Ch 11 Formulas
Amount invested/expected annual net cash inflows
What is payback?
This company has a unique product and little competition
What is a price-setter?
This occurs when the expected increase in revenues exceeds the expected increase in variable and fixed costs
What is accepting the special pricing order?
This occurs when the differential costs of making the product exceed the differential costs of outsourcing.
What is deciding to outsource?
This occurs when the lost revenues are less than the total cost savings
What is dropping the product?
Average annual operating income/average amount invested
What is ARR?
This company has not unique products and many competitors
What is a price-taker?
This occurs when the expected increase in revenues is less than the expected increase in variable and fixed costs
This occurs when the differential costs of making the product are less than the differential costs of outsourcing.
This occurs when the lost revenues exceed the total cost savings
What is do not drop the product?
Future Value * PV Factor
What is present value?
What is cost plus pricing?
One of these could be the company expecting the deal again
What is a "con" of special pricing?
These can either be avoidable or unavoidable and would affect your decision to outsource.
What is fixed costs?
These can either be avoidable or unavoidable and would affect your decision to drop.
What is fixed costs?
Present Value * FV Factor
What is future value?
Revenue - desired profit
What is total full product cost?
One of these could be gaining a potential repeat customer
What is a pro?
This is something not related to the actual product you are wanting to drop but something that would affect whether or not you would outsource the product.
What is use of freed up capacity?
This is something not related to the actual product you are wanting to drop but something that would affect whether or not you would drop the product.
What is the use of freed up capacity?
This is formula used for solving:
Annuity PV Factor = inital investment/amount of each cash inflow
What is IRR?
This is the full formula for target pricing when fixed costs are known and will not change.
This is the differential analysis for special pricing
What is (write on board)!
This is the differential analysis for whether or not to outsource a product.
What is (write on board)?
This is the differential analysis for deciding whether or not to drop a product.
What is (write on board)?