Revised 2 - Financial Planning

Question 1

How do Fixed Costs affect budgeting?

Answer 1

Costs independent of the level activity within the relevant range

Property Tax is the same whether you produce 100-000 units or zero units

However - Fixed Costs per unit vary given the amount of activity

If you produce fewer units- fixed costs per unit will be greater than if you produce more units - i.e. less units to spread the cost over

Question 2

How is Break-even Point (per unit) calculated?

Answer 2

Total Fixed Costs / Contribution Margin (per unit)
= Break-even Point Per Unit

Assumption: Total Costs & Total Revenues are LINEAR

Question 3

What is the Delphi technique?

Answer 3

Forecasting technique where Data is collected and analyzed

Requires judgement/consensus

Question 4

What is Regression Analysis?

Answer 4

A forecasting technique where Sales is the dependent variable.

Simple Regression - One independent variable

Multiple Regression - Multiple independent variables

Question 5

How does a Moving Average compare to Exponential Smoothing?

Answer 5

Both project estimates using average trends from recent periods

Difference: Exponential Smoothing weighs recent data more heavily

Question 6

What are the characteristics of Short-term Cost Analysis?

Answer 6

Uses Relevant Costs Only

Ignore Sunk Costs

Opportunity Cost is a Must