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Flashcards in Financial Planning Deck (32):
1

What is a Static Budget?

Budget targeted for a specific segment of a company.

2

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

3

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

4

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

5

How are Material Variances calculated?

SAM:

Standard Material Costs
- Actual Material Costs
= Material Variance

6

How are Labor Variances calculated?

SAL

Standard Labor Costs
- Actual Labor Costs
= Labor Variance

7

How are Overhead Variances calculated?

OAT

Overhead Applied
- Actual Overhead Cost
= Total Overhead Variance

8

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

9

How is Contribution Margin calculated?

Sales Price (per unit)
- Variable Cost (per unit)
= Contribution Margin (per unit)

10

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

11

What is the focus in a Cost Center?

Management is concerned only with costs

12

What is the focus in a Profit Center?

Management is concerned with both costs and profits

13

What is the focus in an Investment Center?

Management is concerned with costs- profits- and assets

14

What is the Delphi technique?

Forecasting technique where Data is collected and analyzed

Requires judgement/consensus

15

What is Regression Analysis?

A forecasting technique where Sales is the dependent variable.

Simple Regression - One independent variable

Multiple Regression - Multiple independent variables

16

What are Econometric Models?

Forecast sales using Economic Data

17

What are Naive Forecasting Models?

Very Simplistic
- Eyeball past trends and make an estimate

18

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

19

What are the characteristics of Short-term Cost Analysis?

Uses Relevant Costs Only

Ignore Sunk Costs

Opportunity Cost is a Must

20

Absorption Approach

GAAP

Revenue - COGS = GM
GM - OPEX = Profit

COGS = product costs [DL+DM+OH(f&v)]

OPEX = period costs [SG&A(f&v)]

21

Contribution Approach

Not GAAP

Rev - variable costs (all) = CM
CM - fixed costs (all) = NI

22

Difference between absorption and contribution approach?

Fixed OH

Absorption = product costs - goes into cost of inventory

Contribution = period costs - expensed as incurred

23

Simple linear regression model

Y = a + bX

Y = total cost
a = fixed cost
b = variable cost per unit
X = independent variable (units)

Measures strength of relationship between X and Y. Range: -1, 1 (0 is no correlation)

24

Coefficient of Determination

Regression analysis # squared

R^2

% of the change in total cost explained by X.

25

Relevant costs

Direct costs
Prime costs
Discretionary costs (periodic budgeting decisions)
Controllable costs (may be relevant)
Opportunity cost (always)
Incremental costs (as more are produced, always relevant)
Sunk cost (never)
Avoidable (relevant - one more than another)
Unavoidable / uncontrollable (never)

26

Opportunity cost per unit

CM Given Up / # units of special order

27

Authoritative Standards

Budget (goals) set by management

Quick and efficient

28

Participative Standards

Budget (goals) set by employees

Slow yet very effective

29

Operating Budget

Budget sales
+ desired ending inventory
- beginning Inventory
= Budgeted Production

Same for DL, DM, and Factory OH

30

OH T-account

Actual costs ------ applied

Under applied ---- over applied

Unfavorable ---- favorable

Net all OH accounts

31

Sales price variance

(Actual sp / unit - budgeted sp / unit) x actual units sold

32

Sales volume variance

(Actual units sold - budgeted units sold) x standard CM per unit