Exam 3 lecture 3-5

Question 1

break even analysis (BEA)

Answer 1

• volume at which total revenue or sales equals total costs
• shows the relationship between costs & profits over a range of sales & for a variety of assumptions about costs, prices & revenues

Question 2

fixed costs

Answer 2

remain the same regardless of volume

Question 3

variable costs

Answer 3

increase in direct proportion to volume of sales. in pharmacy, the largest variable cost is COGS

Question 4

semi variable costs

Answer 4

costs which include both a fixed and variable component

Question 5

relevant range

Answer 5

fixed costs are fixed over a range of sales volumes

Question 6

at break even

Answer 6

the pharmacy does not make a profit or suffer a loss

Question 7

the break even for a pharmacy that produces only one product can be

Answer 7

calculated in either dollars/sales or in units of the product produced

Question 8

the BEA for a pharmacy that produces multiple products

Answer 8

must be calculated as the sales volume where total revenues equal total costs

Question 9

data for BEA is found

Answer 9

on the income statement!

Question 10

break even point

Answer 10

the point where the total revenue line intersects the total costs line

Question 11

pharmacy’s contribution margin (CM)

Answer 11

revenue minus variable costs

• amount of revenue available to cover fixed costs and net income
• NI=CM-FC

Question 12

CM% is used to calculate

Answer 12

the pharmacy’s BEP

Question 13

CM% equation

Answer 13

CM%= 1- VC/sales

Question 14

CM% calculation indicates

Answer 14

how much of every dollar of sales is available to cover FC & profit. The remainder went to cover VC

Question 15

BEP formula

Answer 15

BEP=FC/CM%

BEP= FC/per RX CM

Question 16

every dollar over BEP

Answer 16

will generate CM% of profit , every dollar under BEP will generate CM% loss

Question 17

per RX CM is calculated

Answer 17

as the average RX price-avg VC per RX

Question 18

SEP formula for multi product

Answer 18

SEP=(FC+NI)/CM%

Question 19

SEP formula for single product

Answer 19

SEP+(FC+NI)? per RX CM

Question 20

foundation of budget cycle

Answer 20

1. mission statement
2. goals
3. objectives

Question 21

define objective

Answer 21

statements of specific tasks that must be accomplished if the organization is to meet its goals

Question 22

revenue budgets

Answer 22

a budget that projects future sales. the revenue budget becomes a planning device for marketing & sales activities

Question 23

expense budget

Answer 23

• found in all units w/in a firm & in not-for-profit & profit making organizations
• they list the primary activities undertaken by a unit to achieve its goals & allocate a dollar amount to each

Question 24

operating or profit budgets

Answer 24

combine revenue & expense budgets to determine the units’ profit contribution

Question 25

cash budgets

Answer 25

forecasts of how much cash the organization will have on hand & how much it will need to meet expenses

Question 26

capital expenditure budgets

Answer 26

forecasts investments in property, buildings and major equipment

Question 27

fixed budget

Answer 27

assumes a fixed level of sales or production

Question 28

variable budget

Answer 28

- most organizations are not able to predict volume accurately - a number of costs such as some labor, products, material & some administrative expenses vary with volume

Question 29

incremental budget

Answer 29

- allocates funds to departments according to allocations in the previous period. - 1st funds are allocated to departments - 2nd , incremental budget develops out of the previous budget

Question 30

problems arising from incremental budgeting

Answer 30

1. allocating funds to organizational units makes it difficult to differentiate activities within units 2. insufficiencies tend to grow in the incremental budget bc they get hidden

Question 31

zero-based budgets

Answer 31

- requires managers to justify their budget requests in detail from scratch - it was designed to attack the second drawback of incremental budgets- activities have a way of becoming immortal

Question 32

problems with the zero-based budget

Answer 32

1. increased paper work & time 2. important activities that manages want funded tend to have their benefits inflated 3. eventual outcome rarely differs from what would occur through incremental budgeting

Question 33

budget periods tend to coincide with

Answer 33

accounting periods

Question 34

forcasting techniques fall into two categories

Answer 34

analyzing past years data or | employing expert judgement

Question 35

change in demand from year to year equation

Answer 35

%change from one year to the next= ((current year-previous year)/previous year)*100

Question 36

market potentil

Answer 36

refers to total demand in the pharmacy's market area of those goods & services provided by new business

Question 37

3 different kinds of expenses are evaluated in the expense budget

Answer 37

1. fixed costs 2. variable costs 3 discretionary costs

Question 38

top-down budgeting

Answer 38

used by traditional companies, the budgeted amounts for the coming year are literally imposed on middle & lower level managers

Question 39

bottom-up budgeting

Answer 39

lower managers anticipate their departments resource needs. the list of resource needs are passed up the hierarchy & approved by top management