Master Budget
What is the starting point for the Material Purchases Budget?
Production
In a sell or process further decision, describe what Joint Costs are?
Costs incurred prior to the split-off point. Joint costs are irrelevant.
What are the disadvantages to using the Payback Period in capital budgeting decisions?
Selling used equipment at book value for cash will have what effect on working capital?
Increase working capital
An increase in net operating income would have what effect on ROI?
Increase ROI
How is the Production budget determined?
Sales + Ending Inventory - Beginning Inventory = Production
When considering whether to accept a special order, what things should the manager consider?
Incremental Revenue and Incremental Costs
What rate is used when calculating the NPV of a project?
Discount rate (required rate of return, cost of capital)
Describe horizontal analysis.
Compare current to prior year balances to identify changes and trends over time.
ROI can be broken down into what two sub-components?
ROI = Margin * Turnover
Why is the SG&A expense budget different from the effect of SG&A on Cash?
Non-cash expenses such as depreciation.
What is the most important metric to consider if a manager has a bottleneck (constrained resource)?
Contribution Margin / Constrained Resource
How do you calucate the Project Profitability Index?
PV of Cash Inflows / Initial Investment
What is the difference between the current ratio and the quick ratio?
CA/CL
Quick/CL
Quick assets include all CA except inventory and prepaids
What is the main disadvantage of using Residual Income as a performance metric?
It can't be used to compare divisions of different sizes.
Describe how to calculate the Direct Labor budget?
(# of units produced) * (hours to produce 1 unit) * (Hourly wage)
Which costs are always irrelevant in decision making?
Sunk costs
If the IRR is equal to the discount rate, what is the NPV of the project?
Zero
A change in the credit policy to lengthen the period for cash discounts would have what effect on A/R Turnover.
Decrease A/R Turnover
What are the four groups of performance measures of the Balanced Scorecard?
Describe how to complete an A/R Aging schedule.
Multiply the collection percentages over time so you can determine monthly cash collections and month-end A/R balances?
Describe the relevant costs to continue to make a product.
DM, DL, Var O/H, Avoidable Fixed O/H
What is the cash flow effect of working capital that is released at the end of the project?
Cash inflow at the end of the project.
If current assets exceed current liabilities, prepaying an expense on the last day of the year will have what effect on the quick ratio?
Decrease the quick ratio
Why would a manager decline an investment opportunity that would be good for the company?
If the project were to decrease the manager's current ROI.
This, we also use residual income as a performance metric.