Flashcards in Financial Planning Deck (47):
What is a Static Budget?
Budget targeted for a specific segment of a company.
What is a Maser Budget?
Budget targeted for the company as a whole
Includes budgets for Operations and Cash Flows
Includes set of budgeted Financial Statements
How do Fixed Costs affect budgeting?
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
How do Variable Costs affect budgeting?
The more Direct Materials or Direct Labor used- the more Variable Costs per unit
However - Variable Costs per unit don't change with the level of activity like Fixed Costs per unit
How are Material Variances calculated?
Standard Material Costs
- Actual Material Costs
= Material Variance
How are Labor Variances calculated?
Standard Labor Costs
- Actual Labor Costs
= Labor Variance
How are Overhead Variances calculated?
- Actual Overhead Cost
= Total Overhead Variance
How does Absorption Costing compare to Variable Costing?
Absorption Costing - External Use- Cost of Sales- Gross Profit- SG&A
Variable Costing - Internal Use- Variable Costs- Contribution Margin- Fixed Costs
How is Contribution Margin calculated?
Sales Price (per unit)
- Variable Cost (per unit)
= Contribution Margin (per unit)
How is Break-even Point (per unit) calculated?
Total Fixed Costs / Contribution Margin (per unit)
= Break-even Point Per Unit
Assumption: Total Costs & Total Revenues are LINEAR
What is the focus in a Cost/Revenue Center?
Management is concerned only with costs/revenues
What is the focus in a Profit Center?
Management is concerned with both costs and profits
What is the focus in an Investment Center?
Management is concerned with costs- profits- and assets
What is the Delphi technique?
Forecasting technique where Data is collected and analyzed
What is Regression Analysis?
A forecasting technique where Sales is the dependent variable.
Simple Regression - One independent variable
Multiple Regression - Multiple independent variables
What are Econometric Models?
Forecast sales using Economic Data
What are Naive Forecasting Models?
- Eyeball past trends and make an estimate
How does a Moving Average compare to Exponential Smoothing?
Both project estimates using average trends from recent periods
Difference: Exponential Smoothing weighs recent data more heavily
What are the characteristics of Short-term Cost Analysis?
Uses Relevant Costs Only
Ignore Sunk Costs
Opportunity Cost is a Must
Target Cost Formula
Target Cost=Market Price-Required Profit
The product may have to be redesigned to provide for the reduction of costs throughout the life cycle of a product.
Sensitivity Analysis Slope
DIF TC/ DIF Volume
Simple Linear Regression Model
Y is the what is the regression model
X is the what in the regression model
A is the what is the regression model
B is the what in the regression model
-1 Coefficient of Correlation means?
Perfect Inverse Relationship
0 Coefficient of correlation means?
1 Coefficient of correlation means?
Perfect direct relationship
Coefficient of correlations measures?
(r) Measures the STRENGTH of the linear relationship between the independent variable(x) and the dependent variable(y).
Coefficient of determination means?
(r^2) the PROPORTION of the total variation in the dependent variable(y) explained by the independent variable (x)
Higher(R^2)=greater proportion of the total variation in y that is explained by x. The higher the(r^2) the better the fit of the regression line.
Budgeted Production formula
+ Desired ending inventory
< Beg, Inventory>
Units of DM to be purchased for the period formula
Units of DM for production period
+ Desired End, INV at the end of the period
< Beg, INV at the start of the period>
Units of DM to be purchased for the period
Desired END, CASH Formula
+ Cash Collected
< Cash Requirements>
Desired End, Cash
Sales Variance Includes?
1. Sales Price Variance
2. Sales Volume Variance
Sales Volume Variance Includes?
1. Sales Quantity Variance
2. Sales Mix Ratio
Sales Quantity Variance Includes?
1. Market Size Variance
2. Market Share Variance
Sales Mix Variance Formula
(Ac. product sales mix ratio- Budg. Product sales mix ratio)
X Actual sold units
X Budgeted CM per unit of that product
Budg. CM per unit of that product
Sales Quantity and Market Variances Formula
(Ac. Sold product- Budg. sales product)
X Budg. product sales mix ratio
X Budg. CM per unit of that product
Budg. CM per unit of that product
Market Size Variance Formula
(Ac. Market size U's- Budg. Market size U's)
x Budg. market share %
X Budg. CM per unit Weighted Average)
Market Size Variance
Market Share Variance Formula
(Ac. Market Share % - Budg. market Share%)
X Ac. Industry U's
X Budg. CM per unit(Weighted Average)
Market Share Variance formula
Components of the Balanced Scorecard
2. I- nternal
3. C-ustomer satisfaction
4. A-dvancement of innovation and HR development
F-inancial component of Balanced Scorecard means
Profits are pointed "At Us"
I-nternal business processes component of Balanced Scorecard means?
C-ustomer Satisfaction component of Balanced Scorecard means?