Flashcards in Financial Planning Deck (32):
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 Center?
Management is concerned only with costs
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
Revenue - COGS = GM
GM - OPEX = Profit
COGS = product costs [DL+DM+OH(f&v)]
OPEX = period costs [SG&A(f&v)]
Rev - variable costs (all) = CM
CM - fixed costs (all) = NI
Difference between absorption and contribution approach?
Absorption = product costs - goes into cost of inventory
Contribution = period costs - expensed as incurred
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)
Coefficient of Determination
Regression analysis # squared
% of the change in total cost explained by X.
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)
Opportunity cost per unit
CM Given Up / # units of special order
Budget (goals) set by management
Quick and efficient
Budget (goals) set by employees
Slow yet very effective
+ desired ending inventory
- beginning Inventory
= Budgeted Production
Same for DL, DM, and Factory OH
Actual costs ------ applied
Under applied ---- over applied
Unfavorable ---- favorable
Net all OH accounts
Sales price variance
(Actual sp / unit - budgeted sp / unit) x actual units sold