations.
  • Negative working capital may suggest potential liquidity issues.
32
Q

Closing the accounts involves adjusting entries: (2)

A
  • Account balances
    must be reviewed to see if adjustments are required
    Adjusting entries almost never affect cash
  • Usually affect at least
    one balance sheet- and one income statement-account
33
Q

Allocating Unearned Revenue to Revenue

In May, customers prepaid $300 for a three-month membership (June, July and Aug) to an online health program. One month of this prepaid membership was earned in June

A
34
Q

Allocating Assets to Expenses—
Prepaid Insurance

One month of Jana Juice’s insurance expired during June. The original payment was $800 covering June through September.

($800 / 4 months = $200)

A
35
Q

Allocating Assets to Expenses—
Depreciation

Jana Juice’s equipment originally cost $10,200 and was expected to benefit the company for 5 years.

Depreciation expense = $10,200 / 5 years × 1/12 = $170

A
36
Q

Accruing Revenues

At the end of June, Jana Juice learned that its bank has decided to provide interest on checking accounts for small businesses. The interest is paid into the checking account on the 5th day of the following month. Jana Juice earned $60 interest in June.

A
37
Q

Accruing Expenses—Wages

Jana Juice’s employees earned $550 during the last week of June that will be paid on July 6.

A
38
Q

Accruing Expenses—Interest

The $12,000 loan borrowed by Jana Juice on June 1 carries a 12% annual interest rate.

Interest expense = $12,000 x 12% x 1/12 = $120

A
39
Q

Accruing Expenses—Income Taxes

Income taxes are paid during the month after accrual, and have not been paid for June.

A
40
Q

Financial statement analysis identifies: (2)

  • vertical
  • horizontal
A

Relationships, between numbers within the financial statements (vertical)
=> each account Balance is expressed as a precentage of total assets

Trends, in these relationships from one period to the next (horizontal)
=> eg Net Income is X% lower in the ending yr. compared to the previos

__
Meaningful interpretation of financial information requires an understanding of the broader business context.

41
Q

Return on Financial Leverage (ROFL)

  • what is it for / use case
A

Level of the company’s “indebtedness”
ROFL measures the increase in ROE
due to the use of debt

42
Q

EWI (Earnings Before Interest) = EBIT

  • Formular
  • reason for use
    Return on Assets (ROA)
A
  • EBIT = Revenue - Operating Expenses - Depreciation - Amortization
  • ignoring how those assets are financed
    (Therefore we have EWI in the numerator, not Net Income)
43
Q

Components of ROA
(Dupont Analysis)

A
44
Q

Debit/Credit Rule

  • debit / credit
  • accouts increase
A

For a transaction,

  • debit the account that receives
  • credit the account that gives.
    __
  • increase with debits
    Assets and expenses
  • increase with credits
    liabilities, equity, and revenue

ETH: AFM (dense) (14 decks)

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