Review For Final Exam
Review For Final Exam
Review For Final Exam
Production Budget
Number of Units to be Produced x Units of materials needed to make one unit Material Units needed for Production + Desired Ending Materials Inventory Total Material Units Needed --Less Beginning Inventory of Material Units = Units of Material to be Purchased x Cost per unit of material = Cost of Material to be Purchased.
Cash Payments
Overhead Budget
Budget Ends
Budgeted Income Statement Budgeted Balance Sheet Budgeted Statement of Cash Flows
120,000 80,000 40,000 16,000 32,000 288,000 250,000 200,000 150,000 600,000
135,000 90,000 45,000 18,000 36,000 324,000 250,000 200,000 150,000 600,000 $ (24,000) $
150,000 100,000 50,000 20,000 40,000 360,000 250,000 200,000 150,000 600,000 40,000
165,000 110,000 55,000 22,000 44,000 396,000 250,000 200,000 150,000 600,000 $ 104,000
180,000 120,000 60,000 24,000 48,000 432,000 250,000 200,000 150,000 600,000 $ 168,000
B
Standard Price or Rate
AxB
Standard Cost per Unit
12.00 35.00 7.50 54.50
Inputs
Direct materials Direct labor Variable mfg. overhead Total standard unit cost
3.0 lbs. $ 4.00 per lb. $ 2.5 hours 14.00 per hour 2.5 hours 3.00 per hour $
Variance Analysis
Variance Analysis
Quantity Variance
Price Variance
Spending Variances
Price Variances (Actual Qty(actual price std price) Dmat Price Variance = Act Qty Purch (actual price stdard price) Dlabor Rate Variance = Act Hrs (actual rate standard rate) VOH Rate Variance = Act Hrs (actual VOH rate std VOH rate) Quantity Variances = Std Price (Actl Qty Std Qty) Dmat Qty Var = Std Price (act qty used std qty allowed) Dlabor Effic Var = Std Labor Rate (actl hrs std hours allowed) VOH Effic Var = Std VOH Rate (actl hrs std hrs allowed)
(1) Standard Quantity Allowed for Actual Output, at Standard Price (SQ SP)
Desired Value
Unfavorable Limit
Variance Measurements
Lower-level decisions often based on better information. Lower level managers can respond quickly to customers. Lower-level managers gain experience in decision-making. Decision-making authority leads to job satisfaction.
Decentralization in Organizations
Lower-level managers may make decisions without seeing the big picture.
May be a lack of coordination among autonomous managers. Lower-level managers objectives may not be those of the organization.
Disadvantages of Decentralization
May be difficult to spread innovative ideas in the organization.
Cost, profit, and investment centers are all known as responsibility centers.
Responsibility Center
This computation differs from ROI. ROI measures net operating income earned relative to the investment in average operating assets. Residual income measures net operating income earned less the minimum required return on average operating assets.
Wait Time
Process Time + Inspection Time + Move Time + Queue Time Throughput Time Delivery/Mfg Cycle Time
Financial
Performance measures
Internal business processes Learning and growth
A relevant benefit is a benefit deals with the future that differs between alternatives.
Outside purchase price Direct materials (20,000 units) Direct labor Variable overhead Depreciation of equip. Supervisor's salary General factory overhead Total cost
$ 25 $ 9 5 1 3 2 10 $ 30
Cost of 20,000 Units Buy Make $ 500,000 180,000 100,000 20,000 40,000 $ 340,000
$ 500,000
4. Special Orders
If Jet accepts the special order, the incremental revenue will exceed the incremental costs. In other words, net operating income will increase by $6,000. This suggests that Jet should accept the order.
Increase in revenue (3,000 $10) Increase in costs (3,000 $8 variable cost) Increase in net income $ 30,000 24,000 $ 6,000
Note: This answer assumes that the fixed costs are unavoidable and that variable marketing costs must be incurred on the special order.
Ensign should emphasize Product 2 because it generates a contribution margin of $30 per minute of the constrained resource relative to $24 per minute for Product 1.
Sales value after further processing Sales value at the split-off point Incremental revenue Cost of further processing Profit (loss) from further processing
50 40 10 20 (10)
Determine alternatives Estimate cash flows for each alternative Use computational tools to evaluate alternative
Net
Accept the contract because the project has a positive net present value.
The higher the profitability index, the more desirable the project.
$140,000 $35,000
4.0 years
According to the companys criterion, management would invest in the espresso bar because its payback period is less than 5 years.
*Should be reduced by any salvage from the sale of the old equipment
Horizontal Analysis
Trend
all items on the financial statements to percentage ratios to compare and trend:
Ratio Analysis
Using
Liquidity
Profitability Market
Horizontal Analysis
CLOVER CORPORATION Comparative Balance Sheets December 31 Increase (Decrease) Last Year Amount %
This Year Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets
Horizontal Analysis
CLOVER CORPORATION Comparative Income Statements For the Years Ended December 31 Increase (Decrease) Amount % $ 40,000 8.3 45,000 14.3 (5,000) (3.0) 2,600 2.1 (7,600) (19.5) (600) (8.6) (7,000) (21.9) (2,100) (21.9) $ (4,900) (21.9)
This Year Last Year Sales $ 520,000 $ 480,000 Cost of goods sold 360,000 315,000 Gross margin 160,000 165,000 Operating expenses 128,600 126,000 Net operating income 31,400 39,000 Interest expense 6,400 7,000 Net income before taxes 25,000 32,000 Less income taxes (30%) 7,500 9,600 Net income $ 17,500 $ 22,400
Common-Size Statements
CLOVER CORPORATION Comparative Income Statements For the Years Ended December 31 Common-Size What conclusions can we draw? Percentages This Year Last Year This Year Last Year Sales $ 520,000 $ 480,000 100.0 100.0 Cost of goods sold 360,000 315,000 69.2 65.6 Gross margin 160,000 165,000 30.8 34.4 Operating expenses 128,600 126,000 24.8 26.2 Net operating income 31,400 39,000 6.0 8.2 Interest expense 6,400 7,000 1.2 1.5 Net income before taxes 25,000 32,000 4.8 6.7 Less income taxes (30%) 7,500 9,600 1.4 2.0 Net income $ 17,500 $ 22,400 3.4 4.7
Ratio Analysis
Liquidity Working Capital, Current Ratio, Quick Ratio Earnings per share Price/Earnings Ratio Dividend Payout Ratio Dividend Yield Ratio Return on Total Assets Return on Total Equity Book Value per share Accounts Receivable Turnover Inventory Turnover Average Receivable Collection Period Average Sales Period Times Interest Earned Debt to Equity