Overhead absorbed - Answers Actual activity x predetermined OAR
How does MC and TAC value Inventory? - Answers - MC values inventory at variable production cost.
- TAC values inventory at FULL production cost
-MC expenses all fixed costs in the period in which they are incurred, whereas TAC will only expense
fixed production costs in the period in which inventory is sold.
What profit will be higher if Closing Inv. > Opening Inv.? - Answers TAC profit > MC profit
What is the formula for the Profit Reconciliation Statement? - Answers Marginal Costing Profit: X
(Closing Inv - Opening Inv)*Fixed OAR: (X)
————
Equals Absorption Costing Profit. X
Variable Cost per unit equation (High/Low method) - Answers Variable cost per unit= (Cost at high level
of activity- Cost at low level of activity)/(High level of activity- Low level of Activity)
Working Capital Equation - Answers = Current Assets- Current Liabilities
= Inventory + Receivables + Cash - Payables
Current Ratio Formula - Answers Current Ratio = Current Assets / Current Liabilities
Quick (Liquidity) Ratio Formula - Answers Current Assets- Inventory / Current Liabilities
Inventory Period (days) formula - Answers Inventory Period (days) = (Inventory/ Cost of Sales) *365
Receivables Collection period (in days) formula - Answers (Trade Receivables) / Sales *365 days
Payables Payment Period (in days) formula - Answers (Trade Payables/ COS) *365 days
What is the Economic Order Quantity (EOQ) Model? - Answers A formula that calculates how much
inventory to order each time, IF the objective is to minimise the costs that are directly affected by the
order size: annual inventory holding costs plus annual inventory order costs.
Economic Order Quantity (EOQ) Formula - Answers EOQ= (2cd/h)^(1/2)
, C= cost of placing an order
D= Demand for the inventory over a period
H= Holding costs for one unit of inventory for the period
Limitation of EOQ? - Answers does not account for discounts, interactions between items, minimum
order quantities, or items with unstable demand
What is the layout of a cash budget? - Answers Detailed is a detailed of estimated cash inflows and
outflows incorporating both revenue and capital items
Cash operating cycle formula - Answers Inventory Days + Receivable Days - Payable Days
Return on Capital Employed (ROCE) Formula - Answers ROCE = [Profit/ Capital employed (investment)]
*100
Residual Income Formula (RI) - Answers Profit- (investment * Cost of Capital)
Difference between ROCE and RI? - Answers ROCE is a relative measure, whereas RI is an absolute
measure.
What is a problem with ROI / (ROCE)? - Answers - It can encourage managers not to invest in some
projects.
- Most conventional depreciation methods will result in ROI increasing throughout the lifetime of a
project. This might encourage firms to hold on to old assets, and deter them form investing in new
assets.
- Corporate objectives of maximising shareholder wealth is not achieved by making decisions based on
ROI %.
Benefits of RI over ROI? - Answers - Reduces problem of under-investing or failure to accept projects.
- More consistent with objecting of maximising total profitability of the group.
- Possible to use different interest rates for different types of asset.
-The cost of financing a division is brought home to divisional managers.
What are Critical Success Factors (CSFs)? - Answers Things that a company must get right to succeed in
relation to a given objective.
What are key performance indicators (KPIs)? - Answers The quantifiable metrics a company uses to
evaluate progress toward critical success factors
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