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Flashcards in Financial Planning Deck (19):

What is a Master 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 of activity within the relevant range.
Property Tax is the same whether you produce 100,000 units or zero units.
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- 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.
Variable Costs per unit don't change with level of activity like Fixed Costs.


How are Material Variances calculated?

SAM: Standard Material Costs - Actual Material Costs=Material Variance


How are Labor Variances calculated?

SAL-Standard Labor Costs-Actual Labor Costs=Labor Variance


How are Overhead Variances calculated?

OAT - Overhead Applied-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


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 focus of 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.


What are Econometric Models?

Forecast sales using Economic Data.


What are Naive Forecasting Models?

Very simplistic - 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 costs is a must.


What is a Static Budget?

Budget targeted for a specific segment of a company.