Total variable costs change in ___________ to changes in the volume of ________.
________ remains constant.
_________ change in direct proportion to changes in the _________ of activity.
Unit Variable Cost remains ________.
18-1
Fixed Costs do not change __________.
2 Examples of Fixed Costs:
_________________
_________________
Fixed Cost per unit is _________ to activity, meaning ______________________________.
___________ do not change over wide ranges of volume.
2 Examples:
Straight Line Depreciation
Salaries
_______________ is inversely proportional to activity, meaning the more activity, the less the FC per unit.
18-1
Mixed Costs have ___________________.
Example: _________________________.
____________ have both a fixed and variable component.
Example: Utilities that charge a set fee per month plus a charge for usage.
18-1
Steps for High-Low Method:
1) VCPU= _______/ _________
2) TFC= ______ - _______
3) TMC= ( ___ x ____ ) + _______
Steps for _________ :
1) ________ = change in total cost/ change in activity
2) ________ = TMC - TVC
3) ________ = (VCPU x # units) + TFC
18-1
__________ : Where both total fixed and variable cost per unit remain constant
Band of Volume: ___________________
18-1
Identify these costs for a daycare as Fixed or Variable:
1) Rent
2) Toys
3) Playground Equip
4) Snacks
5) Owner's Salary
6) Wages of After School Employees
7) Drawing Paper
8) Tables and Chairs
(see other side)
1) F
2) F
3) F
4) V
5) F
6) V
7) V
8) F
18-1
Suppose a company charges $5/mo for an international calling plan plus $ .25/min for calls outside US.
What formula would you use to calculate the total cost for the month?
What is one example problem that would use the
FC + VC= TC
formula?
$5 + (# mins used x $.25)= TC
18-2
If concert tickets are sold for $20 and the variable costs are $15 each, how many must they sell to break even? Fixed costs are $50.
What is the formula?
If concert tickets are sold for $20 and the variable costs are $15 each, how many must they sell to break even? Fixed costs are $50.
The formula used is:
FC-VC= CM
FC/CM= BEP
18-2
The Breakeven Point is ______________________.
The 2 methods are:
1) _______________
2) _______________
The _____________ is the sales level at which operating income is zero.
The 2 Methods are:
1) Income Statement Approach
2) Contribution Margin Approach
18-2
Formula for Income Statement Approach:
_________________________________________
In this formula, you solve for _____ and set ______ to zero.
Sales - VC - FC = OPI
In this formula calculating _______________, you _____ for units sold and set OPI to _____.
18-2
Formulae for Contribution Margin Approach:
__________________________________________
__________________________________________
Sales Rev - VCPU = CMPU
FC / CMPU = BEP in units
These formulae calculate ___________________.
18-2
Formula for Contribution Margin Ratio:
______________________________________
______________________________________
CM / Sales Rev = __________
FC/ CMR = BEP in Sales $
18-2
Formula for Target Sales in Dollars (aka Target Operating Income):
______________________________________
(FC + Desired OPI) / CMR = _________
This formula calculates __________.
18-3
According to Sensitivity Analysis:
If the selling price increases, the CM would _____ and the BEP would _____.
If the VCPU increases, then the CM would _____ and the BEP would ______.
If FC increase, then CM ______ and BEP ______. If FC decrease, then CM
According to ____________:
If the selling price increases, the ___ would increase and the ___ would decrease.
If the VCPU increases, the ___ would decrease and the ___ would increase.
If FC increase, then ___ stay unchanged and the ___ increase.
If FC dec
Formula to calculate Margin of Safety:
_____________________________________
Expected Sales - Breakeven sales = _____________
18-4
In a CVP graph, the line which begins at the lower left corner represents ____________.
In a CVP graph, the line which begins at the ________ represents Total Sales Revenue.
18
If a company increases its selling price per unit for a product, then the new BEP will _______.
If a company _______ its selling price per unit for a product, then the new BEP will decrease.
18
Which of these is NOT a fixed cost?
a) salary of Mgmt
b) indirect materials
c) straight-line depreciation
d) property taxes
Unlike the others, B is not considered a _________.
a) salary of Mgmt
b) indirect materials
c) straight-line depreciation
d) property taxes
18
On a CVP graph, the horizontal line intersecting the dollar axis at the level of Total Cost represents _______________.
On a CVP graph, the horizontal line intersecting the dollar axis at the level of ________ represents Total Fixed Costs.
18
One characteristic of variable costs is that they _____________________.
One characteristic of ______ is that they vary in total with production and sales.
18
a 15% increase in production will result in _________________________.
A 15% increase in __________ will result in a 15% increase in Total Variable Costs.
18
Sunk Costs: ________ & __________; they are considered ___________
_______________: occurred in the past & cannot be changed; they are considered irrelevant
19-1
Incremental Analysis measures _____________.
2 Keys:
1) ____________________
2) ____________________
________________ measures how operating income differs under each alternative.
2 Keys:
1) Focus on relevant costs, revenues, and profits
2) Use a Contribution Margin Approach
19-1
If there is excess capacity to handle a special order, then the company should ______ it. If not, then they would _____ it.
If the reduced price covers VCs, then you should ______ the order and consider ________.
(# requested in order x TVC) = _________
If there is _______ to handle a special order, then the company should accept it. If not, then they would reject it.
If the reduced price covers _____, then you should accept the order and consider fixed costs.
(# requested in order x TVC) = Expected Incr
3 qualities of a ______________:
1) Product lacks unique-ness
2) Intense Competition
3) Pricing approach emphasizes target pricing
3 qualities of a Price-Taker include:
1)
2)
3)
19-2
3 qualities of a _____________:
1) Product is more unique
2) Less Competition
3) Pricing approach emphasizes cost-plus pricing
3 qualities of a Price-Setter include:
1)
2)
3)
19-2
Formula for Target Pricing/Target Full Cost:
__________________________________
Rev at Market Price - Desired Profit = ______________
19-2
Formula for Cost-Plus Pricing:
__________________________________
Full Cost + Desired Profit = __________________
19-2
If a product line's revenues are less than the cost savings of dropping the line altogether, then the company should ______.
If a product line's _____ are less than the cost savings of dropping the line altogether, then the company should drop it.
19-3
A _________ is something that restricts production or sale of a product.
A constraint is ____________________.
19-3
Opportunity costs are ____________________.
________________ are the benefits foregone by not choosing an alternative course of action.
19-3
The original cost of old equipment is considered a/an _____________ cost.
The _________ of old equipment is considered an irrelevant cost.
19
The purchase price of a vehicle that is being traded is considered a/an ___________ cost.
The _______ of a vehicle that is being traded in is considered a sunk cost.
19
Formula for Payback Period:
__________________________________
Investment amount / annual net cash inflow = ___________
20-2
Capital Investment Decisions include:
1)
2)
3)
4)
______________ decisions include:
1) Purchasing new equipment
2) Building new facilities
3) Automating production
4) Developing websites
20-1
Examples of Cash Inflows:
1)
2)
3)
Examples of ____________:
1) Future revenues generated
2) Future savings in ongoing cash operating costs
3) Future residual value
20-1
Examples of Cash Outflows:
1)
2)
Examples of _________:
1) Initial investment
2) Operating costs, maintenance, repairs
20-1
Formula for Accounting Rate of Return (ARR):
_____________________________________
Avg annual OPI from asset /
[(Orig. Investment + Residual Val)/2]
= _________________
This formula calculates ________________.
20-2
3 Factors that Affect Time Value of Money:
1)
2)
3)
3 Factors that Affect _____________:
1) Principal (lump sum vs. annuity)
2) # of periods
3) Interest Rate
20-3
You use the _______ table for a series of equal installments on an investment and the ________ table for lump sum investments.
You _____ the lump sum/installment by the factor found in the table to figure the present/future amount.
You use the "Present/Future Value of Annuity" table for ____________________ and the "Present/Future Value of $1" table on ___________________.
You multiply the ________ by the ________ to figure the present/future amount.
20-3
Formula for Net Present Value (NPV):
____________________________________
A project is attractive if the NPV is ________.
PV of NCI - investment cost = ______________________
A project is _____ if the NPV is above one.
20-4
Formula for Profitability Index:
___________________________________
It measures _______________________.
(PV of NCI)/ (Investment Amount) = ______________
This measures the # of dollars returned for every dollar invested.
20-4
The Internal Rate of Return is _______________.
_____________ = ___________________
The _________ the interest rate that will cause the present value to equal zero.
Investment Cost = PV of NCI
20-4
Formula for IRR: ____________________
Investment Cost/ Annual NCI = PVA Factor
20-4
First step in Capital Budgeting: _____________
The first step in __________ is identifying the potential projects.
20
The payback period is the most likely to NOT be affected by a change in ________.
The ________ is the most likely to NOT be affected by a change in salvage value.
20
The ______, _______, & ________ affect the present value of an investment.
The interest rate, type of investment (annuity/lump sum), and # of periods all affect the ________ of an investment.
20
The _________ & _________ methods ignore the time value of money.
The payback & Accounting Rate of Return (ARR) methods ignore ________________.
20
After a company invests in capital assets, it will perform a _______ to compare the actual to the projected net cash inflows.
After a company invests in capital assets, it will perform a post-audit to compare ___________________.
20
The _______ method uses accrual accounting and focuses on the profitability of an investment over its life.
The _____ method ignores cash flows after the payback period.
The Account Rate of Return (ARR) uses ___________ and focuses on ______________.
The Payback Period method ignores ___________ after the payback period.
20
The _____ & _____ methods incorporate the time value of money.
The Net Present Value (NPV) and Internal Rate of Return (IRR) methods ______ the time value of money.
20
The _____ shows excess or deficiency of an asset's present value of net cash flows over its initial cost.
The _____ computes the project's unique rate of return.
The Net Present Value (NPV) shows __________ of an asset's _____________ over its ___________.
The Internal Rate of Return (IRR) computes ________________________.
20
The ______ is only concerned with the time it takes to get cash outflows returned.
The _____ considers the OPI but not time value of money in its analyses.
The _____ compares present value of cash out to cash in to determine investment worthiness.
The ___
Payback Period is only concerned with ____________.
The ARR considers the _____ but not the _____ value of money in its analyses.
The NPV compares the present value of ______ to ______ to determine investment worthiness.
The IRR is the ______ of return an