Discussion: CVP Discussion: CVP 16 16 rr 14 i 14 i ss 12 e 12 e _ _ _ _ _ _ _ _ _ _ _ _ _ _ Total
Total Cost Cost = = F F x x C C + + VC VC 10 10 runrun 1 1 2 2 3 3 44 y y = = a a + + b b xx Least-Square Least-Square Regression Method Regression Method Dependent
Dependent Y Y intercept intercept Slope Slope IndependentIndependent Variable
Variable (Fixed (Fixed Cost) Cost) VariableVariable ∑ y = n a + b ∑ x∑ y = n a + b ∑ x ∑ x y = a ∑ x + b ∑ ∑ x y = a ∑ x + b ∑ xx22 Slope (b) = rise = ∆Y
Slope (b) = rise = ∆Y run ∆X run ∆X CM CM = = F F x x C C + + P P x x = = F F x x C C (increase)(increase) CM/unit CM/unit S S -VC
-VC x x = = unit unit increaseincrease
CM CM -F x C -F x C
P
P ―Before interest & taxes‖―Before interest & taxes‖
DOL
DOL = = CM CM IndifferIndifference ence PointPoint OI
OI
1. Unit CM x Q
1. Unit CM x Q – – FC = Unit CM x Q FC = Unit CM x Q – – FC FC ∆
∆% in profit =% in profit = ∆∆% Sales x DOL% Sales x DOL OI
OI 2. 2. FC FC + + (VC (VC unit unit x x Q) Q) = = FC FC + + (VC (VC unit unit x x Q)Q)
MS = Sales
MS = Sales – – BES BES BES BES = = F F x x C C CM CM x x MS MS = = P P CMR CMR x x (Sales(Sales – – BES) = P BES) = P CMR
CMR Sales Sales Sales Sales Sales Sales CMCM – – FxC = P FxC = P MSR
MSR = = MS MS P=PP=P
Sales
Sales BEP BEP units units = = F F x x C C CMR CMR x x MSR MSR = = NPRNPR CM/unit S
CM/unit S
[[
CM/S x MS/SCM/S x MS/S]]
= =[[
P/SP/S]]
SS Batch 1Batch 1
1. Cost Behavior Analysis 1. Cost Behavior Analysis 2. Cost Valuation Profit
2. Cost Valuation Profit AnalysisAnalysis 3. Absorption & Variable Costing 3. Absorption & Variable Costing
∆∆%Sales x OLF (or) DOL =%Sales x OLF (or) DOL = ∆∆ %P %P
Note: this
Note: this can be can be use onlyuse only if the profit is a percentage. if the profit is a percentage. Discussion: Sales Mix
Discussion: Sales Mix
BEP units = F x C BEP units = F x C
WtdAvg
WtdAvg CM/Unit CM/Unit ** products products x x yy CM/unit CM/unit xxx xxx xxxxxx Sales
Sales Mix Mix Ratio Ratio x% x% x%x% _____________ _____________ Wtd.Avg.
Wtd.Avg.CM/Unit CM/Unit xxx xxx + + xxx xxx = = xxxxxx
Note: Cet
Note: Cetiris Paribusiris Paribus unless otherwise stated, other ―things‖ areunless otherwise stated, other ―things‖ are constantconstant
1. Degree of operating leverage 1. Degree of operating leverage
Operating Leverage function = DOL = CM Operating Leverage function = DOL = CM Profit Profit MAS MAS BES = F x C BES = F x C CMR CMR 1. 1. CMR CMR = = CM CM == ∆∆CM CM BES BES = = F F x x C C + + PP Sales
Sales ∆∆Sales Sales CMRCMR
2. CMR = F x C =
2. CMR = F x C = ∆∆F F x x C C S S = = F F x x CC BES
BES ∆∆ BES BES CMR- CMR- ROSROS
3.
3. CMR CMR = = P P == ∆∆ P P
MS
∆∆%Sales x OLF (or) DOL =%Sales x OLF (or) DOL = ∆∆ %P %P
Note: this
Note: this can be can be use onlyuse only if the profit is a percentage. if the profit is a percentage. Discussion: Sales Mix
Discussion: Sales Mix
BEP units = F x C BEP units = F x C
WtdAvg
WtdAvg CM/Unit CM/Unit ** products products x x yy CM/unit CM/unit xxx xxx xxxxxx Sales
Sales Mix Mix Ratio Ratio x% x% x%x% _____________ _____________ Wtd.Avg.
Wtd.Avg.CM/Unit CM/Unit xxx xxx + + xxx xxx = = xxxxxx
Note: Cet
Note: Cetiris Paribusiris Paribus unless otherwise stated, other ―things‖ areunless otherwise stated, other ―things‖ are constantconstant
1. Degree of operating leverage 1. Degree of operating leverage
Operating Leverage function = DOL = CM Operating Leverage function = DOL = CM Profit Profit MAS MAS BES = F x C BES = F x C CMR CMR 1. 1. CMR CMR = = CM CM == ∆∆CM CM BES BES = = F F x x C C + + PP Sales
Sales ∆∆Sales Sales CMRCMR
2. CMR = F x C =
2. CMR = F x C = ∆∆F F x x C C S S = = F F x x CC BES
BES ∆∆ BES BES CMR- CMR- ROSROS
3.
3. CMR CMR = = P P == ∆∆ P P
MS
DM DM DL
DL ―Variable―Variable AY AY xxxxxx
VPOA
VPOA Cost‖Cost‖ VY VY xxxxxx
FFOA Sales
FFOA Sales ∆∆Y Y xxxxxx
TMC
TMC CGM CGM (CGS)(CGS) GP GP
WIP FGI
WIP FGI ∆∆Y =Y = ∆∆ Inventory x FFOA/unit Inventory x FFOA/unit - (Ope. Exp) - (Ope. Exp) Period Cost Period Cost (fully expense) (fully expense) ―Variable Costing‖ ―Variable Costing‖ NY NY (P (P vs vs S) S) (E (E vs vs B)B) Example: Dep‘n.
Example: Dep‘n. Variable Variable Costing Costing - - PERIOD PERIOD COSTCOST FFOA Dep‘n.
FFOA Dep‘n. (factory
(factory equipment) equipment) AbsorptioAbsorption n Costing Costing - - PRODUCT PRODUCT COSTCOST
AC AC – – DC DC *
* ∆∆y fluctuating with salesy fluctuating with sales *
* ∆∆y fluctuating with production & salesy fluctuating with production & sales
P > S P > S < < E > B E > B < < A > V A > V < <
Batch
Batch 2 2 Special Special Order Order [refer [refer to to your your formulas]!!formulas]!! 4. Relevant Costing
4. Relevant Costing 5. Budgeting
5. Budgeting 6.
6. Standard Standard Costing Costing Continue Continue or or DiscontinueDiscontinue MS MS – – 04 04 SalesSales VC VC CM CM Note: Add la
Note: Add lang ng addng ng add!! !! - F x C - F x C (Direct) Trace(Direct) Traceable able (+) => Continue(+) =>Continue Segment Margin
Segment Margin segmentsegment -
- F F x x C C (Indirect) (Indirect) Common Common (-) (-) =>=> ShutdownShutdown Make
Make Buy Buy Profit Profit segmentsegment
DM xxx DM xxx DL xxx DL xxx VPOA xxx VPOA xxx FFOA
FFOA xxx xxx xxx* xxx* BEP BEP = = F F x x CC HC
HC xxx xxx xxx* xxx* CM/unitCM/unit
Product
Product price price --- --- xxx xxx 1. 1. SD SD Point Point = = F F x x CC – – SD Cost SD Cost CM/unit CM/unit xxx xxx xxx xxx *AC xxx *AC xxx *OC
*OC xxx xxx Note: Note: Note:Note:
Income
Income sacrifice sacrifice or or SD SD point point > > continuecontinue forgone
forgone if if on on make! make! ProduceProduce xxx
xxx xxx xxx SD SD point point < < discontinudiscontinuee
relevant
relevant cost cost to to make make relevant relevant cost cost to to buybuy
Best
Best product product = = CM/unitCM/unit Combination hours/unit Combination hours/unit CM/hour or CM/hour or [scarce resources] [scarce resources] Make or Buy Make or Buy
Sell
Sell or or Process Process Further Further 1.1. Split - off Point
Split - off Point M M II Joint Process Joint Process LL O O ―Joint Cost‖ ―Joint Cost‖ FPC FPC 1. Collection Platform! 1. Collection Platform! Sale
Sale at at Split Split off off xxx xxx 2.2. Sales
Sales if if Process Process further further xxxxxx Less:
Less: FPC FPC (xxx) (xxx) xxx xxx March March xxxxxx Advantage/Dis
Advantage/Disadvantage advantage xxx xxx February February xxxxxx January xxx January xxx Sale
Sale at at Split-off Split-off Process Process further further Total Total Collection Collection xxxxxx Sale Sale xxx xxx xxxxxx FPC FPC --- --- (xxx)(xxx) xxx xxx xxx xxx *Best Product *Best Product Combination* Combination* Note: [Refe
Note: [Refer to your formr to your formulas]!!ulas]!!
MS
MS – – OS OS – – Budgeting!! Budgeting!!
Quantitative Quantitative Budget = PLAN Budget = PLAN MASTER BUDGET MASTER BUDGET
Operating – Operating – IS IS
Financial – Financial – BS BS
Production Budget Production Budget
DM
DM by by DM DM used used WIP WIP by by FGI FGI by by Sales Sales 100%100% -
- DM DM produced produced DL DL TMC TMC CGM CGM CGS CGS (65%)(65%) DM
DM end end FOH FOH - - WIP WIP end end - - FGI FGI end end GP GP 35%35% DM
DM used used TMC TMC CGM CGM CGS CGS - - Express Express (25%)(25%)
nY 10% nY 10%
L
L
NCL NCLCLCL C C NC NCA
A
E
E
CB CB 0 0 - WC- WC F0 F0 - COC- COCMS: 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
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
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
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 Ste Down
Reciprocal Method (Mathematical Approach) [A = 100 + .2B]
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 = Units DM, DL
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 T p = Pessimistic Time Te = To+ 4Tm+ T p
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
Continuation: MS-09 Inventory Models:
EOQ =
√
or√
where: O- cost per orderD- 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
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
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 NyL
CAA
E
NCA Borrowed Capital Inventory Capital Average Investment = = NI Average Investment AI= Cost + SV/2 Original Investment = = NI Original InvestmentCapital 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
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.
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)
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
AFN
L
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
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 =
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
(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)
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
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
Contribution Margin “Ratio” Break Over Sales in Peso = Fixed Cost
Contribution Margin “Ratio” BES IN UNITS & BES IN PESOS
Sales in Units = Fixed Cost + Profit Sales = Fixed Cost + Profit
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 ANALYSISPROCEDURE:
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 =
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)
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
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 / DISADVANTAGECONTINUE 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
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
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)
Page 31 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
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
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
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
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 ↑ R OA = ROS x ATO
3 → 4 ↑
ROS ETO
ROE = ____NIAT___ = __NIAT__ ● _____SALES______ = ―ROSETO‖
AVERAGE EQUITY SALES AVERAGE EQUITY
ROA = ____NIAT__ = __NIAT__ ● ______SALES______ = ―ROSATO‖
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 =
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
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)
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 =
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)
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 Concentration1. 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
*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
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. FVAn = PMT x (FX1Fain)
Pmt = FVNn 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
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
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:
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
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 th e poi nt where to deter mi ne the point s to be used. Total Cost
Fixed Cost
VC per Activity
Activities/ Production
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
NOTE
: Average Selling Price = SP/unit of product x Mix/productFOH 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 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
