Discussion: CVP

16
Batch 1 r
1. Cost Behavior Analysis 14 i
2. Cost Valuation Profit Analysis s
3. Absorption & Variable Costing 12 e
_______
Total Cost = F x C + VC 10 run
1 2 3 4

y= a + bx
Least-Square
Regression Method
Dependent Y intercept Slope Independent
Variable (Fixed Cost) Variable ∑y=na+b∑x

∑ x y = a ∑ x + b ∑ x2
Slope (b) = rise = ∆Y
run ∆X

CM = F x C + P x = F x C (increase)
CM/unit
S
-VC x = unit increase
CM
-F x C
P ―Before interest & taxes‖

DOL = CM Indifference Point

OI
1. Unit CM x Q – FC = Unit CM x Q – FC
∆% in profit = ∆% Sales x DOL
OI 2. FC + (VC unit x Q) = FC + (VC unit x Q)

MS = Sales – BES BES = F x C CM x MS = P CMR x (Sales – BES) = P

CMR Sales Sales Sales CM – FxC = P
MSR = MS P=P
Sales BEP units = F x C CMR x MSR = NPR

CM/unit [ ] [ ]
S CM/S x MS/S = P/S S

CMR x MS = P

Page 1 of 50
Discussion: Sales Mix

BEP units = F x C
WtdAvg CM/Unit *

products
x y
CM/unit xxx xxx
Sales Mix Ratio x% x%
_____________
Wtd.Avg.CM/Unit xxx + xxx = xxx

Note: Cetiris Paribus  unless otherwise stated, other ―things‖ are constant

1. Degree of operating leverage

 Operating Leverage function = DOL = CM

Profit
 ∆%Sales x OLF (or) DOL = ∆ %P

MAS

BES = F x C
CMR

1. CMR = CM = ∆CM BES = F x C + P

Sales ∆Sales CMR

2. CMR = F x C = ∆F x C S = FxC
BES ∆ BES CMR- ROS

3. CMR = P = ∆ P 
MS ∆ MS
Note: this can be use only
if the profit is a percentage.

Page 2 of 50
 P>S
DM <
DL ―Variable AY xxx E>B
VPOA Cost‖ VY xxx <
FFOA Sales ∆Y xxx A>V
TMC CGM (CGS) <
GP
WIP FGI ∆Y = ∆ Inventory x FFOA/unit

- (Ope. Exp)
Period Cost
(fully expense)
―Variable Costing‖ NY (P vs S) (E vs B)

Example: Dep‘n. Variable Costing - PERIOD COST

FFOA Dep‘n.
(factory equipment) Absorption Costing - PRODUCT COST

AC – DC

* ∆y fluctuating with sales

* ∆y fluctuating with production & sales

Page 3 of 50
Batch 2 Special Order [refer to your formulas]!!

4. Relevant Costing
5. Budgeting
6. Standard Costing Continue or Discontinue

MS – 04 Sales
Make or Buy VC
CM
Note: Add lang ng add!! - F x C (Direct) Traceable (+) => Continue
Segment Margin segment
- F x C (Indirect) Common (-) => Shutdown
Make Buy Profit segment

DM xxx
DL xxx
VPOA xxx
FFOA xxx xxx* BEP = F x C
HC xxx xxx* CM/unit

Product price --- xxx 1. SD Point = F x C – SD Cost

CM/unit
xxx xxx

*AC xxx
*OC xxx Note: Note:
Income sacrifice or SD point > continue
forgone if on make! Produce

xxx xxx SD point < discontinue

relevant cost to make relevant cost to buy

Best product = CM/unit

Combination hours/unit

CM/hour or
[scarce resources]

Page 4 of 50
 0 - WC

CL
Sell or Process Further 1. C
L NCL
Split - off Point

M
A NC E
F0 - COC
0
I
Joint Process  L CB
O
―Joint Cost‖

FPC
1. Collection Platform!

Sale at Split off xxx 2.

Sales if Process further xxx
Less: FPC (xxx) xxx March xxx
Advantage/Disadvantage xxx February xxx
January xxx

Sale at Split-off Process further Total Collection xxx

Sale xxx xxx

FPC --- (xxx)

xxx xxx

*Best Product
Combination*

Note: [Refer to your formulas]!!

MS – OS – Budgeting!!
Quantitative
Budget = PLAN

MASTER BUDGET

 Operating – IS
 Financial – BS

Production Budget

DM by DM used WIP by FGI by Sales 100%

- DM produced DL TMC CGM CGS (65%)
DM end FOH - WIP end - FGI end GP 35%
DM used TMC CGM CGS - Express (25%)
nY 10%

Page 5 of 50
MS: 06 Standard Costing FOH Vminus = AC–SC = AFOH–SFOH
[Refer to your summary]
2 way 3 way 4 way

DM Variance = AC – SC = (AP x AQ) – (SP x SQ) Con.Vol S.E.VOL S.S.E.VOL

MQV = ∆Q x SP = (AQ–SQ) SP AFOH AFOH Spending Variable
MPV = AQ x ∆P = AQ (AP–SP) CON BAAH Efficiency Spending
BASH BASH
VOL
Fixed
SHSR
VOL Spending
MPUV = AQused x ∆P SHSR
MPPV = AQpurchased x ∆P (SFOH) Efficiency

DL Variance= AC – SC= (AR x AH)–(SR x SH) Volume

LE V = ∆H x SR= (AH–SH) SR Unit
LR V = AH x ∆R= AH (AR–SR)

FOH = fixedCost + slope (activity level)

PLAN = BH = BFOH x
OPERATION =AH = BAAH 
CONTROLLING =SH = BASH 

y = a + b‗x‘

if BASH ‗x‘= Standard Hours based on Actual

Production

if BAAH ‗x = Actual Hours based on Actual

Production

Page 6 of 50
 Capital Budgeting

1. Payback Period = Net Initial Cost of Investment

Amount Net Aler-Tax Cash (Inflows)

2. Bail-Out Payback Period = Net Initial of Investment

*Includes Salvage Value!

3. Accounting Rate of Return : Average Annual Net Income

Investment

4. Payback Reciprocal : Net Cash Inflows = _____1___________

Investment Payback Period

Discounted Techniques

1. PV of Cash Inflows ÷ PV of Cash Inflows ÷ NPV

– PV of Cash Outflows PV of Cash Outflows Investment
Net Present Value = Profitability Index = NPV Index

2. Internal Rate of Return (IRR)

2.1
PVF for IRR = Net Investment Cost
Net Cash Inflows

Microeconomics

Ed = ∆% in Quantity Demanded = ∆% in Quantity Demanded ’ ∆ in Price Ed >1 = Elastic

∆% in Price Average Quantity Average Price Ed =1 = Unit
Elastic/Unitary
Ed <1 = Inelastic

Page 7 of 50
Batch 3

7. Responsibility Accounting
8. Balance Score Card & Accounting Based Cost
9. Quantitative Techniques

Controllable Sales xxx

1.  Direct Cost -VCGS (xxx)
Non-Controllable Manufacturing CM xxx

2.  Indirect Cost – Non-Controllable -Variable Selling Admin (xxx)

Contribution Margin xxx

Performance Report -Controllable Fixed Cost (xxx)

* Cost Center – Variance Analysis Short-Run Pref. Margin xxx
* Revenue Center – Variance Analysis -Non-Controllable Fixed Cost (xxx)
* Profit Center – Variance Analysis Segment Margin xxx
– Segmented Inc. Statements -Allocated Fixed Cost (xxx)
* Investment Center – Variance Analysis Profit/Net Income xxx
– Segment Inc. Statements
– EVA (Economy Values Added)
– Residual Income
– Return on Investment (ROA)
EVA = Operating after Tax – Required Income
Required Income = (Total Assets – Current Liab) + WACC
Residual Income = Operating Income – Required Income
Required Income + Operating Assets x Minimum ROI

Return on investment = Operating Inc/Operating Assets

= Margin x Turn Over

Operating Income x Sales

Sales Operating Income

ROA = ROS x ATO

Net Income = Sales x Net Income

Assets Assets Sales

Page 8 of 50
MS-12 Discussion [Gross Profit Variance Analysis]
xxx
SVV SPV Price
2009 QF PF 2010 Factor
Sales xxx * xx * xx = xxx

COS (xxx) * xx * xx = (xxx)

GP xxx xxx
CVV xxx CPV
Volume factor Cost Factor
PART 2: MS-07: Transfer Pricing:

[Upper Limit]
1. Maximum transfer Price = Cost of Buying from Outside Suppliers
(Selling Price-SP)
[Lower Limit]
2. Minimum Transfer Price = Variable Cost per Unit + Lost CM per Unit on Outside Sales.

= VC/unit + Total Contribution Margin to be lost

Total no. ―order unit‖ purchased!
Basis of Transfer Price

1. Cost Based Transfer Price Service Cost Allocation

a. Variable Cost
b. Full Cost (NMC) 1. Direct Method
c. Full Absorption Cost 2. Step down
d. Cost Plus 3. Reciprocal Method
2. Market Base & Transfer Price
a. Market Price (R=SP)
b. Modified (SP adjusted for my
allowance for discounts) Reciprocal Method (Mathematical Approach)
3. Negotiated Price
4. Arbitrary Price (No basis) [A = 100 + .2B]
[B= 20 = .4A]

Direct Method Step Down

A B X Y Total
A B X Y
xxx xxx40 40% 20% 60% A xxx xxx40% 40 20
%
(xxx) 40/60 20/60 90% B 20% 60% 20%
xxx 70% 20% A xxx40% xxx40% xxx20%
(xxx) 70/90 20/90 B xxx 60/80 xxx20/80

Page 9 of 50
MS: 08 Activities Based Costing & Balance Score Card

STEPS IN IMPLEMENTING ABC

1. Perform process Value analysis (Value Added Activity & Non Value Added Activity)
2. Identify Cost Drivers (Activities) Cost Pools & Activity centres.
3. Calculate Predetermined Overhead Notes
*Predetermined OH Rate = Est. OH COST
Est. Activity level
4. Allocate the OH Cost to the products on the basis of predetermined rates.

Manufacturing Cycle Efficiency

Receipt of Start of Shipment

o o o
Order Production of goods

Delivery Cycle Time = wait time + [Process time + Inspective Time + Move Time +‖Queue Time‖
=‖Manufacturing Cycle‖ (Throughput Time)]

Delivery Cycle (Lead Time)

Delivery Cycle Time = wait time + Manufacturing Cycle

Manufacturing Cycle = PT +IT + MT+ QT
Manufacturing Cycle = Process Time
Efficiency Ratio Manufacturing Cycle

Percentage on NVA Activities = IT +MT+ QT Marketing Effectiveness

Manufacturing Cycle
1. Sales Volume Variance = (AQ-BQ) B-CM/unit
Productivity Measures 2. Market Share Variance = (AS-BS) AS x BSP
3. Market Size Variance = (A Size-B Sales) BS x
BSP

Productivity = Output = Products

Input DM, DL, FOH

Productive = --
--

A. Operational Partial Productivity = Units

DM, DL
B. Financial Partial Productivity = Units
[Dm, DL x Cost/unit]
Units
DM + DL Page 10 of 50
C. Total Productivity =
MS: 09 PERT- CEM [Quantitative Techniques]

B
 Events : A, B, C, D A D
 Activities: A-B, B-D, A-C, C-D
 Parallel : A-B & A-C, B-D & C-D
C
 Series: A-B & B-D, A-C &C-D
 Paths : A-B-D, A-C-D

Te= Expected Time

To= Optimistic Time
Tm= Most likely Time
Tp = Pessimistic Time
Te = To+ 4Tm+ Tp
6

PROBABBILITY ANALYSIS

1. Deterministic Approach base on most likely events [pat atom of probability]

(Mean) Mode]

2. Expected Value Approach: Consider

Everything! (Anything)

[Problem is Silent EVA]

LEARNING CURVE ANALYSIS

Note:
 The commodities average time per units is reduced by certain percentage each time the
production doubles!

 Incremental unit time (to time produce the last unit) is reduce when production doubles.

Units x Average Hours = Total Hours

xxx xxx = xxx

? xxx = xxx

Multiply by: ―Learning Curve‖

Expression Curve
Page 11 of 50
Continuation: MS-09

Inventory Models:

EOQ = √ or √

where: O- cost per order

D- Annual Demand in units
C- Carrying Cost

Carrying Cost = EOQ

2

Ordering Cost = D
EOQ

Total Cost = Carrying Cost + Ordering Cost

Average Inventory = O +EOQ + SS

2

Concept of Recorder Point:

Lead Time: period from the time an order is planed until such time the order is received.

 Normal (Average) Lead Time- usual delay

 Maximum Lead time – usual/normal lead time adds allowance for reasonable further delay.

 Normal Lead time Usage =Normal Lead time x Average Usage

 Safety Stock = (Max. LT-Normal LT) Average Usage
 Reorder Point = Maximum Lead time x Average Usage
= Normal lead time Usage + Safety Stock

Economic Lot Size

ELS = √ * How many units?

> Ordering Cost
Where: O= set-up cost > Carrying Cost
D= annual production requirement * Where to place?
C = cost of carrying units for 1 year > Stock-out Cost
> Carrying Cost

Page 12 of 50
Continuation: MS-09

Linear Programming

Objective: Maximize revenue

Minimize cost and expenses Maximize Net Profit!

1. Objective Function
2. Identify Constraint Function
3. Optimal/Product Mix

a. Substitution
b. Test Coordinates

MS:10 Capital Budgeting 1. Net Investment

3 Factors Cost - Savings

Cash Out - Cash In
a. Net Investment
b. Cost of Profit xxx xxx
c. Net Returns (xxx) -Tax on Gain
xxx -needed working capital
 Accrual xxx -Tax loss/ tax shield
xxx xxx
Net Income
―Net Investment‖

 Cash

Cash in xxx 2.
- Cash out (xxx) A. Operating Income (EBIT) xxx
Net Cash Flows Interest % (xxx)
EBT xxx
Tax % (xxx)
NIAT xxx
Preferred Div (amount) (xxx)
NI – C/S xxx

EPS = Ny – Preferred Div.

Wtd Average C/S Outstanding

10. Capital Budgeting

11. Financial Management
12. Financial Statement Analysis

Page 13 of 50
2. Cost & Capital

Borrowed CA
L Interest 5% x 80% = 4%

Capital
A NCA E Dividends 10% x 20% = 2%
Inventory 6%
Capital
1. MV over BV
2. Effective Rate over Nominal Rate

Sources:
Debt: Yield Div Yield = Div/Share
Equity: MP/Share
(P/S)
(C/S) WACC = is minimum acceptable rate of return, desirable rate of return
= Rf+b(Rf-km)

Decision Rules Acceptable Bail-Out ―Payback Period‖

Year 1 2 3
 PB Period < Standards of Industry Net Investment xxx xxx xxx
Life ÷ 2 Cash Flow xxx
Salvage Value xxx
 ARR > Cost of Capital

Note: You always consider of disposing the asset

at your end. [The same as payback period] Adjust
cash flows only]

Net Returns * Net Cash Flow = Ny + Dep‘n.

Sales * Net Investment = ―PB period‖ – ―Liquidating Concern‖

- VC Net Cash Flows
CM * Net Income = ARR – ―Profitability Concern‖
- F x C (cash) Net Investment
- Dep‘n
Profit
- Tax Average Investment = Original Investment =
Ny = NI = NI
Average Investment
Original Investment
AI= Cost + SV/2

Page 14 of 50
 Capital Budgeting with consideration of Time 1. IRR to solve
Value Method Cost of Investment
Ordinary PVF % =
 NPV = PV of Cash Inflow – PV of Cash Annual Cash Flow
Outflow
 PI = PV of Cash Inflow ÷ PV of Cash 2. Trial and Error on choices available
Outflow
IRR = PV of Cash Inflow = PV of Cash Outflow
Decision Rules
IRR = NPV = O
 PB pd ≤ 1. Industry Std
*Computation of Effective Rate 2. life ÷ 2

 NPV Index = NPV ÷ Investment  ARR ≥ Cost of Capital

Payback Reciprocal *Non Discount Method

PB pd =
Payback Period
 NPV ≥ 0
life <
1. PB pd ≤ 
 PI ≥ 1
2
<
2. Cash Inflow – Uniform 
 IRR > Cost of Capital
↑IRR = ↓ PVF <
↓IRR = ↑ PVF *Discount Methods

Page 15 of 50
MS: II Financial Management

Baumol Model (William) Cash Management Cash Management Strategies

Optimal Cash ²(Annual Cash Requirement) 1. Accelerating Collection (Lockbox

(Cost Per Transaction) System)
Balance (OCB) Opportunity Cost of
Holding Cash 2. Slowing Disbursement (Playing Floats)

3. Redding Precautionary (Zero Balance

Total Cost of Cash Balance = °Holding Cost +°° Accounts)
Transaction Cost Idle Cash

°Holding Cost = Average Cash Balance x

Opportunity Cost
Concept of Float
Average Cash Balance = Optimal Cash Balance ÷
2 1. Types of Float

°°Transaction Cost = No. of Transactions x Cost 2. Positive Float (Disbursement)

per Transaction
3. Negative Float (Collection)
Number of Transaction = Annual Cash
Requirement ÷ OCB - Mail Float – Customer payments
mailed but not yet received by
Cash Conversion Cycle seller.

- Processing Float – Customer

Average Age Inventory xx payment received by the seller but
Average Collection Period xx not yet deposited.

Operating Cycle xx - Clearing Float – Amount of

Average Buyout Period (xxx) customers’ check that have been
deposited but have not cleared
Cash Conversion Cycle xxx yet.

Page 16 of 50
Accounts Receivable Management 6. Manufacturing Resource Planning
(Various Areas)
1. Credit Selection and Standards 7. Enterprise Resource Planning (All
2. Credit Terms Functional Areas)
3. Collection and Monitoring Program 8. ABC Classification System

1. Credit Selection and Standards

Short-Term Credit Financing
 Character
 Capacity - Working Capital Financing Policies
 Capital
 Conditions A. Aggressive Financing Strategy
 Collection
B. Conservative Financing
Strategy
2. Credit Terms
C. Maturity Financing Strategy
 Cash Discount (Semi- Aggressive/ Semi –
 Credit Analysis Conservative)
 Collection Cost
 Bad Debts Losses D. Matching Policy (Self
Liquidating)
 Financing Cost
Total Financing Requirement

- Permanent Financing Requirement

Inventory Management
(Minimum Operation
Requirement) - Fixed long term
1. Just-in-Time (JIT) Production System
assets
2. Fixed Order Quantity System
3. Periodic Review / Replacement
System
- Temporary Financing Requirement
4. Optional Replenishment System
(Seasonal Operation Requirement)
5. Material Requirement Planning
- Permanent current assets
(Demand Forecast)

Page 17 of 50
Factors of Considerations in Selecting Sources
of Short-Term Funds

Discounted Discounted
 Cost Sources of Short-
Interest Interest
Term Funds
Cost = Cost =
 Availability - Unsecured FV – Interest FV – Interest – CB
Credits
 Influence - Secured Loans
 Requirement - Banking
Credits Interest + Issue Cost
Cost of Commercial Paper =
FV – Interest-Issuance Cost
Cost of Short-Term Credit
Long-Term Financing Decision
- Cost of Trade Credit with Supplier
L
Cost =
Discount Rate

100% - DR %
x
360

Credit Paid – Disc.




LTFD
Capital Structure
Financial Structure
A AFN
RE
Period
Capital Structure = Financial Structure (Total Assets)
– Current Liabilities
- Cost of Bank Loans Effective
Annual Rate
Required Increase in Assets → in Sales x
W/o compensating with compensating (Asset/Sale)
balance balance
Structure Increase in Liabilities → in Sales x
Not Discounted Not Discounted (Liabilities/Sale)

Interest Interest Increase in R.E

Cost = Cost = Additional Fund Needed
Amount Received FV – Compensating Bal.

Page 18 of 50
Concept of Leverage

DOL = CM or DL = ∆% in EBIT
EBIT ∆% in Sales
DFL = EBIT or DPL = ∆% in EPS
EBIT-Interest ∆% in EBIT

* Deduct Preferred div. (before to)

From EBIT, if my.

DTL = CM or DFL = ∆% in EPS

EBIT- Interest ∆% in Sales

DTL = DOL x DFL

Cash Break Down Point

CBP units = FC – Dep‘n

CM/unit

Page 19 of 50
Financial Statement Analysis

Ratio Used to Evaluate Long-Term Financial Position/Stability

Fixed Assets
Fixed Assets to Total Equity =
Total Equity

Fixed Assets (NET)

Fixed Assets to Total Assets =
Total Assets

Net Sales
Sale to Fixed Assets =
Fixed Assets (NET)

CS SHE
B.V/ Share – CS =
CS Outstanding

NIAT
Times Preferred Div. Earned =
Preferred Dividend

Total Assets
Capital Intensity Rate =
Net Assets

Net Income before tax & fixed changes

Times Fixed Changes End =
Fixed Changes + sinking fund payment

Page 20 of 50
Test of Over-All Short-term SOLVENCY or Short-term Financial Position

* Working Capital/Turn Over = Net Sales

Avg. Working Capital

* Diffusion Interval Ratio = Current Liabilities

Cash & Cash Equivalent

* Payable Turn Over = Net Purchases

Avg. Asset Payable

* Fixed Assets Long-term Liab = Fixed Assets

Long-term Liabilities

Ratios Indications of Income Position

* Rate of Return on Avg. Current Asset = Income

Avg. Current Assets

* Operating Profit Margin = Operating Profit

Net Sales

* Cast flow Margin = Operating Cash Flows

Net Sales

Page 21 of 50
 (personal notes of grr-quash2)

Management Advisory Services

Sequence of topics (Accounting 8n)

4. Managerial Accounting

5. Cost Volume Profit & Break-Even Analysis

6. Standard cost & Variance Analysis

7. Variable & Absorption Costing

8. Differential Cost Analysis

9. Pricing Decisions

10. Responsibility Accounting

11. Budgeting

12. Financial Statement Analysis

13.Capital Budgeting

Managerial Finance ( Finance 3,4&5)

1. The role & Environment of Managerial Finance ( Chapter 1)

2. F/S & Analysis (Chapter 2)

3. Cash Flows & Financial Planning (Chapter 3)

4. Time Value of Money (Chapter 4)

5. Working Capital & Current Asset Management (Chapter 14)

6. Current Liabilities Management (Chapter 15)

7. The Cost of Capital (Chapter 11)

8. Capital Budgeting Cash Flows (Chapter 8)

9. Capital budgeting Technique (Chapter 9)

10. Hybrid & Donatives Security (Chapter 16) [including Chapter 17]

Page 22 of 50
11. Leverage & Capital Structure ( Chapter 12)

COST-VOLUME-PROFIT &

5 BREAK-EVEN ANALYSIS

SALES (Units x Sp per Unit)

Less: Cos

Gp

Less: Operating Expenses (Selling & Administrative Expenses)

Profit / less

Y = a + bx

Where: Y = Total Cost Fixed Cost = y=a

A = Total Fixed Cost Variable Cost = y =bx

B = Variable Cost per Unit Mixed Cost = y = a +bx

X = Number of Units

Variable Costing I/S

Sales

- Variable Cost (Cost & Expenses ) [ Manufacturing , Selling ,Admin]

Contribution Margin

- Fixed Cost

Profit

Break Even Analysis

1. Equation Method Or Algebraic Approach

Sales – Variable Cost – Fixed Cost = Profit

Sales – Variable Cost + Fixed Cost + Profit

Sales = Units x Selling Price per Unit

Variable Cost = Units x Variable Cost per Unit

Page 23 of 50
CONTRIBUTION MARGIN OR FORMULA APPROACH

Sales in units = Fixed Cost + Profit

Contribution margin per Unit

Break over sales in unit = Fixed Cost

Contribution margin per Unit

Contribution Margin = Sales –Variable Cost

Sales = Variable Cost + Contribution Margin

Variable Cost Ratio = Variable Cost

Sales

Contribution Margin Ration = Contribution Margin

Sales

Sales = Variable Cost

Variable Cost “Ratio”

Sales = Contribution Margin

Contribution Margin Ratio

Contribution Margin – Fixed Cost = Profit

Contribution Margin = Fixed cost + Profit

Sales = Contribution Margin

Contribution Margin “Ratio”

Sales = Fixed Cost + Profit

Contribution Margin “Ratio”

Break Over Sales in Peso = Fixed Cost

Contribution Margin “Ratio”

BES IN UNITS & BES IN PESOS

Sales in Units = Fixed Cost + Profit

Sales = Fixed Cost + Profit

CM Ratio

Page 24 of 50
Margin of Safety = Actual or - Break – even Sales

Planned sales

Margin of Safety Ratio = Actual or - Break – even Sales

Planned Sales

Actual or Planned Sales

= Margin of Safety

Actual or Planned Sales

MULTIPLE PRODUCT BREAK – EVEN ANALYSIS

PROCEDURE:

1. Contribution Margin per Unit xxx

x Sales mix Ratio x xxx

Composite Contribution Margin or

Contribution Margin per Sales xx

2. No. of Sales = Total Fixed Cost

Composite Contribution margin

MS in Units = Actual Sales – Break even paid Sales

SP

= Margin of Safety ( in peso) SP

CMR

1 2 3 4

FC = AFC = CM = ACM = F = PR

BES ABES SALES ASALES MS MSR

IF fc is constant: or per unit

A Profit = CMR CM/unit APROFIT = cm/unit

A Sales Sales/unit A in Unit Sales

3. Products * Number of Sales mix Break Even SP BE

X = X =

Sales Ratio points in Units point in peso

Page 25 of 50
7 VARIABLE & ABSORPTION COSTING

CONVENTIONAL FORMAT VARIABLE COSTING FORMAT

(Absorption , full, Conventional) (Direct Costing)

Sales xxx (complete in volume Sales xxx (w/o volume

Less: Cos (xxx) analysis) Less: Variable Cost (xxx) ( capacity or

Gross Income xxx Contribution Margin xxx fixed Volume)

Less: Operating Exp. (xxx) Less: Fixed Cost (xxx)

Income (less) xxx Income [or Less] xxx

UNITS PRODUCED unit sold UNITS PRODUCE unit sold

DM Cost of Goods DM PRODUCT Cost of Goods

DL PRODUCT Sold DL COST Sold

VPOH COST (change against sales) VFOP Cost of

FPOH Cost of Inventory Unsold unit Inventory

Unsold unit (Treated as Asset)

Note : From T.R. CPA

1. > 2. [App liable first year & P = S]

P = S OI = inventory x FFOA / unit

< Reconciliation: Absorption Custom Income xxx

> Add: FFOH in Beginning Inventory xxx

E = B Total xxx

< Less: FFOH in Ending Inventory (xxx)

 Variable Costing Income xxx

A = V FFOH Period cost ( Treated in full as expense during

< the period of insurance)

Note : Variable Selling & Admin –

Fixed Selling & Admin -

Page 26 of 50
8 Different Cost Analysis

A. Defining the Problem

B. Setting of Criteria

C. Identifying the alternative Courses

D. Determination of possible Consequences of Alternatives

E. Evaluating the Alternative

F. Choosing the best alternative and making the decision

Decision Including Alternative Choices

1. Make or Buy

Solution:

PURCHASE Price per Unit xxx

Less: Relevant Manufacturing Cost / unit

DM xxx

DL xxx

VFOH xxx

Fixed Available Fix Cost xxx (xxx)

Difference xxx

Multiple no. Units’ xxx

Net Advantage (Dis advantage) xxx

Of making [“Set“]

2. Accept or Reject Special Order

Special Selling Price xxx

Less: Relevant Cost per unit

Variable Manufacturing xxx

Selling * xxx (xxx)

Contribution Margin / Units xxx

Multiple by no. of Units x xxx

Total Contribution Margin From Special Order xxx

Page 27 of 50
Less: Contribution Margin To be Lost by reducing sales ( xxx )

To regular Costumers

Incremental Profit From Special Order xxx

Make Buy

VMC PP

AC FC / SAVINGS

OC

XXX XXX

ADVANTAGE / DISADVANTAGE

CONTINUE OR DISCONTINUE

OPERATING A BUSSINESS SEGMENT

Continue Discontinue

Unit sales Price xxx

Unit Variable cost (xxx)

Contribution Margin xxx

Fixed Cost (xxx) (xxx)

Profit / loss per Unit xxx xxx

Contribution Margin / unit x

Sales in Units

SALE OR PROCESSED PURTHER

Additional sale Value if processed Further ( a b) xxx

Less: profit Processing Cost (xxx)

Page 28 of 50
Profit / less per Unit if processed further xxx

Multiple The no. of Units x xxx

Total less if Processed further xxx

PRODUCT COMBINATION/ UTILIZATION OF SCARCE

RESOURCES PRODUCT

A B C

1. Contribution Margin/unit xxx xxx xxx

÷ Required /unit xxx xxx xxx

Contribution Margin/ Unit xxx xxx xxx

Note: The product that has a greater Contribution

Per Hour is Transferred the one that is first

To be satisfied w/ regards to Production …….

1. Quantity to produce and sell (Market / Unit)

2. Quantity of products to make or buy

To input Product requirements

Page 29 of 50
Standard Cost & Variance Analysis

Material Variance Labor Variance

Total Material Variance = MPV+MUQV Total Labor Variance = LPV+LQV

Material Price Variance = AQ (AP-SP) Labor Price Variance = AH (AR-SR)
Material Usage Quantity = SP (AQ-SQ) Labor Quantity Variance = SR (AH-SH)

Actual Budgeted Standard Actual Budgeted Standard

AP x AQ AQ x SP SP x SQ AR x AH AH x SR SR x SH

Material Price Variance Material Usage Quantity Labor Price Variance Labor Usage Quanity
Variance Variance

= AQ (AP-SP) = SP (AQ-SQ) = AH (AR-SR) = SR (AH-SH)

Total Material Variance = MPV + MUQY Total Labor Variance = LPH + LQV

Page 30 of 50
FOH Variance Analysis
1. Total FOH Variance
= AFOH-SFOH
2. Controllable Variance
= AFOH-BASH
3. Volume Capacity Variance
= BHSA-SFOH [(NC-AC)
FR/ UNITS]
2.1 Spending Variance
Variance
= AFOH-BAAH
2.2 Variable Efficiency Variance
= BAAH-BASH, [(AH-SH) Vrate]
3.1 Fixed Efficiency Variance
= (AH-SH) Fixed Rate
Total Efficiency Variance,
= (AH –SH) Total Rate
3.2 Idle Time Capacity Variance
= (NC-AC in units) FR/Units
2.1.A Fixed Spending Variance
= (FAFOH-FBAAA)
2.1.B Variable Spending Variance
= (VAFOH-VBAAH)
FOH Variance [AFOH-SFOH] = Total Variance
Controllable Variance Volume Variance = 2 Way Variance
[AFOH – BASH] [BASH-SFOH] or
Spending Variance Variable Efficiency Volume Variance = 3 Way Variance
Variance
Fixed Spending Variable Spending Variable Efficiency Volume Variance = 4 Way Variance
Variance Variance Variance
[FAFOH-FBAAA] [VAFOH-VBAAH]
Controllable Variance Total Efficiency Variance Idle Time = Alternative 3 Way
[AH-SH] Total Rate Capacity Variance
[NC-AC hours] Fixed/hours
Alternative 4 way =
Controllable Variance Fixed Efficiency Variable Efficiency Idle Time Capacity
Variance Variance Variance
(AH-SH) Function/rate (AH-SH) Variable/rate
Page 31 of 50
 I. FINANCIAL STATEMENT ANALYSIS

Two Analyzing Financial Statements

1. Absolute = MRV-MPPV
2. Percentage Change = MRV-MPPV
MPPV
3. Trend Percentage = _MRV_
MPPV

VERTICAL ANALYSIS

Liquidity Ratio
1. Current Ratio = Current Asset
Current Liability

2. Acid Test Ratio = Current Asset Inventory

Current Liabilities

ACTIVITY RATIO

Inventory Turn Over = ___CGS__ = # of working days (360)

Average inventory Average Sales Period

Receivable Turn Over = Net Credit Sales = # of working days (360)

Average A/R Average Collection Period

Payable Turn Over = Net Credit Purchases = # of working days (360)

Average A/P Average Payment Period

Operating Cycle = Average Sales Period +Average Collection Period

Cash Conversion Cycle =Operating Cycle –Average Payment Period

SOLVENCY RATIO

1. Debt Ratio = Total Liabilities

Total Assets

2. Equity Ratio = Total Equity

Total Assets

3. Debt to Equity = Total Liabilities

Ratio Total Equity

4. 100% = Debt Ratio + Equity Ratio

5. Debt to Equity Ratio = Debt Ratio

Page 32 of 50
 Equity Ratio

6. Time Interest = Operating Income or NIBIT

Earned Ratio Interest

7. Fixed Payment = NIBIT + LEASE

Coverage Ratio Interest + Lease+ [Principal + Preferred Fix]
1 – Tax%

PROFITABILITY RATIO

1. GP Ratio = GP 10. EPS = NIACS

Sales WACSO

2. OI Ratio = OI
Sales

3. Net Profit = NIAT 

Ratio Sales

4. Net Profit = NIACS

Ratio Sales

5. Return on = NIAT
Sales Sales

6. Return on = NIAT
Asset Average Asset

7. Return on = NIAT
Equity Average Equity

8. Asset Turnover = Sales

Average Asset

9. Equity Turnover = Sales

Average Equity

Page 33 of 50
MARKET TEST

1. Price Earnings Ratio = Market Price of CS / EPS

2. Dividend Yield = Div. per Share / Market Value per Share
3. Dividend Pay Out = Div. per Share / EPS

Puzzle Ring to Remember

(2) —— —— (3)

M ⁄ E

DU POINT SYSTEM

1 ROE = ROS x ETO

→
E%__ __E%__
2 ↑ ROA = ROS x ATO

3 → 4↑

ROS ETO

ROE = ____NIAT___ = __NIAT__ ● _____SALES______ = ―ROSETO‖

AVERAGE EQUITY SALES AVERAGE EQUITY

ROA = ____NIAT__ = __NIAT__ ● ______SALES______ = ―ROSATO‖

AVERAGE ASSETS SALES AVERAGE ASSETS

Page 34 of 50
GROSS PROFIT VARIANCE ANALYSIS

1. Sales Price Variance = (MRSP – PPSP) (MRQ)

2. Sales Quantity Variance = (MRQ – PPQ) (PPSP)
3. Cost Price Variance = (MRCP – PPCP) (MRQ)
4. Cost Quantity Variance = (MRQ – PPQ)(PPCP)

1. Sales Price Variance = MRS – [PPS x QF]

2. Sales Quantity Variance = MRS/PF – PPS
3. Cost Price Variance = MRC – [PPC x QF]
4. Cost Quantity Variance = MRC/PF- PPC

SVV --------- xxx ---- SPV Price Factor

Prior x Qf x Pf = Recent

Sales xxx x n% x n% xxx

COS (xxx) x n% x n% (xxx)

____ _____ ______

GP xxx xxx

SVV --------- xxx ---- Cost Function CPV

Volume Variance

- PLANNING AND CONTROLLING FUNCTION –

∆% Sales x DOL = ∆% Income

A. Cost Volume Profit Analysis
B. Leverage Analysis

1. DOL= % ∆ in OI DFL= % ∆ in NIACS DTL= % ∆ in NIACS

% ∆ in Sales % ∆ in OI % ∆ in Sales

NOTE: When there are two year given

2. DOL = TCM DFL= Operating Income DFL= TCM

Operating Income OI-Interest- PD OI-Interest- PD
1-T% 1-T%

NOTE: When only one year is given

Page 35 of 50
III. Decisions Making & Evaluation System

Differential Cost Analysis

1. Total Cost Approach

2. Differential Analysis
Incremental Revenue xxx
Less: Incremental Cost
Material xxx
DL xxx
Variable FOA xxx (xxx)
Incremental Profit (xxx)

Make or Buy

Purchase Price xxx

Less: Relevant Manufacturing Cost
DM xxx
DL xxx
VFOA xxx (xxx)
Difference X xxx
Number of Units * xxx
Net Advantage of Make or Buy (xxx)

Accept or Reject w/ Excess Capacity

Special Selling Price xxx

Less: Relevant Cost
DM xxx
DL xxx
VFOA xxx (xxx)
Marginal Profit/ Unit xxx
x No. of Units Ordered *xxx
Incremental Advantage of
Accept or Reject the Offer (xxx)

Without Excess Capacity

Less: Contribution Margin

Lost by reducing sale (xxx)
To regular costumers
Incremental Profit from Special Order (xxx)

Page 36 of 50
Continue or Discontinue Operating a Business Segment

Continue or Discontinue

Units Selling Price xxx —○—

Units Variable Cost xxx —○—

CM xxx —○—

FC (xxx) (xxx)

Profit xxx (xxx)

Manila Makati Quezon Total

Sales xxx xxx xxx xxx

Variable Cost (xxx) (xxx) (xxx) (xxx)

CM xxx xxx xxx xxx

-FC

Profit

Sell or Process Further

Additional/Sales Value if Process Further xxx

Less: Further Processing Cost (xxx)

Profit xxx

Page 37 of 50
Product Combination / Utilization of Scarce Resource

Steps:

1. Identify the scarce resource.

2. Identify the product utilizing the scarce resource.
3. Compute the CM per Scarce Resource.
CM= CM
Resource needed per unit
4. Prioritize the product with the highest input of Contribution Margin per Scarce Resource.

(B) Short Term Financial Management

1.) Cash Management

ECQ= √

Conversion Cost =

Total Opportunity Cost = Average Cash Balance x Interest Rate

Accounts Receivable Management

Average Investment in A/R =

Turn Over A/R =

Powerful Tool

Turn Over of A/R = =

Page 38 of 50
Additional Profit Contribution from Sales

(Increase x CM / Unit) xxx

Cost in Marginal Investment in A/R

(Marginal Investment x Required Return on Equal Risk Investment) (xxx)

Cost of Marginal Bond Debts

(Increase in Bad Debts) (xxx)

Net Profit from Implementation of Proposed Plan (xxx)

Note: This is about Relaxation of Credit Standards

Speeding-Up Collection of A/R

(w/ Cash Discount)

Additional Profit Contribution from Sales xxx

(Increase in Units x CM/ unit)

Cost in Marginal Investment in A/R

(Marginal Investment x Required Return) (xxx) →depends if the

investment is to
spent or save
from the proposed plan.

Cost of Marginal Bad Debts (xxx)

Cost of Cash Discount

(Total Units x Save Price x No. of (xxx)

Customers who Avail Discount x Disc x Ratio) ______

Net Profit from Initiation of Cash Discount (xxx)

Page 39 of 50
Credit Monitoring

1. Average Collection Period

2. Aging of A/R

Float

1. Mail Float
2. Processing Float
3. Clearing Float

Lock Box System

Investment Reduce = Sales x

Cash Concentration

1. Pool of funds for making cash investment – Short Term.

2. Improves trading and internal control of the firm cash.
3. Reduces idle cash balance.

Resource Invested

Inventory = COS x = xxx

+ Accounts Receivable = NCS x = xxx

- Accounts Payable = Purchases x = (xxx)

Resource Invested (xxx)

Inventory Management

Common Techniques for Managing Inventory

1. ABC Inventory System (Average According to Value of A/P)

2. Two Bin Method
3. EOQ

S = Usage in units per period

O = Order cost per order

C = Carrying cost per unit per period

Q = Order quantity in units

Page 40 of 50
*Order Cost =Ox

*Carrying Cost = C x

*Total Cost = Order Cost + Carrying Cost

*EOQ =√

*Reorder Point = Days of load time x Daily usage

PR = C =
PR CMR
= x MSR

Profit/sales CM/SALES MS/SALES

5. Indifference Point:

1. (cm/unit multiply Q) –FC = (cm/unit multiply Q) – fe

2. fc+( vc/unit multiply Q) = fc+ (vc/unit multiply Q)

NOTE: Q = Indifference Point

FINANCE 3, 4, & 5
Chapter 3

3.1 Analysing the Firms Cash Flow

3.2 Financial Planning Process

3.3 Cash Planning Cash Budget

3.4 Profit Planning :Proforma Statements

Page 41 of 50
3.5 Preparing the Proforma I/S

3.6 Preparing the Proforma B/S

3.7 Evaluation to Proforma Statements

Chapter 4

4.1 The Role of Time Value in Finance

4.2 Single Amounts

4.3 Amounts

4.4 Mixed Streams

4.5 Compounding Profits { Annually }

More frequently than Annually

4.6 Special Application of Time Value

1. FVA n = PMT x (FX1Fain)

Pmt = FVN n divide FVIFAin dIvide FVIFAin

Note: Determining Deposits Needed to Accumulate a Future Sum

2. Note: Loan Ammortization (Solubule)

PVAn = PMT x (PVIFAin)

PMT = PVAn divide FVIFAin

3. Note: Finding Interest or Growth Rates

RVIFAin = PVAs divide PMT

REFER TO TABLE!!!

5.1 Risk & Return Fundamentals

5.2 Risk of a Single Asset

1.risk averse

2. risk indifferent
Page 42 of 50
3. risk seeking

CHAPTER 6 & 7

(wa pa discuss {studihan}

Chapter 8 (Capitals Budgeting)

Steps :

1. Proposal Generation
2. Review & Analysis
3. Decision Making
4. Implementation
5. Follow -Up

Chapter 9 ( Techniques of Capital Budgeting

9.1 Overview of Capital Budgeting
9.2 Payback Period
9.3 Net Present Value [ NPV = Present Values of Cash Inflows – Initials/Investment]
9.4 Internal Rate of Return [ NRV = Initial Investment]
Note: Trials and Error !!!
9.5 Comparing NPV & IRR Techniques

Chapter 14:

14.1 Net Working Capital Fundamentals

14.2 Cash Conversion Cycle

14.3 Inventory Management

14.4 Accounts Receivable Management

14.5 Management Receipts & Disbursement ( Concentration Bank)

Page 43 of 50
Chapter 15 Margin Current Liabilities

15.1 Spontaneous Liabilities

Cost of Giving Up = CD/ 100% -CD multiply 365/N

Cash Discount ↓

CD : Stated Cash discount in percentage firms

N = Number of days that payment can be delayed by giving up cash discount.

Approximate cost Giving cash discount = CD multiply 365/N

15.2 Unsecured Sources of Short-Term Loans

Methods of Computing Interest = Interest/ amount borrowed

(at the end of the year effective rate)

Effective rate ( Discounted deducted in advance = Interest/amount borrowed-interest

F/S Analysis

϶Δ↑ = Index > 100%

϶Δ↓ = Index < 100%

1. “X” = I/S Related Accounts/ average “x”

2. X to y = x/y
3. “x” Margin = ”x”/sales
4. Return on “x” =NY/”x”
5. Time “x” earned = + when x is deducted/ “x”

Note:

Ideally – Gross Sales DY _ D _po

I/S – “ Net Sales “ M/ E

B/S – Total Assets D/M multiply M/E multiply D/E

Page 44 of 50
 I – P.O. = Rotation Ratio (Flowback)

Cash Flow

Sales – COS = GP – OE=OP – Interest {not included]=NPBT or “NBT”- % Tax=NPAT or NIAT

FREE CASH FLOW

Operating Cash Flow - Gross Investment in Net Operating Assets

Change in Net Working Capital

NOPAT + Dep. & Ammortization

Change in LTA +Dep.

Technique:

OPERATING INVESTING FINANCING

xxx xxx xxx

Current cash = cash provided by operations/ average current liabilities

Debt ratios

Cash debt average ratio = cash provided by operation/ average liablities

Page 45 of 50
Cost and Cost Concept

I. Cost Classification

A. Function

1. Manufacturing

DM + DL + FOH = TMC

DC CC

2. Commercial ( Non-Manufacturing )

a. Selling and Marketing

b. General And Administrative

B. Behaviour

1. Variable Cost
2. Fixed
3. Hybrid/ Mixed

II. Cost Segregation

1. Highest and Lowest Points Method

independent variable
y = a + bx Activities/
Total Cost
Production
dependent variable
Fixed Cost
Y- Intercept

slope
VC per Activity

NOTE: The independent variable is the point where to determine the points to be used.

Page 46 of 50
 2. Regression or Method of Least Squares

∑ x y = a ∑ x + b ∑ x2

[ ∑y = an + b ∑ x x

Material “Mixed” & Yield Variance:

MPV Actual Quantity x Actual Mix x Actual Price
Actual Quantity x Actual Mix x Standard Price

MMV Actual Quantity x Standard Mix x Standard Price

AQ x AP
MYU Standard Quantity x Standard Mix x Standard
Material Price Variance Price

= Material Price Variance

( AP – SP ) AQ

AQ x SP

Material Quantity/ Usage = Material Mixed Variance

Variance

TA/ASIC
⇨ [―TAQ‖ x Average SP

= Material Yield Variance

SQ x Average SP

Page 47 of 50
NOTE: Average Selling Price = SP/unit of product x Mix/product

FOH Variance:

Cost Formula:

Y = FC + Variance/unit (x)

Budgeted based on Normal Equity

NOTE: This format is the most convenient for

solving BASH & BAAH

Other Formulas:

1. Volume Variance = (NC – AC in units) F rate/unit

2. Total Efficiency Variance = (AH – SH hrs.) Total OH rate/unit
3. Idle Time Capacity = (NC – AC hrs.) F rate/unit

Page 48 of 50
  Responsibility Accounting
- Systems of Accounting Performance

Recorded and reported by level of responsibility

 Responsibility Centre segment of organization

Perform single function
group of related functions

Responsibility Centre

Variance

Cost – Cost
Variance – AR-BR

Revenue – Revenue
Segment I/S

Profit – Revenue & Cost

1. Segment I/S
2. ROI Investment – revenue, cost, investment
3. RI
4. EVA – Economy Value Added

Business in a business (Division, Branches)

STEPS:

1. Classify the responsibility centres

2. Classification of controllable and non-controllable
3. Performance report and evaluation

Page 49 of 50
Optional Safety Stock

Usage

Probability

1. Identify the number that has common occurrence

2. Crush or select
Stock Out x # of order x frequency of occurrence x Cost/order

Carrying Cost No. of units Stock Out Cost Total Cost

Selected or Crushed
(Increasing from
the point selected)

Spontaneous Liability

Illustration

5/10; n/10

0 10 20 30 40

98, 000 10,000

2,000 interests

Interest = P x R x T

2000 = 98,000 x n x 30/360

= 24.49 %

Page 50 of 50