242 Final JMU

Analyzes the flexible budget variance (spending) from the

standard cost

Direct labor efficiency variance =

(Actual hours – Standard hours) × Standard rate

Direct labor rate variance =

(Actual rate – Standard rate) × Actual hours

3 Pillars are

Economic, Environmental, Social

Triple bottom line is

What is cash flow from operations?

$100 - $7 + $4 - $6 = $91

Gross margin %

Profitability (percentage of revenue exceeding cost of goods sold)

EPS

Profitability per share of common stock

Working Capital

Liquidity (ability to cover short-term obligations)

Current Ratio

Liquidity (current assets / current liabilities)

Average days to collect

Efficiency in collecting receivables

Average sale period (days in inventory)

Efficiency in inventory management

P/E ratio

Market expectations (price relative to earnings)

DuPont Analysis – 3 factor model

Profit margin × Asset turnover × Equity multiplier

Common size income statements show all items as a percentage of

Total sales (or revenue)

The fraud triangle includes

Opportunity, Pressure (Incentive), Rationalization

Internal controls generally include

Preventive controls, Detective controls, and Corrective controls

Duties that should be done by different employees include

Custody of assets, Recordkeeping, and Authorization

A relevant cost either has

a bearing on the future or differs between alternatives

Opportunity costs are

Benefits foregone by choosing one alternative over another

Sunk costs are

Past costs that cannot be recovered

The sections of a statement of cash flows are

Operating, Financing, and Investing

Investing includes

Acquiring long-term assets and investments

Financing includes

Obtaining cash from lenders or owners

Operating includes

Activities that affect net income (not For I)

When adjusting for depreciation expense you must

Add it back to the statement of cash flows

When adjusting for gains you must

Subtract them from the statement of cash flows

Decreases in A/R should be

Added in the statement

Decreases in A/P should be

Subtracted in the statement

Repurchased common stock

Financing

Sell equipment – think about the whole transaction

Investing

Accounts payable

Operating

Loan money to an employee

Investing

Pay dividend to shareholders

Financing

Depreciation expense

Operating (noncash add-back)

"What are the 3 types of product costs?

Direct Labor, Direct Materials, Manufacturing Overhead"

"What are the 3 categories of manufacturing overhead?

Indirect materials, indirect labor, other costs"

Product costs are included in and become when sold.

Inventory; COGS

What are the two basic categories of period costs?

Selling and administrative

"What does DL, DM, and MOH combine to become?

Work in Process"

What does the product become once completed?

Finished Goods

What does the product become once sold?

COGS

What is the formula for applying overhead?

Estimated MOH ÷ Estimated Cost Driver

What is the overhead application rate called?

Predetermined Overhead Rate

How is overhead applied?

Predetermined OH Rate × Actual Cost Driver

When do you debit MOH?

When actual MOH is incurred

When do you credit MOH?

When allocating MOH

What is the ending balance in MOH always?

Zero

MOH is under

allocated when…

MOH is over

allocated when…

Fixed costs don’t change when…

Activity changes

Variable costs change…

Directly with activity

What formula do mixed costs use?

y = mx + b

"Variable cost per unit remains the same, but total variable costs…

Change when activity increases"

Fixed costs in total…

Stay the same

Fixed cost per unit…

Goes down when activity increases

"What is the total cost when m = 2.5, b = 900, and x = 200?

1400"

What type of income statement does CVP use?

Contribution margin income statement

What is the break

even formula?

What is the target profit formula?

Fixed Costs + Target Profit ÷ Contribution Margin per unit

"If fixed costs = $20,000, target profit = $10,000, and contribution margin per unit = $12, how many units must be sold?

2,500 units"

Budgeting begins with the budget.

Sales

"To prepare a cash receipts or disbursements budget, you must look to periods.

Past"

"To prepare a purchases or production budget, you must look to periods.

Future"

Flexible budgets adjust planning budgets so that meaningful can be made.

Comparisons

What are the two variances in a flexible budget?

Activity variance and spending variance

What must you know when doing a flexible budget?

How costs behave

What is the difference between actual costs and flexible budget costs called?

Spending variance

What are the two basic performance measures?

ROI and Residual Income

What is NOI ÷ Average Operating Assets?

Return on Investment (ROI)

What is the formula for residual income?

NOI − Average Operating Assets × Minimum Required Rate of Return

What are costs that do NOT go away when a segment goes away?

Common fixed costs

What are costs that DO go away when a segment goes away?

Traceable fixed costs

What is the issue with ROI?

It can discourage investment in profitable projects