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Chapter 8
Identify the formula
Vocabulary
Concepts
Miscellaneous
100
If ______ gained is less than the costs incurred by a particular action, then you shouldn't do it.
Revenue
100
Sales price - variable cost per unit
Contribution margin
100
This is the name for the number of units you need to sell to achieve a profit of $0.
Breakeven point (in units)
100
What type of financial statement analysis involves finding percentage changes in accounts from year to year?
Horizontal Analysis
100
Investing activities only affect what type(s) of accounts?
Long-term assets
200
When evaluating whether or not to drop a product line, the changes to what value should be compared?
Operating Income
200
Fixed costs / contribution margin per unit
Breakeven point in units
200
What is the key difference between relevant and irrelevant information when making a business decision?
Relevant info differs among the alternatives
200
Double taxation: advantage or disadvantage of issuing long-term debt or equity?
Disadvantage of issuing equity
200
Operating activities affect which type(s) of accounts?
Current assets, current liabilities, and anything from the income statement
300
If you were thinking about buying a newer version of a machine, would the cost you paid for the old machine 3 years ago be relevant to your decision? What type of cost does this represent?
No; Sunk cost
300
Fixed costs / Contribution margin ratio
Breakeven point in sales dollars
300
This is the benefit given up by not choosing an alternative course of action.
Opportunity cost
300
Name a ratio in which a decrease represents an improvement for a company.
Debt ratio, debt-to-equity, days' sales in receivables, days' sales in inventory
300
Financing activities affect which type(s) of accounts?
Long-term liabilities and equity
400
Say you sell two products, A and B. You have limited shelf space to stock your products. A has a higher contribution margin per unit but B takes up significantly less shelf space. How would you decide which product to emphasize?
Calculate contribution margin per unit of shelf space. Whichever is greater should be the product you emphasize.
400
(Net Income - Preferred Dividends) / Average common shares outstanding
Earnings per share
400
This is a cost that was incurred in the past and cannot be changed regardless of which future action is taken.
Sunk cost
400
What effect would an increase in variable costs per unit have on the breakeven point?
It would increase the breakeven point
400
What 3 accounts are affected when a company issues common stock for cash at a market price higher than par value?
Cash, Common Stock, Paid-in-Capital in Excess of Par
500
When faced with a one-time discounted special order decision, what else would a company need to consider in making their decision? (Assume it makes financial sense to take the order if possible)
Whether it would put them over their manufacturing capacity or not. Or, maybe whether other customers may demand lower prices since you offered them a discount
500
Net cash from operating activities - net cash used from investing activities - cash dividends
Free cash flow
500
This value measures the amount of cash available from normal operations after paying for long-term investments and paying cash dividends to stockholders.
Free cash flow
500
If I took out a loan for $10,000 with an interest rate of 12% and monthly payments of $300, how much of my first payment would represent interest expense?
$10,000 x .12 x (1/12) = $100 interest