Management Advisory Services.pdf

Discussion: CVP 16 Batch 1 1. Cost Behavior Analysis 2. Cost Valuation Profit Analysis 3. Absorption & Variable Costing

14 12

Total Cost = F x C + VC

y= a

+

r i s e

10

 _ _ _ _ _ _ _ run 1 2 3 4

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 S -VC CM -F x C P

x = F x C (increase) CM/unit x = unit increase

―Before interest & taxes‖

DOL = CM OI

Indifference Indiffer ence Point 1. Unit CM x Q –  Q –  FC  FC = Unit CM x Q –  Q –  FC  FC

∆% in profit = ∆% Sales x DOL OI

MS = Sales –  Sales – BES BES MSR = MS Sales

2. FC + (VC unit x Q) = FC + (VC unit x Q)

BES = F x C CMR

CM x MS = P Sales Sales Sales

BEP units = F x C

CMR x MSR = NPR

CM/unit

[

CMR x (Sales –  (Sales  –  BES)  BES) = P CM –  CM  –  FxC  FxC = P P=P

] [ ]

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 Wtd.Avg.CM/Unit xxx + xxx =

xxx

 Note: Cetiris 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 Sales ∆Sales

BES = F x C + P CMR

2. CMR = F x C = ∆F x C BES ∆ BES

S

=

FxC CMR- ROS 

3. CMR = P = ∆ P MS ∆ MS

 Note: this can be use only if the profit is a percentage.

Page 2 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 Wtd.Avg.CM/Unit xxx + xxx =

xxx

 Note: Cetiris 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 Sales ∆Sales

BES = F x C + P CMR

2. CMR = F x C = ∆F x C BES ∆ BES

S

=

FxC CMR- ROS 

3. CMR = P = ∆ P MS ∆ MS

 Note: this can be use only if the profit is a percentage.

Page 2 of 50

DM DL VPOA FFOA TMC WIP

―Variable Cost‖

AY VY ∆Y

Sales (CGS) GP

CGM FGI

P>S < E>B < A>V <

xxx xxx xxx

∆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 Absorptio n Costing - PRODUCT COST

AC –  AC –  DC  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 –  MS – 04 04

Make or Buy

Sales VC CM - F x C (Direct) Traceable Traceable Segment Margin - F x C (Indirect) Common Profit

 Note: Add lang lang ng add!! add!!

Make

Buy

DM DL VPOA FFOA HC

xxx xxx xxx xxx xxx

xxx* xxx*

BEP = F x C CM/unit

Product price

---

xxx

1. SD Point

xxx

xxx

*AC *OC

xxx xxx

xxx

Note: Income sacrifice or forgone if on make! xxx

relevant cost to make

Best product Combination

=

(+) => Continue segment (-) => Shutdown segment

F x C –  SD  SD Cost CM/unit

Note: SD point > continue Produce SD point < discontinue discontinue

relevant cost to buy

= CM/unit hours/unit

CM/hour or [scarce resources]

Page 4 of 50

- WC

0 Sell or Process Further

A

Split - off Point

CL

L NCL

 NC

M I L O

Joint Process 

C

1.

F0

E

- COC

CB

―Joint Cost‖ FPC 1. Collection Platform! Sale at Split off Sales if Process further xxx Less: FPC (xxx) Advantage/Disadvantage Advantage/Dis advantage

Sale at Split-off Sale FPC

xxx

2.

xxx xxx

March xxx February xxx January xxx

Process further

xxx ---

xxx (xxx)

xxx

xxx

Total Collection xxx

*Best Product Combination*  Note: [Refer [Refer to your formulas]!! formulas]!!

MS –  MS –  OS –   OS –  Budgeting!!   Budgeting!! Quantitative Budget = PLAN MASTER BUDGET  

Operating –  Operating –  IS  IS Financial –  Financial  –  BS  BS

Production Budget DM by - DM produced DM end DM used

DM used DL FOH TMC

WIP by TMC - WIP end CGM Page 5 of 50

FGI by CGM - FGI end CGS

Sales CGS GP - Express nY

100% (65%) 35% (25%) 10%

MS: 06 Standard Costing [Refer to your summary]

FOH Vminus = AC – SC = AFOH – SFOH

DM Variance = AC –  SC = (AP x AQ) – (SP x SQ) MQV = ∆Q x SP = (AQ – SQ) SP MPV = AQ x ∆P = AQ (AP – SP)

2 way

3 way

4 way

Con.Vol AFOH

S.E.VOL AFOH Spending BAAH CON Efficiency BASH VOL SHSR

S.S.E.VOL

BASH MPUV = AQused x ∆P MPPV = AQpurchased x ∆P

SHSR (SFOH)

DL Variance= AC –  SC= (AR x AH) – (SR x SH) LE V = ∆H x SR= (AH – SH) SR LR V = AH x ∆R= AH (AR   – SR)

FOH = fixedCost + slope (activity level)

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

x  

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

VOL

Variable Spending Fixed Spending Efficiency Volume Unit

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 Outflows  Net Present Value

÷ =

PV of Cash Inflows PV of Cash Outflows Profitability Index

÷

NPV

=

Investment 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 ∆% in Price Average Quantity Average Price

Page 7 of 50

Ed >1 = Elastic E d =1 = Unit Elastic/Unitary Ed Ordering Cost > Carrying Cost * Where to place? > 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 3 Factors a. Net Investment  b. Cost of Profit c. Net Returns

1. Net Investment Cost Cash Out xxx

Savings Cash In xxx (xxx) -Tax on Gain -needed working capital xxx -Tax loss/ tax shield xxx

xxx 

-

Accrual xxx  Net Income

― Net Investment‖ 

Cash

Cash in xxx - Cash out (xxx)  Net Cash Flows

2. A. Operating Income (EBIT) Interest % EBT Tax %  NIAT Preferred Div (amount)  NI – C/S

xxx (xxx) xxx (xxx) xxx (xxx) 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 Capital

A

CA

 NCA

Inventory Capital

L

Interest 5% x 80% = 4%

E

Dividends 10% x 20% = 2% 6%

1. MV over BV 2. Effective Rate over Nominal Rate

Sources: Debt: Yield Equity: (P/S) (C/S) = Rf+b(Rf-km)

Div Yield = Div/Share MP/Share WACC = is minimum acceptable rate of return, desirable rate of return

Decision Rules Acceptable 



Bail-Out ―Payback Period‖ Year 1 2 Net Investment xxx xxx Cash Flow xxx Salvage Value xxx

PB Period < Standards of Industry Life ÷ 2

3 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 - VC

* Net Investment = ―PB period‖ – ―Liquidating Concern‖ Net Cash Flows

CM - F x C (cash)

* Net Income = ARR Net Investment

 –  ―Profitability Concern‖

- Dep‘n Profit - Tax  Ny

Average Investment = = NI Average Investment AI= Cost + SV/2

Page 14 of 50

Original Investment = = NI Original Investment

Capital Budgeting with consideration of Time Value Method

1. IRR to solve Cost of Investment Ordinary PVF % =





NPV = PV of Cash Inflow –  PV of Cash Outflow PI = PV of Cash Inflow ÷ PV of Cash Outflow

Annual Cash Flow 2. Trial and Error on choices available

IRR = PV of Cash Inflow = PV of Cash Outflow Decision Rules

IRR = NPV = O



PB pd ≤



ARR

*Computation of Effective Rate 

NPV Index = NPV ÷ Investment

Payback Reciprocal

1. Industry Std 2. life ÷ 2

≥

Cost of Capital

*Non Discount Method

PB pd = Payback Period 

life 1. PB pd ≤



2 2. Cash Inflow –  Uniform





≥ 0 <

PI

≥ 1 <

> Cost of Capital < *Discount Methods 

↑IRR = ↓ PVF ↓IRR = ↑ PVF

 NPV

Page 15 of 50

IRR

MS: II Financial Management

Baumol Model (William) Cash Management

Optimal Cash

Cash Management Strategies 1. Accelerating Collection (Lockbox System)

²(Annual Cash Requirement)

(Cost Per Transaction)

Balance (OCB)

Opportunity Cost of

Holding Cash

2. Slowing Disbursement (Playing Floats)

Total Cost of Cash Balance = °Holding Cost +°° Transaction Cost

3. Redding Precautionary (Zero Balance Accounts) Idle Cash

°Holding Cost = Average Cash Balance x Opportunity Cost Concept of Float

Average Cash Balance = Optimal Cash Balance ÷ 2 °°Transaction Cost = No. of Transactions x Cost per Transaction

1. Types of Float 2. Positive Float (Disbursement) 3. Negative Float (Collection)

Number of Transaction = Annual Cash Requirement ÷ OCB

-

Mail Float – Customer payments mailed but not yet received by seller.

-

Processing Float – Customer payment received by the seller but not yet deposited.

-

Clearing Float – Amount of customers’ check that have been deposited but have not cleared yet.

Cash Conversion Cycle

Average Age Inventory Average Collection Period

xx xx

Operating Cycle Average Buyout Period

xx (xxx)

Cash Conversion Cycle

xxx

Page 16 of 50

6. Manufacturing Resource Planning (Various Areas) 7. Enterprise Resource Planning (All Functional Areas) 8. ABC Classification System

Accounts Receivable Management

1. Credit Selection and Standards 2. Credit Terms 3. Collection and Monitoring Program

1. Credit Selection and Standards Short-Term Credit Financing     

Character Capacity Capital Conditions Collection

-

Working Capital Financing Policies A. Aggressive Financing Strategy B. Conservative Financing Strategy

2. Credit Terms     

C. Maturity Financing Strategy (Semi- Aggressive/ Semi  – Conservative)

Cash Discount Credit Analysis Collection Cost Bad Debts Losses Financing Cost

D. Matching Policy (Self Liquidating) Total Financing Requirement

Inventory Management

1. Just-in-Time (JIT) Production System 2. Fixed Order Quantity System 3. Periodic Review / Replacement System 4. Optional Replenishment System 5. Material Requirement Planning (Demand Forecast)

Page 17 of 50

-

Permanent Financing Requirement (Minimum Operation Requirement) - Fixed long term assets

-

Temporary Financing Requirement (Seasonal Operation Requirement) - Permanent current assets

Factors of Considerations in Selecting Sources of Short-Term Funds 

Cost Term Funds



 

Discounted Interest

Sources of Short-

Availability Credits Influence Requirement Credits

Cost =

- Unsecured

FV – Interest

Discounted Interest Cost = FV – Interest – CB

- Secured Loans - Banking Interest + Issue Cost Cost of Commercial Paper = FV – Interest-Issuance Cost

Cost of Short-Term Credit

-

Cost of Trade Credit with Supplier

Discount Rate

Cost =

Long-Term Financing Decision 

360



x 100% - DR %



Credit Paid – Disc.

A

LTFD Capital Structure Financial Structure

Period Capital Structure = Financial Structure ( Total Assets)  – Current Liabilities

-

Cost of Bank Loans Effective Annual Rate

W/o compensating balance Not Discounted

with compensating balance Not Discounted

Interest Cost =

Required Increase in Assets (Asset/Sale)

Interest Cost =

Amount Received

→

in Sales x

Structure Increase in Liabilities → (Liabilities/Sale)

in Sales x

Increase in R.E Additional Fund Needed

FV – Compensating Bal.

Page 18 of 50

L AFN RE

Concept of Leverage DOL = CM or EBIT DFL = EBIT or EBIT-Interest

DL = ∆% in EBIT ∆% in Sales DPL = ∆% in EPS ∆% in EBIT

* Deduct Preferred div. (before to) From EBIT, if my. DTL = CM EBIT- Interest

or

DFL = ∆% in EPS ∆% 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 - Break – even Sales

Margin of Safety Ratio = Actual or Planned Sales

Actual or Planned Sales = Margin of Safety Actual or Planned Sales

MULTIPLE PRODUCT BREAK  –  EVEN ANALYSIS PROCEDURE: 1.

Contribution Margin per Unit

x

xxx

Sales mix Ratio

x xxx

Composite Contribution Margin or Contribution Margin per Sales 2. No. of Sales =

xx

Total Fixed Cost Composite Contribution margin

MS in Units

= Actual Sales – Break even paid Sales SP

SP

= Margin of Safety ( in peso)

CMR 1 FC

2 =

BES IF fc is constant:

3

AFC

= CM =

ABES

SALES

ACM = ASALES

4 F =

PR

MS

MSR

or per unit

A Profit = CMR A Sales 3. Products * Number of

Sales mix X

Sales

CM/unit

APROFIT

Sales/unit

A in Unit Sales

Break Even =

Ratio

SP X

BE =

points in Units

Page 25 of 50

point in peso

= cm/unit

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)

Less: Variable Cost

(xxx) ( capacity or

analysis)

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

DM DL

COST

Cost of Goods

DM

PRODUCT

Sold

DL

COST

(change against sales)

FPOH

unit sold

Cost of Goods PRODUCT

VPOH

UNITS PRODUCE

VFOP

Cost of

Cost of Inventory Unsold unit

Sold

Unsold unit

Inventory

(Treated as Asset)

Note : From T.R. CPA 1.

> P

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

= S

OI =

<

E

A

inventory x FFOA / unit

Reconciliation: Absorption Custom Income

xxx

>

Add: FFOH in Beginning Inventory

xxx

= B

Total

xxx

<

Less: FFOH in Ending Inventory

(xxx)



Variable Costing Income

xxx

= 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 Selling

xxx * xxx

Contribution Margin / Units Multiple by no. of Units Total Contribution Margin From Special Order

(xxx) xxx x xxx 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 Unit sales Price

xxx

Unit Variable cost

(xxx)

Contribution Margin Fixed Cost

Discontinue

xxx (xxx)

(xxx)

xxx

xxx

Profit / loss per Unit

Contribution Margin / unit x Sales in Units SALE OR PROCESSED PURTHER Additional sale Value if processed Further ( a b) Less: profit Processing Cost

xxx (xxx)

Page 28 of 50

Profit / less per Unit if processed further

xxx

Multiple The no. of Units

x

Total less if Processed further

xxx xxx

PRODUCT COMBINATION/ UTILIZATION OF SCARCE

RESOURCES

PRODUCT

1. Contribution Margin/unit ÷ Required

/unit

Contribution Margin/ Unit

A

B

C

xxx

xxx

xxx

xxx

xxx

xxx

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 Material Price Variance = AQ (AP-SP) Material Usage Quantity = SP (AQ-SQ)

Actual

Budgeted

AP x AQ

AQ x SP

Total Labor Variance = LPV+LQV Labor Price Variance = AH (AR-SR) Labor Quantity Variance = SR (AH-SH)

Standard

Actual

Budgeted

Standard

SP x SQ

AR x AH

AH x SR

SR x SH

Material Price Variance

Material Usage Quantity Variance

= AQ (AP-SP)

= SP (AQ-SQ)

Total Material Variance = MPV + MUQY

Labor Price Variance

Labor Usage Quanity Variance

= AH (AR-SR)

= SR (AH-SH)

Total Labor Variance = LPH + LQV

Page 30 of 50

FOH Variance Analysis

FOH Variance [AFOH-SFOH] = Total Variance

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)

Controllable Variance [AFOH – BASH] Spending Variance

Fixed Spending Variance

Volume Variance = 2 Way Variance [BASH-SFOH] or

Variable Efficiency Variance

Variable Spending Variable Efficiency Volume Variance = 4 Way Variance Variance Variance

[FAFOH-FBAAA] [VAFOH-VBAAH]

Controllable Variance Total Efficiency Variance [AH-SH] Total Rate

Controllable Variance Fixed Efficiency Variable Efficiency Idle Time Capacity Variance Variance Variance (AH-SH) Function/rate (AH-SH) Variable/rate

FINANCIAL STATEMENT ANALYSIS Two Analyzing Financial Statements 1. Absolute = 2. Percentage Change

=

MRV-MPPV MRV-MPPV MPPV

3. Trend Percentage

=

_MRV_ MPPV

VERTICAL ANALYSIS Liquidity Ratio 1. Current Ratio

Idle Time = Alternative 3 Way Capacity Variance [NC-AC hours] Fixed/hours

Alternative 4 way =

Page 31 of 50

I.

Volume Variance = 3 Way Variance

=

2. Acid Test Ratio =

Current Asset Current Liability Current Asset Inventory Current Liabilities

I.

FINANCIAL STATEMENT ANALYSIS Two Analyzing Financial Statements 1. Absolute = 2. Percentage Change

MRV-MPPV

=

MRV-MPPV MPPV

3. Trend Percentage

=

_MRV_ MPPV

VERTICAL ANALYSIS Liquidity Ratio 1. Current Ratio

=

2. Acid Test Ratio =

Current Asset Current Liability Current Asset Inventory Current Liabilities

ACTIVITY RATIO Inventory Turn Over = ___CGS__ = Average inventory

# of working days (360) 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 = Average A/P

# of working days (360) 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 = Coverage Ratio

NIBIT + LEASE Interest + Lease+ [Principal + Preferred Fix] 1 – Tax%

PROFITABILITY RATIO 1. GP Ratio

=

GP Sales

2. OI Ratio

=

OI Sales

3.  Net Profit Ratio

=

NIAT  Sales

4.  Net Profit Ratio

=

NIACS Sales

5. Return on Sales

=

NIAT Sales

6. Return on Asset

=

NIAT Average Asset

7. Return on Equity

=

NIAT Average Equity

8. Asset Turnover =

Sales Average Asset

9. Equity Turnover =

Sales Average Equity

10.

EPS

Page 33 of 50

=

NIACS WACSO

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

D (2)  ——  M

 ——  (3) ⁄

E

DU POINT SYSTEM 1

ROE → E%__ ↑ R OA

2 3

=

ROS

x

ETO

=

ROS

x

__E%__ ATO

→

4↑

ROS ROE

= ____NIAT___

=

AVERAGE EQUITY ROA

= ____NIAT__ AVERAGE ASSETS

__NIAT__ ● 

ETO _____SALES______

SALES =

=

―ROSETO‖

AVERAGE EQUITY

__NIAT__ ●

______SALES______ =

SALES

AVERAGE ASSETS

Page 34 of 50

―ROSATO‖

GROSS PROFIT VARIANCE ANALYSIS 1. 2. 3. 4.

Sales Price Variance = (MRSP –  PPSP) (MRQ) Sales Quantity Variance = (MRQ –  PPQ) (PPSP) Cost Price Variance = (MRCP –  PPCP) (MRQ) Cost Quantity Variance = (MRQ –  PPQ)(PPCP)

1. 2. 3. 4.

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

SVV Prior

--------x Qf

xxx x

---Pf

SPV =

Price Factor 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 –  =

A. Cost Volume Profit Analysis B. Leverage Analysis

1. DOL=

% ∆ in OI % ∆ in Sales

DFL= % ∆ in NIACS % ∆ in OI

DTL= % ∆ in NIACS % ∆ in Sales

 NOTE: When there are two year given 2. DOL =

TCM Operating Income

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

 NOTE: When only one year is given Page 35 of 50

DFL= TCM OI-Interest- PD 1-T%

III. Decisions Making & Evaluation System Differential Cost Analysis 1. Total Cost Approach 2. Differential Analysis Incremental Revenue Less: Incremental Cost Material DL Variable FOA Incremental Profit

xxx xxx xxx xxx

(xxx) (xxx)

Make or Buy Purchase Price Less: Relevant Manufacturing Cost DM DL VFOA Difference X  Number of Units  Net Advantage of Make or Buy

xxx xxx xxx xxx

(xxx) xxx * xxx (xxx)

Accept or Reject w/ Excess Capacity Special Selling Price Less: Relevant Cost DM DL VFOA Marginal Profit/ Unit x No. of Units Ordered Incremental Advantage of Accept or Reject the Offer

xxx xxx xxx xxx

(xxx) xxx *xxx (xxx)

Without Excess Capacity Less: Contribution Margin Lost by reducing sale To regular costumers Incremental Profit from Special Order

(xxx) (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:

(xxx)

Profit

Further Processing Cost

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

               Conversion Cost =    ECQ=

Total Opportunity Cost = Average Cash Balance x Interest Rate

Accounts Receivable Management

               Turn Over A/R =   

Average Investment in 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)

Cost of Marginal Bad Debts

(xxx) →depends if the investment is to spent or save from the proposed plan. (xxx)

Cost of Cash Discount (Total Units x Save Price x No. of Customers who Avail

(xxx)

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 + Accounts Receivable - Accounts Payable

         = NCS x       = Purchases x    = COS x

Resource Invested

= xxx = xxx = (xxx) (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

   *Carrying Cost = C x  *Order Cost

=Ox

*Total Cost

= Order Cost + Carrying Cost

*EOQ

=

 

*Reorder Point = Days of load time x Daily usage

PR = C = PR

CMR =

Profit/sales

CM/SALES

x

MSR

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 +

DC

FOH =

TMC

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

Total Cost

independent variable y = a + bx

Activities/ Production

dependent variable Y- Intercept

Fixed Cost

slope VC per Activity

NOTE: The independent variable is th e poi nt where to deter mi ne the point s 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 :

AQ

x

 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

AP  MYU Standard Quantity x Standard Mix x Standard  Price

Material Price Variance

= Material Price Variance (

AP – SP ) AQ

AQ

x

SP

Material Quantity/ Usage Variance

= Material Mixed 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. 2. 3. 4.

Segment I/S ROI RI EVA –  Economy Value Added

Investment –  revenue, cost, investment

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