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Flashcards in Financial Planning and Analysis Deck (19):

What is a Static Budget?

Budget targeted for a specific segment of a company.


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 activity within the relevant range

Property Tax is the same whether you produce 100 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?

= budgeted cost of materials used - budgeted cost of materials that should have been used


How are Labor Variances calculated?

= standard cost of actual hours - standard cost of budgeted hours


How are Overhead Variances calculated?


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

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

Requires judgement/consensus"


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?

"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 Cost is a Must"