Discussion: CVP - 1 File Download
Transcript of Discussion: CVP - 1 File Download
Page 1 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
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∆%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
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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
<
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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
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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
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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
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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
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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
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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]
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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
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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
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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
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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
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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
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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
Page 16 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.
Page 17 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
Page 18 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
Page 19 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
Page 20 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
Page 21 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
Page 22 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]
Page 23 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
Page 24 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
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
CM Ratio
Page 25 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
Page 26 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 -
Page 27 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
Page 28 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)
Page 29 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
Page 30 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
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
Page 32 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
Page 33 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
Page 34 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
Page 35 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
Page 36 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)
Page 37 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
Page 38 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 =
=
Page 39 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)
Page 40 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
Page 41 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
Page 42 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
Page 43 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)
Page 44 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
Page 45 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
Page 46 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
Page 47 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
Page 48 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)
Page 49 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
Page 50 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