1
Primary cause of difference between static and flexible budget?
static is planned, flexible is actual
2 amount time to earn back the initial investment
payback period
3accounting rate of return
indicates profitability of investment
4uses present value to evaluate projects
net present value
5payback period=
Outlay/ savings = # yrs
6acc rate of return=
Avg annual opp income from the asset/ initial investment
7profitability index=
• PI= NPV/Initial investment
8purpous of cash flows
to see actual money the company has
9profitability index
ranks npv of projects from best to worst
10internal rate of return
measures rate of return a company can expect from investing in a given project
11statement of cashflow order
opp, inv, fin
14if theres a favorable material variance should you investigate it
only if it seems significant
15BEP units=
fixed/ con marg
16BEP $=
fixed/ cont marg ratio
17multi product BEP unit=
fixed/ wtd avg cont margin
18cost to be relevant
Must occur in the future
Differ among alternatives
Critical to Short term decision making
19what cost are discontinued when a product is eliminated
variable
20variance that you spend less than budgeted
favorable
21variance that you spend more than budgeted
unfavorable
22benefits of decentralization
frees top mgt time, uses expert knowledge, improves customer relations, improve motivation and retention
23liminitations of decentrALIZATION
duplication, issues w/ goal congruence (org wants to move one way and mgt goes another)
24starting point of master budget
sales budget
25product costs vs period costs
period are nonmanufactoring and over time
26where are period costs on finanical statements
income statement
27where are product costs on finanical statements
balance sheet
28opperating Activities recorded in the statement of cash flows inflows
customer receipts, interest from borrowers, cash dividends received, other
29opperating Activities recorded in the statement of cash flows outflows
Salaries and wages, payment to suppliers, taxes or fines, interest paid to lenders, other
30investing Activities recorded in the statement of cash flows inflows
sale of long-term productive assets (Prop, plant, equip), sale of investments, collection of principle on loans
31investing Activities recorded in the statement of cash flows outflows
Purchase of long-term productive assets, purchase of equity investments (stock), purchase of debt investments (bonds)
32financial activities inflows
Issue of stock, issue of new debt bonds or long-term notes, other long-term or short-term liabilities
33financil activities outflows
Payment of dividends, purchase of treasury stock (buy own stock back), repayment of loans, paying owner withdrawals
34how do fc behave
remain the same regardless of quanity
35format of cm
sales- vc= cm- fc= net income
36characteristics/ behavior of variable costs
change proportionatly with quantity
37sales mix
Represents the relative proportion of one product to total sales
38target profit=
fc+ target inc/ cm
39ROI=
operating income/ total assets
40ABC Moh=
Activity rate* actual driver amount
41just in time inventory
is an inventory system meaning no inventory so no storage, ins, loss, theft, or damage
42mixed costs
part fixed and part variable
43standard costs
predetermined cost
44what is capital rationing
you have limited money for investments
45journal entry for purchase on account
Inventory dr acc pay cr
46Allocated rate=
POHR * actual cost driver activity
47annuity
even stream of cash payments for specified length of time