Discussion: CVP

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

14

Total Cost = F x C + VC

10

y= a

r
i
s
e

12
_______
run
1 2 3 4

+ bx
Least-Square
Regression Method

Dependent Y intercept Slope Independent

Variable
(Fixed Cost)
Variable

y=na+bx
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 Point
1. Unit CM x Q FC = Unit CM x Q FC

% in profit = % Sales x DOL

OI

MS = Sales 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 BES) = P

CM 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 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
Sales Sales

BES = F x C + P
CMR

2. CMR = F x C = F x C
BES BES

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
CGM

AY
VY
Y

Sales
(CGS)
GP

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

xxx
xxx
xxx

Y = Inventory x FFOA/unit

FGI

- (Ope. Exp)
Period Cost
(fully expense)
Variable Costing
NY

(P vs S)

(E vs B)

Example: Depn.

Variable Costing

FFOA Depn.
(factory equipment)

Absorption Costing - PRODUCT COST

- PERIOD 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

Make or Buy

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

Note: Add lang ng 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 Cost
CM/unit

Note:
SD point > continue
Produce
SD point < discontinue

relevant cost to buy

= CM/unit
hours/unit

CM/hour or
[scarce resources]

Page 4 of 50

- WC

0
Sell or Process Further

Split - off Point

Joint Process

1.

L NCL

NC

M
I
L
O

CL

F0
0

- COC

CB

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

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 to your formulas]!!
MS OS Budgeting!!
Quantitative
Budget = PLAN
MASTER BUDGET

Operating IS
Financial 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 = ACSC = AFOHSFOH

DM Variance = AC SC = (AP x AQ) (SP x SQ)

MQV = Q x SP = (AQSQ) SP
MPV = AQ x P = AQ (APSP)

2 way

3 way

4 way

Con.Vol
AFOH

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

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= (AHSH) SR
LR V
= AH x R= AH (ARSR)

FOH = fixedCost + slope (activity level)

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

y = a + bx
if BASH x= Standard Hours based on Actual
Production
if BAAH x = Actual Hours based on Actual
Production

Page 6 of 50

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
Ed =1 = Unit
Elastic/Unitary
Ed <1 = Inelastic

Batch 3
7. Responsibility Accounting
8. Balance Score Card & Accounting Based Cost
9. Quantitative Techniques
Controllable
1. Direct Cost
Non-Controllable
2. Indirect Cost Non-Controllable

Performance Report
* Cost Center Variance Analysis
* Revenue Center Variance Analysis
* Profit Center Variance Analysis
Segmented Inc. Statements
* Investment Center Variance Analysis
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

Net Income
Assets

ROS x ATO
=

Sales x Net Income

Assets
Sales

Page 8 of 50

Sales
-VCGS
Manufacturing CM

xxx
(xxx)
xxx

-Variable Selling Admin (xxx)

Contribution Margin
xxx
-Controllable Fixed Cost (xxx)
Short-Run Pref. Margin
xxx
-Non-Controllable Fixed Cost (xxx)
Segment Margin
xxx
-Allocated Fixed Cost
(xxx)
Profit/Net Income
xxx

MS-12 Discussion [Gross Profit Variance Analysis]

xxx
SVV

2009
xxx

COS (xxx)

Sales

GP

SPV

QF
xx

xx

PF
xx

2010
xxx

xx

(xxx)

xxx

Price
Factor

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
a. Variable Cost
b. Full Cost (NMC)
c. Full Absorption Cost
d. Cost Plus
2. Market Base & Transfer Price
a. Market Price (R=SP)
b. Modified (SP adjusted for my
allowance for discounts)
3. Negotiated Price
4. Arbitrary Price (No basis)

Service Cost Allocation

1. Direct Method
2. Step down
3. Reciprocal Method

Reciprocal Method (Mathematical Approach)

[A = 100 + .2B]
[B= 20 = .4A]

Direct Method

Step Down

Total

xxx

xxx40
%

40%

20%

60%

A
A xxx

40/60

20/60

90%

xxx

70%

20%

(xxx)

70/90

20/90

(xxx)

Page 9 of 50

20%

B
X
xxx40% 40
60%
xxx40% xxx40%
xxx 60/80

Y
20
20%
xxx20%
xxx20/80

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
o
Order

Start of
o
Production

Shipment
o
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
Manufacturing Cycle

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

Productivity Measures
BSP
Productivity = Output = Products
Input
DM, DL, FOH

Productive =

---

A. Operational Partial Productivity =

B. Financial Partial Productivity =

Units
DM, DL
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
Activities: A-B, B-D, A-C, C-D
Parallel : A-B & A-C, B-D & C-D
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
xxx
?

Average Hours =

Total Hours

xxx
xxx

xxx
xxx

=
=

Multiply by: Learning Curve

Expression Curve
Page 11 of 50

Continuation: MS-09
Inventory Models:
EOQ =
where:

or

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 =
Where: O= set-up cost
D= annual production requirement
C = cost of carrying units for 1 year

* How many units?

> 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

CA

NCA

Inventory
Capital

Interest 5% x 80% = 4%

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

Bail-Out Payback Period

Year 1 2
3
Net Investment
xxx xxx xxx
Cash Flow
xxx
Salvage Value
xxx

Decision Rules Acceptable

PB Period < Standards of Industry

Life 2

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 + Depn.

Sales
- VC

* Net Investment = PB period Liquidating Concern

Net Cash Flows

CM
- F x C (cash)

* Net Income = ARR

Net Investment

Profitability Concern

- Depn
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 1. Industry Std
2. life 2

ARR

*Computation of Effective Rate

NPV Index = NPV Investment

Payback Reciprocal

Cost of Capital

*Non Discount Method

PB pd =
Payback Period
life
1. PB pd

2
2. Cash Inflow Uniform

IRR = PVF
IRR = PVF

NPV

0
<

PI

1
<

IRR

> Cost of Capital

<
*Discount Methods

Page 15 of 50

MS: II Financial Management

Baumol Model (William) Cash Management

Optimal Cash

Cash Management Strategies

1. Accelerating Collection (Lockbox
System)

(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

Accounts Receivable Management

6. Manufacturing Resource Planning

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

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

A. Aggressive Financing Strategy

B. Conservative Financing
Strategy

2. Credit Terms

Working Capital Financing Policies

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.

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 Depn
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

Sales mix Ratio

x xxx

Composite Contribution Margin or

Contribution Margin per Sales

xx

Total Fixed Cost

2. No. of Sales =

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:

AFC

= CM =

ABES

SALES

ACM =
ASALES

4
F =
MS

PR
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

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 =

<

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

xxx

Fixed Cost
Profit / loss per Unit

Discontinue

(xxx)

(xxx)

xxx

xxx

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

Total less if Processed further

xxx
xxx

PRODUCT COMBINATION/ UTILIZATION OF SCARCE

RESOURCES

PRODUCT

1. Contribution Margin/unit
Required

/unit

Contribution Margin/ Unit

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

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
[AFOH BASH]
Spending Variance

Volume Variance = 2 Way Variance

[BASH-SFOH] or

Variable Efficiency
Variance

Volume Variance = 3 Way Variance

Fixed Spending Variable Spending Variable Efficiency Volume Variance = 4 Way Variance
Variance
Variance
Variance
[FAFOH-FBAAA] [VAFOH-VBAAH]

Controllable Variance Total Efficiency Variance

[AH-SH] Total Rate

Idle Time = Alternative 3 Way

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
=
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 = # 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 =
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)

DU POINT SYSTEM
1

ROE

E%__
ROA

2
3

ROS

ETO

ROS

__E%__
ATO

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

Sales

xxx

n%

n%

xxx

COS
____

(xxx)
_____

n%

n%

(xxx)
______

GP

xxx

SPV
=

Price Factor
Recent

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
% 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
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)

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

= COS x

= xxx

+ Accounts Receivable = NCS x

= xxx

- Accounts Payable

= (xxx)

= Purchases x

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

MSR

PR = C =
PR

CMR
=

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.
2.
3.
4.
5.

Proposal Generation
Review & Analysis
Decision Making
Implementation
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
= Index > 100%
= Index < 100%

1.
2.
3.
4.
5.

X = I/S Related Accounts/ average x

X to y = x/y
x Margin = x/sales
Return on x =NY/x
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
Total Cost

independent variable
y = a + bx

Activities/
Production

dependent variable
Y- Intercept

Fixed Cost

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

AP
MYU

Material Price Variance

Standard Quantity x Standard Mix x Standard

Price

= Material Price Variance

(

AP SP ) AQ

AQ

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

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
Selected or Crushed
(Increasing from
the point selected)

Stock Out Cost

Total Cost

Spontaneous Liability
Illustration
5/10; n/10

10

20

30

98, 000

40

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