discussion: cvp - 1 file download

of 50

CMR x MS = P

Discussion: CVP

16

r

14 i

s

12 e

_ _ _ _ _ _ _

Total Cost = F x C + VC 10 run

1 2 3 4

y = a + b x

Least-Square

Regression Method

Dependent Y intercept Slope Independent

Variable (Fixed Cost) Variable ∑ y = n a + b ∑ x

∑ x y = a ∑ x + b ∑ x2

Slope (b) = rise = ∆Y

run ∆X

CM = F x C + P x = F x C (increase)

CM/unit

S

-VC x = unit increase

CM

-F x C

P ―Before interest & taxes‖

DOL = CM Indifference Point

OI

1. Unit CM x Q – FC = Unit CM x Q – FC

∆% in profit = ∆% Sales x DOL

OI 2. FC + (VC unit x Q) = FC + (VC unit x Q)

MS = Sales – BES BES = F x C CM x MS = P CMR x (Sales – BES) = P

CMR Sales Sales Sales CM – FxC = P

MSR = MS P=P

Sales BEP units = F x C CMR x MSR = NPR

CM/unit S [CM/S x MS/S] = [P/S]S

Batch 1

1. Cost Behavior Analysis

2. Cost Valuation Profit Analysis

3. Absorption & Variable Costing

of 50

∆%Sales x OLF (or) DOL = ∆ %P

Note: this can be use only

if the profit is a percentage.

Discussion: Sales Mix

BEP units = F x C

WtdAvg CM/Unit *

products

x y

CM/unit xxx xxx

Sales Mix Ratio x% x%

_____________

Wtd.Avg.CM/Unit xxx + xxx = xxx

Note: Cetiris Paribus unless otherwise stated, other ―things‖ are constant

1. Degree of operating leverage

Operating Leverage function = DOL = CM

Profit

MAS

BES = F x C

CMR

1. CMR = CM = ∆CM BES = F x C + P

Sales ∆Sales CMR

2. CMR = F x C = ∆F x C S = F x C

BES ∆ BES CMR- ROS

3. CMR = P = ∆ P

MS ∆ MS

of 50

DM

DL ―Variable AY xxx

VPOA Cost‖ VY xxx

FFOA Sales ∆Y xxx

TMC CGM (CGS)

GP

WIP FGI ∆Y = ∆ Inventory x FFOA/unit

- (Ope. Exp)

Period Cost

(fully expense)

―Variable Costing‖ NY (P vs S) (E vs B)

Example: Dep‘n. Variable Costing - PERIOD COST

FFOA Dep‘n.

(factory equipment) Absorption Costing - PRODUCT COST

AC – DC

* ∆y fluctuating with sales

* ∆y fluctuating with production & sales

P > S

<

E > B

<

A > V

<

of 50

Batch 2 Special Order [refer to your formulas]!!

4. Relevant Costing

5. Budgeting

6. Standard Costing Continue or Discontinue

MS – 04 Sales

VC

CM

Note: Add lang ng add!! - F x C (Direct) Traceable (+) => Continue

Segment Margin segment - F x C (Indirect) Common (-) => Shutdown

Make Buy Profit segment

DM xxx

DL xxx

VPOA xxx

FFOA xxx xxx* BEP = F x C

HC xxx xxx* CM/unit

Product price --- xxx 1. SD Point = F x C – SD Cost

CM/unit

xxx xxx

*AC xxx

*OC xxx Note: Note:

Income sacrifice or SD point > continue

forgone if on make! Produce

xxx xxx SD point < discontinue

relevant cost to make relevant cost to buy

Best product = CM/unit

Combination hours/unit

CM/hour or

[scarce resources]

Make or Buy

of 50

Sell or Process Further 1.

Split - off Point

M

I

Joint Process L

O

―Joint Cost‖

FPC

1. Collection Platform!

Sale at Split off xxx 2.

Sales if Process further xxx

Less: FPC (xxx) xxx March xxx

Advantage/Disadvantage xxx February xxx

January xxx

Sale at Split-off Process further Total Collection xxx

Sale xxx xxx

FPC --- (xxx)

xxx xxx

*Best Product

Combination*

Note: [Refer to your formulas]!!

MS – OS – Budgeting!!

Quantitative

Budget = PLAN

MASTER BUDGET

Operating – IS

Financial – BS

Production Budget

DM by DM used WIP by FGI by Sales 100%

- DM produced DL TMC CGM CGS (65%)

DM end FOH - WIP end - FGI end GP 35%

DM used TMC CGM CGS - Express (25%)

nY 10%

L

NCL

CL C

NC

A E

CB

0 - WC

F0

0

- COC

of 50

MS: 06 Standard Costing FOH Vminus = AC–SC = AFOH–SFOH

[Refer to your summary]

2 way 3 way 4 way

DM Variance = AC – SC = (AP x AQ) – (SP x SQ) Con.Vol S.E.VOL S.S.E.VOL

MQV = ∆Q x SP = (AQ–SQ) SP AFOH AFOH

MPV = AQ x ∆P = AQ (AP–SP) BAAH

BASH BASH

SHSR

MPUV = AQused x ∆P SHSR

MPPV = AQpurchased x ∆P (SFOH)

DL Variance= AC – SC= (AR x AH)–(SR x SH)

LE V = ∆H x SR= (AH–SH) SR

LR V = AH x ∆R= AH (AR–SR)

FOH = fixedCost + slope (activity level)

PLAN = BH = BFOH x

OPERATION =AH = BAAH

CONTROLLING =SH = BASH

y = a + b‗x‘

if BASH ‗x‘= Standard Hours based on Actual

Production

if BAAH ‗x = Actual Hours based on Actual

Production

CON

VOL

Spending

Efficiency

VOL

Variable

Spending

Fixed

Spending

Efficiency

Volume

Unit

of 50

Capital Budgeting

1. Payback Period = Net Initial Cost of Investment

Amount Net Aler-Tax Cash (Inflows)

2. Bail-Out Payback Period = Net Initial of Investment

*Includes Salvage Value!

3. Accounting Rate of Return : Average Annual Net Income

Investment

4. Payback Reciprocal : Net Cash Inflows = _____1___________

Investment Payback Period

Discounted Techniques

1. PV of Cash Inflows ÷ PV of Cash Inflows ÷ NPV

– PV of Cash Outflows PV of Cash Outflows Investment

Net Present Value = Profitability Index = NPV Index

2. Internal Rate of Return (IRR)

2.1

PVF for IRR = Net Investment Cost

Net Cash Inflows

Microeconomics

Ed = ∆% in Quantity Demanded = ∆% in Quantity Demanded ’ ∆ in Price Ed >1 = Elastic

∆% in Price Average Quantity Average Price Ed =1 = Unit

Elastic/Unitary

Ed <1 = Inelastic

of 50

Batch 3

7. Responsibility Accounting 8. Balance Score Card & Accounting Based Cost

9. Quantitative Techniques

Controllable Sales xxx

1. Direct Cost -VCGS (xxx)

Non-Controllable Manufacturing CM xxx

2. Indirect Cost – Non-Controllable -Variable Selling Admin (xxx)

Contribution Margin xxx

Performance Report -Controllable Fixed Cost (xxx)

* Cost Center – Variance Analysis Short-Run Pref. Margin xxx

* Revenue Center – Variance Analysis -Non-Controllable Fixed Cost (xxx)

* Profit Center – Variance Analysis Segment Margin xxx

– Segmented Inc. Statements -Allocated Fixed Cost (xxx)

* Investment Center – Variance Analysis Profit/Net Income xxx

– Segment Inc. Statements

– EVA (Economy Values Added)

– Residual Income

– Return on Investment (ROA)

EVA = Operating after Tax – Required Income

Required Income = (Total Assets – Current Liab) + WACC

Residual Income = Operating Income – Required Income

Required Income + Operating Assets x Minimum ROI

Return on investment = Operating Inc/Operating Assets

= Margin x Turn Over

Operating Income x Sales

Sales Operating Income

ROA = ROS x ATO

Net Income = Sales x Net Income

Assets Assets Sales

of 50

MS-12 Discussion [Gross Profit Variance Analysis]

xxx

PART 2: MS-07: Transfer Pricing:

[Upper Limit]

1. Maximum transfer Price = Cost of Buying from Outside Suppliers

(Selling Price-SP)

[Lower Limit]

2. Minimum Transfer Price = Variable Cost per Unit + Lost CM per Unit on Outside Sales.

= VC/unit + Total Contribution Margin to be lost

Total no. ―order unit‖ purchased!

Basis of Transfer Price

1. Cost Based Transfer Price Service Cost Allocation

a. Variable Cost

b. Full Cost (NMC) 1. Direct Method

c. Full Absorption Cost 2. Step down

d. Cost Plus 3. Reciprocal Method

2. Market Base & Transfer Price

a. Market Price (R=SP)

b. Modified (SP adjusted for my

allowance for discounts)

3. Negotiated Price

4. Arbitrary Price (No basis)

A B X Y

A xxx xxx40% 40 20

B 20% 60% 20%

A xxx40% xxx40% xxx20%

B xxx 60/80 xxx20/80

A B X Y Total

xxx xxx40

% 40% 20% 60%

(xxx) 40/60 20/60 90%

xxx 70% 20%

(xxx) 70/90 20/90

Price

2009 QF PF 2010 Factor

Sales xxx * xx * xx = xxx

COS (xxx) * xx * xx = (xxx)

GP xxx xxx

xxx

Volume factor Cost Factor

SVV SPV

CVV CPV

Direct Method Step Down

Reciprocal Method (Mathematical Approach)

[A = 100 + .2B]

[B= 20 = .4A]

of 50

MS: 08 Activities Based Costing & Balance Score Card

STEPS IN IMPLEMENTING ABC

1. Perform process Value analysis (Value Added Activity & Non Value Added Activity)

2. Identify Cost Drivers (Activities) Cost Pools & Activity centres.

3. Calculate Predetermined Overhead Notes

*Predetermined OH Rate = Est. OH COST

Est. Activity level

4. Allocate the OH Cost to the products on the basis of predetermined rates.

Manufacturing Cycle Efficiency

Receipt of Start of Shipment

o o o

Order Production of goods

Delivery Cycle Time = wait time + [Process time + Inspective Time + Move Time +‖Queue Time‖

=‖Manufacturing Cycle‖ (Throughput Time)]

Delivery Cycle (Lead Time)

Delivery Cycle Time = wait time + Manufacturing Cycle

Manufacturing Cycle = PT +IT + MT+ QT

Manufacturing Cycle = Process Time

Efficiency Ratio Manufacturing Cycle

Percentage on NVA Activities = IT +MT+ QT Marketing Effectiveness

Manufacturing Cycle

1. Sales Volume Variance = (AQ-BQ) B-CM/unit

Productivity Measures 2. Market Share Variance = (AS-BS) AS x BSP

3. Market Size Variance = (A Size-B Sales) BS x

BSP

Productivity = Output = Products

Input DM, DL, FOH

Productive = --

--

A. Operational Partial Productivity =

B. Financial Partial Productivity =

Units

DM, DL

Units

[Dm, DL x Cost/unit]

Units

DM + DL

of 50

C. Total Productivity =

MS: 09 PERT- CEM [Quantitative Techniques]

Events : A, B, C, D

Activities: A-B, B-D, A-C, C-D

Parallel : A-B & A-C, B-D & C-D

Series: A-B & B-D, A-C &C-D

Paths : A-B-D, A-C-D

Te= Expected Time

To= Optimistic Time

Tm= Most likely Time

Tp = Pessimistic Time

Te = To+ 4Tm+ Tp

6

PROBABBILITY ANALYSIS

1. Deterministic Approach base on most likely events [pat atom of probability]

(Mean) Mode]

2. Expected Value Approach: Consider

Everything! (Anything)

[Problem is Silent EVA]

LEARNING CURVE ANALYSIS

Note:

The commodities average time per units is reduced by certain percentage each time the

production doubles!

Incremental unit time (to time produce the last unit) is reduce when production doubles.

Units x Average Hours = Total Hours

xxx xxx = xxx

? xxx = xxx

Multiply by: ―Learning Curve‖

Expression Curve

B

A D

C

of 50

Continuation: MS-09

Inventory Models:

EOQ = √ or √

where: O- cost per order

D- Annual Demand in units

C- Carrying Cost

Carrying Cost = EOQ

2

Ordering Cost = D

EOQ

Total Cost = Carrying Cost + Ordering Cost

Average Inventory = O +EOQ + SS

2

Concept of Recorder Point:

Lead Time: period from the time an order is planed until such time the order is received.

Normal (Average) Lead Time- usual delay

Maximum Lead time – usual/normal lead time adds allowance for reasonable further delay.

Normal Lead time Usage =Normal Lead time x Average Usage

Safety Stock = (Max. LT-Normal LT) Average Usage

Reorder Point = Maximum Lead time x Average Usage

= Normal lead time Usage + Safety Stock

Economic Lot Size

ELS = √ * How many units?

> Ordering Cost

Where: O= set-up cost > Carrying Cost

D= annual production requirement * Where to place?

C = cost of carrying units for 1 year > Stock-out Cost

> Carrying Cost

of 50

Continuation: MS-09

Linear Programming

Objective: Maximize revenue

Minimize cost and expenses Maximize Net Profit!

1. Objective Function

2. Identify Constraint Function

3. Optimal/Product Mix

a. Substitution

b. Test Coordinates

MS:10 Capital Budgeting 1. Net Investment

3 Factors Cost - Savings

Cash Out - Cash In

a. Net Investment

b. Cost of Profit xxx xxx

c. Net Returns (xxx) -Tax on Gain

xxx -needed working capital

Accrual xxx -Tax loss/ tax shield

xxx xxx

Net Income

―Net Investment‖

Cash

Cash in xxx 2.

- Cash out (xxx) A. Operating Income (EBIT) xxx

Net Cash Flows Interest % (xxx)

EBT xxx

Tax % (xxx)

NIAT xxx

Preferred Div (amount) (xxx)

NI – C/S xxx

EPS = Ny – Preferred Div.

Wtd Average C/S Outstanding

10. Capital Budgeting

11. Financial Management

12. Financial Statement Analysis

of 50

2. Cost & Capital

Interest 5% x 80% = 4%

Dividends 10% x 20% = 2%

6%

1. MV over BV

2. Effective Rate over Nominal Rate

Sources:

Debt: Yield Div Yield = Div/Share

Equity: MP/Share

(P/S)

(C/S) WACC = is minimum acceptable rate of return, desirable rate of return

= Rf+b(Rf-km)

Decision Rules Acceptable Bail-Out ―Payback Period‖

Year 1 2 3

PB Period < Standards of Industry Net Investment xxx xxx xxx

Life ÷ 2 Cash Flow xxx

Salvage Value xxx

ARR > Cost of Capital

Note: You always consider of disposing the asset

at your end. [The same as payback period] Adjust

cash flows only]

Net Returns * Net Cash Flow = Ny + Dep‘n.

Sales * Net Investment = ―PB period‖ – ―Liquidating Concern‖

- VC Net Cash Flows CM * Net Income = ARR – ―Profitability Concern‖

- F x C (cash) Net Investment

- Dep‘n Profit

- Tax

Ny

L

CA

A E NCA

Borrowed

Capital

Inventory

Capital

Average Investment =

= NI

Average Investment

AI= Cost + SV/2

Original Investment =

= NI

Original Investment

of 50

Capital Budgeting with consideration of Time

Value Method

NPV = PV of Cash Inflow – PV of Cash

Outflow

PI = PV of Cash Inflow ÷ PV of Cash

Outflow

NPV Index = NPV ÷ Investment

Payback Reciprocal

PB pd =

Payback Period

life

1. PB pd ≤

2

2. Cash Inflow – Uniform

↑IRR = ↓ PVF

↓IRR = ↑ PVF

1. IRR to solve

Cost of Investment

Ordinary PVF % =

Annual Cash Flow

2. Trial and Error on choices available

Decision Rules

PB pd ≤ 1. Industry Std

2. life ÷ 2

ARR ≥ Cost of Capital

*Non Discount Method

NPV ≥ 0

<

PI ≥ 1

<

IRR > Cost of Capital

<

*Discount Methods

IRR = PV of Cash Inflow = PV of Cash Outflow

IRR = NPV = O

*Computation of Effective Rate

of 50

MS: II Financial Management

Baumol Model (William) Cash Management

Optimal Cash ²(Annual Cash Requirement)

(Cost Per Transaction) Balance (OCB) Opportunity Cost of

Holding Cash

Total Cost of Cash Balance = °Holding Cost +°° Transaction Cost °Holding Cost = Average Cash Balance x Opportunity Cost Average Cash Balance = Optimal Cash Balance ÷ 2 °°Transaction Cost = No. of Transactions x Cost per Transaction Number of Transaction = Annual Cash Requirement ÷ OCB Cash Conversion Cycle Average Age Inventory xx Average Collection Period xx Operating Cycle xx Average Buyout Period (xxx) Cash Conversion Cycle xxx

Cash Management Strategies

1. Accelerating Collection (Lockbox System)

2. Slowing Disbursement (Playing Floats)

3. Redding Precautionary (Zero Balance

Accounts) Idle Cash Concept of Float

1. Types of Float

2. Positive Float (Disbursement)

3. Negative Float (Collection)

- Mail Float – Customer payments mailed but not yet received by seller.

- Processing Float – Customer

payment received by the seller but not yet deposited.

- Clearing Float – Amount of

customers’ check that have been deposited but have not cleared yet.

of 50

Accounts Receivable Management

1. Credit Selection and Standards 2. Credit Terms 3. Collection and Monitoring Program

1. Credit Selection and Standards

Character

Capacity

Capital

Conditions

Collection 2. Credit Terms

Cash Discount

Credit Analysis

Collection Cost

Bad Debts Losses

Financing Cost Inventory Management

1. Just-in-Time (JIT) Production System 2. Fixed Order Quantity System 3. Periodic Review / Replacement

System 4. Optional Replenishment System 5. Material Requirement Planning

(Demand Forecast)

6. Manufacturing Resource Planning (Various Areas)

7. Enterprise Resource Planning (All Functional Areas)

8. ABC Classification System Short-Term Credit Financing

- Working Capital Financing Policies

A. Aggressive Financing Strategy

B. Conservative Financing Strategy

C. Maturity Financing Strategy

(Semi- Aggressive/ Semi – Conservative)

D. Matching Policy (Self

Liquidating) Total Financing Requirement

- Permanent Financing Requirement (Minimum Operation Requirement) - Fixed long term assets

- Temporary Financing Requirement (Seasonal Operation Requirement)

- Permanent current assets

of 50

Factors of Considerations in Selecting Sources of Short-Term Funds

Cost Sources of Short-

Term Funds Availability - Unsecured

Credits

Influence - Secured Loans

Requirement - Banking Credits

Cost of Short-Term Credit

- Cost of Trade Credit with Supplier Discount Rate 360

Cost = x 100% - DR % Credit Paid – Disc. Period

- Cost of Bank Loans Effective

Annual Rate

W/o compensating with compensating balance balance Not Discounted Not Discounted Interest Interest Cost = Cost = Amount Received FV – Compensating Bal.

Discounted Discounted

Interest Interest Cost = Cost = FV – Interest FV – Interest – CB Interest + Issue Cost Cost of Commercial Paper = FV – Interest-Issuance Cost

Long-Term Financing Decision

LTFD

Capital Structure

Financial Structure Capital Structure = Financial Structure (Total Assets) – Current Liabilities

Required Increase in Assets → in Sales x (Asset/Sale) Structure Increase in Liabilities → in Sales x (Liabilities/Sale) Increase in R.E Additional Fund Needed

A L

AFN

RE

of 50

Concept of Leverage

DOL = CM or DL = ∆% in EBIT

EBIT ∆% in Sales

DFL = EBIT or DPL = ∆% in EPS

EBIT-Interest ∆% in EBIT

* Deduct Preferred div. (before to)

From EBIT, if my.

DTL = CM or DFL = ∆% in EPS

EBIT- Interest ∆% in Sales

DTL = DOL x DFL

Cash Break Down Point

CBP units = FC – Dep‘n

CM/unit

of 50

Financial Statement Analysis Ratio Used to Evaluate Long-Term Financial Position/Stability Fixed Assets

Fixed Assets to Total Equity = Total Equity Fixed Assets (NET)

Fixed Assets to Total Assets = Total Assets Net Sales

Sale to Fixed Assets = Fixed Assets (NET) CS SHE

B.V/ Share – CS =

CS Outstanding NIAT Times Preferred Div. Earned = Preferred Dividend Total Assets Capital Intensity Rate = Net Assets Net Income before tax & fixed changes Times Fixed Changes End = Fixed Changes + sinking fund payment

of 50

Test of Over-All Short-term SOLVENCY or Short-term Financial Position

* Working Capital/Turn Over = Net Sales

Avg. Working Capital

* Diffusion Interval Ratio = Current Liabilities

Cash & Cash Equivalent

* Payable Turn Over = Net Purchases

Avg. Asset Payable

* Fixed Assets Long-term Liab = Fixed Assets

Long-term Liabilities

Ratios Indications of Income Position

* Rate of Return on Avg. Current Asset = Income

Avg. Current Assets

* Operating Profit Margin = Operating Profit

Net Sales

* Cast flow Margin = Operating Cash Flows

Net Sales

of 50

(personal notes of grr-quash2)

Management Advisory Services

Sequence of topics (Accounting 8n)

4. Managerial Accounting

5. Cost Volume Profit & Break-Even Analysis

6. Standard cost & Variance Analysis

7. Variable & Absorption Costing

8. Differential Cost Analysis

9. Pricing Decisions

10. Responsibility Accounting

11. Budgeting

12. Financial Statement Analysis

13.Capital Budgeting

Managerial Finance ( Finance 3,4&5)

1. The role & Environment of Managerial Finance ( Chapter 1)

2. F/S & Analysis (Chapter 2)

3. Cash Flows & Financial Planning (Chapter 3)

4. Time Value of Money (Chapter 4)

5. Working Capital & Current Asset Management (Chapter 14)

6. Current Liabilities Management (Chapter 15)

7. The Cost of Capital (Chapter 11)

8. Capital Budgeting Cash Flows (Chapter 8)

9. Capital budgeting Technique (Chapter 9)

10. Hybrid & Donatives Security (Chapter 16) [including Chapter 17]

of 50

11. Leverage & Capital Structure ( Chapter 12)

COST-VOLUME-PROFIT &

5 BREAK-EVEN ANALYSIS

SALES (Units x Sp per Unit)

Less: Cos

Gp

Less: Operating Expenses (Selling & Administrative Expenses)

Profit / less

Y = a + bx

Where: Y = Total Cost Fixed Cost = y = a

A = Total Fixed Cost Variable Cost = y =bx

B = Variable Cost per Unit Mixed Cost = y = a +bx

X = Number of Units

Variable Costing I/S

Sales

- Variable Cost (Cost & Expenses ) [ Manufacturing , Selling ,Admin]

Contribution Margin

- Fixed Cost

Profit

Break Even Analysis

1. Equation Method Or Algebraic Approach

Sales – Variable Cost – Fixed Cost = Profit

Sales – Variable Cost + Fixed Cost + Profit

Sales = Units x Selling Price per Unit

Variable Cost = Units x Variable Cost per Unit

of 50

CONTRIBUTION MARGIN OR FORMULA APPROACH

Sales in units = Fixed Cost + Profit

Contribution margin per Unit

Break over sales in unit = Fixed Cost

Contribution margin per Unit

Contribution Margin = Sales –Variable Cost

Sales = Variable Cost + Contribution Margin

Variable Cost Ratio = Variable Cost

Sales

Contribution Margin Ration = Contribution Margin

Sales

Sales = Variable Cost

Variable Cost “Ratio”

Sales = Contribution Margin

Contribution Margin Ratio

Contribution Margin – Fixed Cost = Profit

Contribution Margin = Fixed cost + Profit

Sales = Contribution Margin

Contribution Margin “Ratio”

Sales = Fixed Cost + Profit


Break Over Sales in Peso = Fixed Cost


BES IN UNITS & BES IN PESOS

Sales in Units = Fixed Cost + Profit

Sales = Fixed Cost + Profit

CM Ratio

of 50

Margin of Safety = Actual or - Break – even Sales

Planned sales

Margin of Safety Ratio = Actual or - Break – even Sales

Planned Sales

Actual or Planned Sales

= Margin of Safety

Actual or Planned Sales

MULTIPLE PRODUCT BREAK – EVEN ANALYSIS

PROCEDURE:

1. Contribution Margin per Unit xxx

x Sales mix Ratio x xxx

Composite Contribution Margin or

Contribution Margin per Sales xx

2. No. of Sales = Total Fixed Cost

Composite Contribution margin

MS in Units = Actual Sales – Break even paid Sales

SP

= Margin of Safety ( in peso) SP

CMR

1 2 3 4

FC = AFC = CM = ACM = F = PR

BES ABES SALES ASALES MS MSR

IF fc is constant: or per unit

A Profit = CMR CM/unit APROFIT = cm/unit

A Sales Sales/unit A in Unit Sales

3. Products * Number of Sales mix Break Even SP BE

X = X =

Sales Ratio points in Units point in peso

of 50

7 VARIABLE & ABSORPTION COSTING

CONVENTIONAL FORMAT VARIABLE COSTING FORMAT

(Absorption , full, Conventional) (Direct Costing)

Sales xxx (complete in volume Sales xxx (w/o volume

Less: Cos (xxx) analysis) Less: Variable Cost (xxx) ( capacity or

Gross Income xxx Contribution Margin xxx fixed Volume)

Less: Operating Exp. (xxx) Less: Fixed Cost (xxx)

Income (less) xxx Income [or Less] xxx

UNITS PRODUCED unit sold UNITS PRODUCE unit sold

DM Cost of Goods DM PRODUCT Cost of Goods

DL PRODUCT Sold DL COST Sold

VPOH COST (change against sales) VFOP Cost of

FPOH Cost of Inventory Unsold unit Inventory

Unsold unit (Treated as Asset)

Note : From T.R. CPA

1. > 2. [App liable first year & P = S]

P = S OI = inventory x FFOA / unit

< Reconciliation: Absorption Custom Income xxx

> Add: FFOH in Beginning Inventory xxx

E = B Total xxx

< Less: FFOH in Ending Inventory (xxx)

Variable Costing Income xxx

A = V FFOH Period cost ( Treated in full as expense during

< the period of insurance)

Note : Variable Selling & Admin –

Fixed Selling & Admin -

of 50

8 Different Cost Analysis

A. Defining the Problem

B. Setting of Criteria

C. Identifying the alternative Courses

D. Determination of possible Consequences of Alternatives

E. Evaluating the Alternative

F. Choosing the best alternative and making the decision

Decision Including Alternative Choices

1. Make or Buy

Solution:

PURCHASE Price per Unit xxx

Less: Relevant Manufacturing Cost / unit

DM xxx

DL xxx

VFOH xxx

Fixed Available Fix Cost xxx (xxx)

Difference xxx

Multiple no. Units’ xxx

Net Advantage (Dis advantage) xxx

Of making [“Set“]

2. Accept or Reject Special Order

Special Selling Price xxx

Less: Relevant Cost per unit

Variable Manufacturing xxx

Selling * xxx (xxx)

Contribution Margin / Units xxx

Multiple by no. of Units x xxx

Total Contribution Margin From Special Order xxx

of 50

Less: Contribution Margin To be Lost by reducing sales ( xxx )

To regular Costumers

Incremental Profit From Special Order xxx

Make Buy

VMC PP

AC FC / SAVINGS

OC

XXX XXX

ADVANTAGE / DISADVANTAGE

CONTINUE OR DISCONTINUE

OPERATING A BUSSINESS SEGMENT

Continue Discontinue

Unit sales Price xxx

Unit Variable cost (xxx)

Contribution Margin xxx

Fixed Cost (xxx) (xxx)

Profit / loss per Unit xxx xxx

Contribution Margin / unit x

Sales in Units

SALE OR PROCESSED PURTHER

Additional sale Value if processed Further ( a b) xxx

Less: profit Processing Cost (xxx)

of 50

Profit / less per Unit if processed further xxx

Multiple The no. of Units x xxx

Total less if Processed further xxx

PRODUCT COMBINATION/ UTILIZATION OF SCARCE

RESOURCES PRODUCT

A B C

1. Contribution Margin/unit xxx xxx xxx

÷ Required /unit xxx xxx xxx

Contribution Margin/ Unit xxx xxx xxx

Note: The product that has a greater Contribution

Per Hour is Transferred the one that is first

To be satisfied w/ regards to Production …….

1. Quantity to produce and sell (Market / Unit)

2. Quantity of products to make or buy

To input Product requirements

of 50

Standard Cost & Variance Analysis Material Variance Labor Variance

Total Material Variance = MPV+MUQV Total Labor Variance = LPV+LQV

Material Price Variance = AQ (AP-SP) Labor Price Variance = AH (AR-SR)

Material Usage Quantity = SP (AQ-SQ) Labor Quantity Variance = SR (AH-SH)

Actual Budgeted Standard Actual Budgeted Standard

AP x AQ AQ x SP SP x SQ AR x AH AH x SR SR x SH

Material Price Variance Material Usage Quantity Labor Price Variance Labor Usage Quanity Variance Variance

= AQ (AP-SP) = SP (AQ-SQ) = AH (AR-SR) = SR (AH-SH)

Total Material Variance = MPV + MUQY Total Labor Variance = LPH + LQV

of 50

FOH Variance Analysis FOH Variance [AFOH-SFOH] = Total Variance

1. Total FOH Variance

= AFOH-SFOH Controllable Variance Volume Variance = 2 Way Variance

2. Controllable Variance [AFOH – BASH] [BASH-SFOH] or

= AFOH-BASH

3. Volume Capacity Variance Spending Variance Variable Efficiency Volume Variance = 3 Way Variance

= BHSA-SFOH [(NC-AC) Variance

FR/ UNITS]

2.1 Spending Variance Fixed Spending Variable Spending Variable Efficiency Volume Variance = 4 Way Variance

Variance Variance Variance Variance

= AFOH-BAAH

2.2 Variable Efficiency Variance [FAFOH-FBAAA] [VAFOH-VBAAH]

= BAAH-BASH, [(AH-SH) Vrate]

3.1 Fixed Efficiency Variance

= (AH-SH) Fixed Rate Controllable Variance Total Efficiency Variance Idle Time = Alternative 3 Way

Total Efficiency Variance, [AH-SH] Total Rate Capacity Variance

= (AH –SH) Total Rate [NC-AC hours] Fixed/hours

3.2 Idle Time Capacity Variance

= (NC-AC in units) FR/Units

2.1.A Fixed Spending Variance Alternative 4 way =

= (FAFOH-FBAAA)

2.1.B Variable Spending Variance

= (VAFOH-VBAAH) Controllable Variance Fixed Efficiency Variable Efficiency Idle Time Capacity

Variance Variance Variance

(AH-SH) Function/rate (AH-SH) Variable/rate

of 50

I. FINANCIAL STATEMENT ANALYSIS

Two Analyzing Financial Statements

1. Absolute = MRV-MPPV

2. Percentage Change = MRV-MPPV

MPPV

3. Trend Percentage = _MRV_

MPPV

VERTICAL ANALYSIS

Liquidity Ratio

1. Current Ratio = Current Asset

Current Liability

2. Acid Test Ratio = Current Asset Inventory

Current Liabilities

ACTIVITY RATIO

Inventory Turn Over = ___CGS__ = # of working days (360)

Average inventory Average Sales Period

Receivable Turn Over = Net Credit Sales = # of working days (360)

Average A/R Average Collection Period

Payable Turn Over = Net Credit Purchases = # of working days (360)

Average A/P Average Payment Period

Operating Cycle = Average Sales Period +Average Collection Period

Cash Conversion Cycle =Operating Cycle –Average Payment Period

SOLVENCY RATIO

1. Debt Ratio = Total Liabilities

Total Assets

2. Equity Ratio = Total Equity Total Assets

3. Debt to Equity = Total Liabilities

Ratio Total Equity

4. 100% = Debt Ratio + Equity Ratio

5. Debt to Equity Ratio = Debt Ratio

of 50

Equity Ratio

6. Time Interest = Operating Income or NIBIT

Earned Ratio Interest

7. Fixed Payment = NIBIT + LEASE

Coverage Ratio Interest + Lease+ [Principal + Preferred Fix]

1 – Tax% PROFITABILITY RATIO

1. GP Ratio = GP 10. EPS = NIACS

Sales WACSO

2. OI Ratio = OI

Sales

3. Net Profit = NIAT

Ratio Sales

4. Net Profit = NIACS

Ratio Sales

5. Return on = NIAT

Sales Sales

6. Return on = NIAT

Asset Average Asset

7. Return on = NIAT

Equity Average Equity

8. Asset Turnover = Sales

Average Asset

9. Equity Turnover = Sales

Average Equity

of 50

MARKET TEST

1. Price Earnings Ratio = Market Price of CS / EPS

2. Dividend Yield = Div. per Share / Market Value per Share

3. Dividend Pay Out = Div. per Share / EPS

Puzzle Ring to Remember

D

(2) —— —— (3)

M ⁄ E

DU POINT SYSTEM

1 ROE = ROS x ETO

→

E%__ __E%__

2 ↑ ROA = ROS x ATO

3 → 4 ↑

ROS ETO

ROE = ____NIAT___ = __NIAT__ ● _____SALES______ = ―ROSETO‖

AVERAGE EQUITY SALES AVERAGE EQUITY

ROA = ____NIAT__ = __NIAT__ ● ______SALES______ = ―ROSATO‖

AVERAGE ASSETS SALES AVERAGE ASSETS

of 50

GROSS PROFIT VARIANCE ANALYSIS

1. Sales Price Variance = (MRSP – PPSP) (MRQ)

2. Sales Quantity Variance = (MRQ – PPQ) (PPSP)

3. Cost Price Variance = (MRCP – PPCP) (MRQ)

4. Cost Quantity Variance = (MRQ – PPQ)(PPCP)

1. Sales Price Variance = MRS – [PPS x QF]

2. Sales Quantity Variance = MRS/PF – PPS

3. Cost Price Variance = MRC – [PPC x QF]

4. Cost Quantity Variance = MRC/PF- PPC

- PLANNING AND CONTROLLING FUNCTION –

A. Cost Volume Profit Analysis

B. Leverage Analysis

1. DOL= % ∆ in OI DFL= % ∆ in NIACS DTL= % ∆ in NIACS

% ∆ in Sales % ∆ in OI % ∆ in Sales

NOTE: When there are two year given

2. DOL = TCM DFL= Operating Income DFL= TCM

Operating Income OI-Interest- PD OI-Interest- PD

1-T% 1-T%

NOTE: When only one year is given

SVV --------- xxx ---- SPV Price Factor

Prior x Qf x Pf = Recent

Sales xxx x n% x n% xxx

COS (xxx) x n% x n% (xxx)

____ _____ ______

GP xxx xxx

SVV --------- xxx ---- Cost Function CPV

Volume Variance

∆% Sales x DOL = ∆% Income

of 50

III. Decisions Making & Evaluation System

Differential Cost Analysis

1. Total Cost Approach

2. Differential Analysis

Incremental Revenue xxx

Less: Incremental Cost

Material xxx

DL xxx

Variable FOA xxx (xxx)

Incremental Profit (xxx)

Make or Buy

Purchase Price xxx

Less: Relevant Manufacturing Cost

DM xxx

DL xxx

VFOA xxx (xxx)

Difference X xxx

Number of Units * xxx

Net Advantage of Make or Buy (xxx)

Accept or Reject w/ Excess Capacity

Special Selling Price xxx

Less: Relevant Cost

DM xxx

DL xxx

VFOA xxx (xxx)

Marginal Profit/ Unit xxx

x No. of Units Ordered *xxx

Incremental Advantage of

Accept or Reject the Offer (xxx)

Without Excess Capacity

Less: Contribution Margin

Lost by reducing sale (xxx)

To regular costumers

Incremental Profit from Special Order (xxx)

of 50

Continue or Discontinue Operating a Business Segment

Continue or Discontinue

Units Selling Price xxx —○—

Units Variable Cost xxx —○—

CM xxx —○—

FC (xxx) (xxx)

Profit

Manila Makati Quezon Total

Sales xxx xxx xxx xxx

Variable Cost (xxx) (xxx) (xxx) (xxx)

CM xxx xxx xxx

-FC

Profit

Sell or Process Further

Additional/Sales Value if Process Further xxx

Less: Further Processing Cost (xxx)

Profit

xxx

xxx (xxx)

xxx

of 50

Product Combination / Utilization of Scarce Resource

Steps:

1. Identify the scarce resource.

2. Identify the product utilizing the scarce resource.

3. Compute the CM per Scarce Resource.

CM= CM

Resource needed per unit

4. Prioritize the product with the highest input of Contribution Margin per Scarce Resource.

(B) Short Term Financial Management

1.) Cash Management

ECQ= √

Conversion Cost =

Total Opportunity Cost = Average Cash Balance x Interest Rate

Accounts Receivable Management

Average Investment in A/R =

Turn Over A/R =

Powerful Tool

Turn Over of A/R =

=

of 50

Additional Profit Contribution from Sales

(Increase x CM / Unit) xxx

Cost in Marginal Investment in A/R

(Marginal Investment x Required Return on Equal Risk Investment) (xxx)

Cost of Marginal Bond Debts

(Increase in Bad Debts) (xxx)

Net Profit from Implementation of Proposed Plan (xxx)

Note: This is about Relaxation of Credit Standards

Speeding-Up Collection of A/R

(w/ Cash Discount)

Additional Profit Contribution from Sales xxx

(Increase in Units x CM/ unit)

Cost in Marginal Investment in A/R

(Marginal Investment x Required Return) (xxx) →depends if the

investment is to

spent or save

from the proposed plan.

Cost of Marginal Bad Debts (xxx)

Cost of Cash Discount

(Total Units x Save Price x No. of (xxx)

Customers who Avail Discount x Disc x Ratio) ______

Net Profit from Initiation of Cash Discount (xxx)

of 50

Credit Monitoring

1. Average Collection Period

2. Aging of A/R

Float

1. Mail Float

2. Processing Float

3. Clearing Float

Lock Box System

Investment Reduce = Sales x

Cash Concentration

1. Pool of funds for making cash investment – Short Term.

2. Improves trading and internal control of the firm cash.

3. Reduces idle cash balance.

Resource Invested

Inventory = COS x

= xxx

+ Accounts Receivable = NCS x

= xxx

- Accounts Payable = Purchases x

= (xxx)

Resource Invested (xxx)

Inventory Management

Common Techniques for Managing Inventory

1. ABC Inventory System (Average According to Value of A/P)

2. Two Bin Method

3. EOQ

S = Usage in units per period

O = Order cost per order

C = Carrying cost per unit per period

Q = Order quantity in units

of 50

*Order Cost = O x

*Carrying Cost = C x

*Total Cost = Order Cost + Carrying Cost

*EOQ = √

*Reorder Point = Days of load time x Daily usage

PR = C = = x

Profit/sales CM/SALES MS/SALES

5. Indifference Point:

1. (cm/unit multiply Q) –FC = (cm/unit multiply Q) – fe

2. fc+( vc/unit multiply Q) = fc+ (vc/unit multiply Q)

NOTE: Q = Indifference Point

FINANCE 3, 4, & 5

Chapter 3

3.1 Analysing the Firms Cash Flow

3.2 Financial Planning Process

3.3 Cash Planning Cash Budget

3.4 Profit Planning :Proforma Statements

PR CMR MSR

of 50

3.5 Preparing the Proforma I/S

3.6 Preparing the Proforma B/S

3.7 Evaluation to Proforma Statements

Chapter 4

4.1 The Role of Time Value in Finance

4.2 Single Amounts

4.3 Amounts

4.4 Mixed Streams

4.5 Compounding Profits { Annually }

More frequently than Annually

4.6 Special Application of Time Value

1. FVA n = PMT x (FX1Fain)

Pmt = FVN n divide FVIFAin dIvide FVIFAin

Note: Determining Deposits Needed to Accumulate a Future Sum

2. Note: Loan Ammortization (Solubule)

PVAn = PMT x (PVIFAin)

PMT = PVAn divide FVIFAin

3. Note: Finding Interest or Growth Rates

RVIFAin = PVAs divide PMT

REFER TO TABLE!!!

5.1 Risk & Return Fundamentals

5.2 Risk of a Single Asset

1.risk averse

2. risk indifferent

of 50

3. risk seeking

CHAPTER 6 & 7

(wa pa discuss {studihan}

Chapter 8 (Capitals Budgeting)

Steps :

1. Proposal Generation

2. Review & Analysis

3. Decision Making

4. Implementation

5. Follow -Up

Chapter 9 ( Techniques of Capital Budgeting

9.1 Overview of Capital Budgeting

9.2 Payback Period

9.3 Net Present Value [ NPV = Present Values of Cash Inflows – Initials/Investment]

9.4 Internal Rate of Return [ NRV = Initial Investment]

Note: Trials and Error !!!

9.5 Comparing NPV & IRR Techniques

Chapter 14:

14.1 Net Working Capital Fundamentals

14.2 Cash Conversion Cycle

14.3 Inventory Management

14.4 Accounts Receivable Management

14.5 Management Receipts & Disbursement ( Concentration Bank)

of 50

Chapter 15 Margin Current Liabilities

15.1 Spontaneous Liabilities

Cost of Giving Up = CD/ 100% -CD multiply 365/N

Cash Discount ↓

CD : Stated Cash discount in percentage firms

N = Number of days that payment can be delayed by giving up cash discount.

Approximate cost Giving cash discount = CD multiply 365/N

15.2 Unsecured Sources of Short-Term Loans

Methods of Computing Interest = Interest/ amount borrowed

(at the end of the year effective rate)

Effective rate ( Discounted deducted in advance = Interest/amount borrowed-interest

F/S Analysis

϶Δ↑ = Index > 100%

϶Δ↓ = Index < 100%

1. “X” = I/S Related Accounts/ average “x”

2. X to y = x/y

3. “x” Margin = ”x”/sales

4. Return on “x” =NY/”x”

5. Time “x” earned = + when x is deducted/ “x”

Note:

Ideally – Gross Sales DY _ D _po

I/S – “ Net Sales “ M/ E

B/S – Total Assets D/M multiply M/E multiply D/E

of 50

I – P.O. = Rotation Ratio (Flowback)

Cash Flow

Sales – COS = GP – OE=OP – Interest {not included]=NPBT or “NBT”- % Tax=NPAT or NIAT

FREE CASH FLOW

Operating Cash Flow - Gross Investment in Net Operating Assets

Change in Net Working Capital

NOPAT + Dep. & Ammortization

Change in LTA +Dep.

Technique:

OPERATING INVESTING FINANCING

xxx xxx xxx

Current cash = cash provided by operations/ average current liabilities

Debt ratios

Cash debt average ratio = cash provided by operation/ average liablities

of 50

independent variable

dependent variable

Y- Intercept

slope

Cost and Cost Concept

I. Cost Classification

A. Function

1. Manufacturing

DM + DL + FOH = TMC

DC CC

2. Commercial ( Non-Manufacturing )

a. Selling and Marketing

b. General And Administrative

B. Behaviour

1. Variable Cost

2. Fixed

3. Hybrid/ Mixed

II. Cost Segregation

1. Highest and Lowest Points Method

y = a + bx

NOTE: The independent variable is the point where to determine the points to be used.

Total Cost

Fixed Cost

VC per Activity

Activities/

Production

of 50

2. Regression or Method of Least Squares

∑ x y = a ∑ x + b ∑ x2

[ ∑y = an + b ∑ x x

Material “Mixed” & Yield Variance:

AQ x AP Material Price Variance = Material Price Variance ( AP – SP ) AQ

Material Quantity/ Usage = Material Mixed Variance Variance

⇨ [―TAQ‖ x Average SP

= Material Yield Variance

AQ x SP

TA/ASIC

SQ x Average SP

MPV Actual Quantity x Actual Mix x Actual Price

Actual Quantity x Actual Mix x Standard Price

MMV Actual Quantity x Standard Mix x Standard Price

MYU Standard Quantity x Standard Mix x Standard

Price

of 50

NOTE: Average Selling Price = SP/unit of product x Mix/product

FOH Variance:

Cost Formula:

Budgeted based on Normal Equity

Other Formulas:

1. Volume Variance = (NC – AC in units) F rate/unit

2. Total Efficiency Variance = (AH – SH hrs.) Total OH rate/unit

3. Idle Time Capacity = (NC – AC hrs.) F rate/unit

NOTE: This format is the most convenient for

solving BASH & BAAH

Y = FC + Variance/unit (x)

of 50

Responsibility Accounting

- Systems of Accounting Performance

Recorded and reported by level of responsibility

Responsibility Centre segment of organization

Perform single function

group of related functions

Responsibility Centre

Variance

Cost – Cost

Variance – AR-BR

Revenue – Revenue

Segment I/S

Profit – Revenue & Cost

1. Segment I/S

2. ROI Investment – revenue, cost, investment

3. RI

4. EVA – Economy Value Added

Business in a business (Division, Branches)

STEPS:

1. Classify the responsibility centres

2. Classification of controllable and non-controllable

3. Performance report and evaluation

of 50

Optional Safety Stock

Usage

Probability

1. Identify the number that has common occurrence

2. Crush or select

Carrying Cost No. of units Stock Out Cost Total Cost

Selected or Crushed

(Increasing from

the point selected)

Spontaneous Liability

Illustration

5/10; n/10

0 10 20 30 40

98, 000 10,000

2,000 interests

Interest = P x R x T

2000 = 98,000 x n x 30/360

= 24.49 %

Stock Out x # of order x frequency of occurrence x Cost/order

discussion: cvp - 1 file download

Documents