COST BEHAVIOR ANALYSIS

yh− yl ∆y
y=a+bx b= = slope ¿
xh−xl ∆x
Rules:
I – Ignore the outlier.
II – Use x as the basis for high/low.
III – In case of common x, use the one with lower cost.

CORRELATION (r)
Coefficient of Determination (r 2 ) = absolute value

COST-VOLUME-PROFIT (CVP) ANALYSIS

CM ∆CM
CM Ratio ¿ ¿
Sales ∆ Sales

FC FC
BEQ= =
CM /unit S−V

FC
BEQ ( PhP )=
VC
1−
S

FC + Profit
BEQ+Target Profit=
CM /unit

FC
BEQ ( PhP )=
CMR−ROS

MarginOS=Sales−BEQ ( PhP)

With Sales Mix:

FC
BEQ =
WA CM /unit

Sales Volume = Basis for Weighted Averaging

= Basis for separating sales mix
from the computed BEQ
ABSORPTION AND VARIABLE COSTING

P :S= Ay :Vy=End Invty : Beg Invty

Income, Absorption Costing

Add: FFOH in Invty, Beg.
Total ∆ Income=∆ Inventory × FFOH /unit
Less: FFOH in Invty, End.
Income, Variable Costing

DM VARIANCES  MAKE OR BUY

PV AQ X AP PV AQ X AP - Lowest costs
PV
AQ X SP DMV AQ X SP - Opportunity costs addition to cost
QV
QV SQ X SP DYV TAQASP
SQ X SP  ACCEPT OR REJECT
- Additional income
LABOR VARIANCES Minimum SP
AH X AR AH X AR - At full capacity = SP + Add’l Costs
RV RV
AH X SR AH X SR - At excess capacity =Avoidable Costs or
EV LMV
SH X SR TAHASR Variable Costs + Add’l Costs
LYV
SH X SR
 CONTINUE OR SHUTDOWN
FOH VARIANCES FC−Shutdown Costs
1-WAY SHUTDOWN PT =
CM /unit
AFOH Above Shutdown Pt = Continue
FOH V
SFOH Below Shutdown Pt = Shutdown
2-WAY
AFOH  SELL OR PROCESS FURTHER
CON
BASH SP-Further Costs VS. SP AT SPLIT-OFF PT.
VOL
SFOH
3-WAY  BEST PRODUCT COMBINATION
AFOH - Highest CM per hour
SV
BAAH - Bottleneck Operation = Demand > Capacity
EV
BASH - Capacity = Units it can produce within a
VOL
SFOH limited constraint (TIME)
4-WAY
AFOH(V)
S(V)V
BAAH(V)
AFOH(F)
S(F)V
BAAH(F)
BAAH
EV
BASH
VOL
SFOH
RESPONSIBILITY ACCOUNTING

Op . Income
ROI=
Op . Assets

Op . Income Sales
ROI= ×
Sales Op . Assets

ROI=Margin × Turnover

Residual Income=Op . Income−Req . Income

Req . Income=Op . Assets × Minimum ROI

Economic Value Added=Op . Income After Tax −Req . Income

Req . Income=(TOtal Assets−Current Liab .)×WACC

TRANSFER PRICING

UPPER LIMIT
MAXIMUM TRANSFER PRICE = PURCHASE PRICE

LOWER LIMIT
MINIMUM TRANSFER PRICE = VARIABLE COST PER UNIT + LOST CM PER UNIT
= SELLING PRICE

COST-BASED
VC = VC
FC = VC + FM + FNM
FAC = VC + FM
Cost-Plus = VC / FC / FAC + Mark-up
MARKET-BASED
NEGOTIATED PRICE
ARBITRARY PRICE

SERVICE COST ALLOCATION

(a) Direct Method

(b) Step-down Method
(c) Reciprocal Method = Dept. Allocation + Share in Other Dept’s Allocation

Per Service Dept. = Direct + Indirect

ACTIVITY-BASED COSTING & BALANCED SCORECARD

Value-Added = Necessary and increase in perceived value or product

Non-Value-Added = Unnecessary or necessary but inefficient

FOUR PERSPECTIVES OF BALANCED SCORECARD (FCLI)

I – MANUFACTURING EFFICIENCY

Delivery Cycle Time=Wait Time+ MCT (Throughput Time)

MCT ( Throughput Time )=Inspection + Process ( VA )+ Move+Queue

Process Time (VA)

MCE %=
Man . Cycle Time

II – QUALITY COSTS (PAIE)

Prevention-------------------Before Production
Appraisal --------------------After Production
Internal Failure-------------Before Delivery
External Failure------------After Delivery

III – PRODUCTIVITY

Output (a) Operational

Productivity=
Input (b) Financial

IV – MARKET EFFECTIVENESS

AQ X AP AQ
SPV %AS=
AQ X SP ATS X AS ATS
SVV MSHV
SQ X SP SVV ATS X SS
MSIV
STS X SS (x CM/u) SQ
%SS=
STS
QUANTITATIVE TECHNIQUES

I – GANTT CHART
II – PERT-CPM

(¿+4 tm+ tp)

te=
6

III – LEARNING CURVE

(x2) (x.8) (x1.60)

UNIT AVE (80%) TOTAL
1 20 20 12=2nd
2 16 32 19.2=3rd & 4th
4 12.8 51.20 30.72=5th, 6th, 7th & 8th
8 10.24 81.92

IV – ECONOMIC ORDER QUANTITY & ECONOMIC LOT SIZE

EOQ=
√ 2 DO
C
Annual OC=
Annual Demand
EOQ
×C /order

EPR ( ELS )=
√ 2 DS
C
Annual CC=Order ¿ ¿ × CC /unit ¿
2

* Ave . Invty=Order ¿ ¿ 2 ¿
EOQ
Ave . Invty= +SS
2
Beg . Invty + End . Invty
Ave . Invty=
2

V – RE-ORDER POINT & SAFETY STOCK

ROP=Max. Usage per time × Lead Time

ROP=( Ave .Usage per time × Lead Time ) + SS

SS= ( Max . Usage per time− Ave . Usage per time ) × Lead time
FINANCIAL MANAGEMENT

I – WORKING CAPITAL MANAGEMENT

CONSERVATIVE = Long-term financing, avoids risk

AGGRESSIVE = Short-term financing, takes risk

OCB=
√
2 × Annual Req .× C /t
Oppotunity Cost
Annual Req .
HC= Ave . Cash ×Oppotunity Cost

OCB
TC = × C/t Ave .Cash=
OCB 2

II – CASH CONVERSION CYCLE (objective: to shorten)

Invty Receivable Payable

CCC= + −
Daily COGS Daily Sales Daily Purchases

FLOAT

POSITIVE = BANK > BOOK = Lengthen

NEGATIVE = BANK > BOOK = Shorten

III – COST OF SHORT-TERM FUNDS

Interest Interest Disc % 360 days

k= k disc¿ k tc¿ ×
Proceeds Face V −Interest−CB 1−Disc % CP−DP
Interest Interest + IC 360 days
k ndisc¿ k cp¿ ×
Face V −CB Face V −Interest−IC Term

III – ADDITIONAL FINANCING NEEDED

AFN =∆ Assets−∆ Liability−∆ Retained Earnings

IV – LEVERAGE

CM ∆ EBIT EBIT ∆ EPS

DOL= = DFL= =
EBIT ∆ Sales EBT ∆ EBIT
CM ∆ EPS
DCL= =
EBT ∆ Sales
CAPITAL BUDGETING

*Use Market Values.

k ( cost of capital ) (WACC )=Minimum required rate of return; minimum acceptable rate of return; cut-off rate; target rate;
desired rate of return; standard rate; hurdle rate

IO
PBP= BPBP=PBP with estimated salvage value each year
Annual NCF

Ave . Annual Net Income NCF I

ARR= PBR= =
IO IO PBP

PV -CF
NPV =PV - CF−IO PI =
IO

IRR=%PV - CF=IO

k cl¿ % (1−Tax %)

D1
k cs¿ + g D 1=D 0(1+ g)
Net MV

D1 D1
k PS ¿ k cs-RE¿ + g *gross of flotation costs
Net MV MV

IRR = Discounted CF rate of return; time-adjusted rate of return; sophisticated rate of return
ARR = Book rate of return; unadjusted rate of return; simple rate of return; approximate rate of return;
FS rate of return
FINANCIAL STATEMENT ANALYSIS

I - GROSS PROFIT VARIANCE ANALYSIS

SINGLE-PRODUCT COMPANY

AQ X AP AP
SPV ∆ Unit SP
AQ X SP AQ SP
SVV ∆ Unit Sales
SQ X SP SQ
GPV
AQ X AC AC
CPV ∆ Unit SP
AQ X SC AQ ∆ Unit Sales SC
CVV
SQ X SC SQ

MULTI-PRODUCT COMPANY

AQ X AP Assumption: ACTUAL = Current Year

SPV
AQ X SP BUDGET = Previous Year

SVV TAQASP
SQ X SP
GPV
AQ X AC
CPV
AQ X SC

CVV TAQASC
SQ X SC

II – FINANCIAL RATIOS

LIQUIDITY = Ability to pay its current liabilities as they fall due

SOLVENCY = Ability to pay its debts

BS = Average
IS = Current

RULES ON FORMULAS:

360 days I /S Income

Age= Turnover = Return=
Turnover B/ S Account

Total Assets
Capital Intensity Ratio=
Net Sales
 EBIT
¿ Interest Earned=
Interest Expense