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CPA EXAM - BEC > Financial Planning > Flashcards

Flashcards in Financial Planning Deck (29):
1

What is a Static Budget?

Budget targeted for a specific segment of a company.

2

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

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

You can figure fixed cost dollars from the Sales Dollars percentage of e.g. if sales are $900,000 and SP PU IS $20 AND FCPU are $10 you can say $450,000 are FCs
$8 is the VC for $20 SP

Formula $20X -8X-$450,000 = 0
Solve for X 12X = 450,000
X or breakeven is $37,500

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

Duration of Treasury Bills, Notes, Bonds

Bills less than 1 year - Short-term
Notes less than 10 years - Medium term
Bonds greater than - 10 Long term

21

Commercial Paper

Similar to T-Bill but it is issued by a large corporation versus the government,

Less than 9 months maturity

Unsecured.

22

Advantages of Commercial Paper

Advantages:
Financing less than Prime
No Compensating Balances required

Disadvantages:
Unpredictability of markets
Credit crisis emerges and large insurance/investment companies stop lending

23

Inventory Re-order Point

Is How low should you go before is should be reordered?

Formula:
Avg Daily Demand x Avg Lead Time

where Demand = Sales
Lead Time = Wait time Inventory Shipmemt

24

Cost of Foregoing Trade Discounts using 1/10 net 30
and 2/10 net 30

(Disc % x 365)/(100%- Disc %) multiply this
by (Pay Period less Disc Period)

so 1/10 Net 30 is

Numerator:
1% x 365 = 3.65

Denominator:.
(100%-1%) x 20 or 19.8

3.65/19.8 = 18.43%

2/10 net 30 is

7.3/19.6 = 37.24%

25

Prime Rate

Benchmark for lending to best customers Most customers are charged Prime + x

26

Nominal Rate

aka Face/Coupon/Stated Rate any of these are all the same..

27

Current Yield

Interest Payment / Bond Price

28

Three disadvantages of common stock

1. more expensive to issue
2. no tax deductibility
3. investors demand greater ROI than debtors

29

Transfer Pricing three pricing alternatives?

1. Cost-based price - may consider
Variable MFG costs
Total Mfg (absorption) costs
or full product costs

2. Market price - this method is justified if a competitive market exists for product/service. May be based on outside customers pricing.

3. Negotiated price - should involve a floor and ceiling. a bargaining process

can use dual transfer pricing to enhance cooperation between divisions.