Flashcards in Financial Planning Deck (29):

1

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What is a Static Budget?

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Budget targeted for a specific segment of a company.

2

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What is a Master Budget?

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Budget targeted for the company as a whole

Includes budgets for Operations and Cash Flows

Includes set of budgeted Financial Statements

3

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How do Fixed Costs affect budgeting?

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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

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How do Variable Costs affect budgeting?

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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

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How are Material Variances calculated?

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SAM:

Standard Material Costs

- Actual Material Costs

= Material Variance

6

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How are Labor Variances calculated?

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SAL

Standard Labor Costs

- Actual Labor Costs

= Labor Variance

7

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How are Overhead Variances calculated?

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OAT

Overhead Applied

- Actual Overhead Cost

= Total Overhead Variance

8

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How does Absorption Costing compare to Variable Costing?

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Absorption Costing - External Use- Cost of Sales- Gross Profit- SG&A

Variable Costing - Internal Use- Variable Costs- Contribution Margin- Fixed Costs

9

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How is Contribution Margin calculated?

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Sales Price (per unit)

- Variable Cost (per unit)

= Contribution Margin (per unit)

10

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How is Break-even Point (per unit) calculated?

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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

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What is the focus in a Cost Center?

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Management is concerned only with costs

12

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What is the focus in a Profit Center?

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Management is concerned with both costs and profits

13

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What is the focus in an Investment Center?

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Management is concerned with costs- profits- and assets

14

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What is the Delphi technique?

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Forecasting technique where Data is collected and analyzed

Requires judgement/consensus

15

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What is Regression Analysis?

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A forecasting technique where Sales is the dependent variable.

Simple Regression - One independent variable

Multiple Regression - Multiple independent variables

16

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What are Econometric Models?

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Forecast sales using Economic Data

17

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What are Naive Forecasting Models?

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Very Simplistic

- Eyeball past trends and make an estimate

18

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How does a Moving Average compare to Exponential Smoothing?

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Both project estimates using average trends from recent periods

Difference: Exponential Smoothing weighs recent data more heavily

19

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What are the characteristics of Short-term Cost Analysis?

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Uses Relevant Costs Only

Ignore Sunk Costs

Opportunity Cost is a Must

20

## Duration of Treasury Bills, Notes, Bonds

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Bills less than 1 year - Short-term

Notes less than 10 years - Medium term

Bonds greater than - 10 Long term

21

## Commercial Paper

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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

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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

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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

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1. more expensive to issue

2. no tax deductibility

3. investors demand greater ROI than debtors

29