* Focus on concepts * Ratio analysis * Leverage * Balance sheet/income statement * Ratios * Understand categories divided up into and know what they are telling you * Liquidity measures are looking at current assets- when we say a company is liquid we are looking at their current liabilities and how quickly we turn assets to cash and pay back the liabilities * Debt to equity * Dupont analysis: what is influencing the return ratios- gives management the opportunity to look through them * Z-score: the probability of what the likely hood the company will go into bankruptcy- manufacturing, non-manufacturing equations * You can pull off the balance sheet. * You cannot pull of the balance sheet with a publicly traded * Market price * shares outstanding (market price is not onincome statement or balance sheet…. Shares outstanding are on the equity) * issued shares-treasuring shares=outstanding shares) * issues to be aware of during ratio analysis * make sure the numbers are decent numbers- we should use audited financial statements * comparative analysis- we need to make sure that we have differences in ratios that different accounting policies aren’t different * if companies take bath write offs- huge write offs of assets- lower depreciation which turn into higher earnings * inflation impacts (competitive and trend analysis) * currency exchange impacts (competitive and trend analysis) * industry averages- throw out the caution that the companies operations fit the industry averages * do ratios on historical data, but there is no guarantee that the future will be the same as the past. Use judgment to what the future might look like. * Breakeven analysis * A company reaches break even when (When EBIT =0) you covered your fixed costs. * Quantity, sales, target volume equations * Be able to calculate for sales dollars or quantities * Contribution margin * On a per unit basis- the contribution that every unit is making to cover fixed cost and then it is the amount of pre tax profit you are earning. * On a per unit basis does it represent EBIT per unit? No- fixed costs do not go per unit… it is a pre tax profit per unit * What is the compliment of the variable cost ratio- if you take 1- variable cost ratio you get the profit contribution ratio * Profit contribution ratio and the variable cost ratio must equal 1. * Profit contribution ratio-profit per dollar of sales ** before fixed costs * Leverage- you must have fixed costs * the higher the level of fixed costs the degree of operating leverage is higher * direct relationship with fixed costs & leverage * the closer we operate to ebit the higher the leverage is * if the EBIT is 0 the DOL is undefined (infinite) * DOL of 1 is when there is no leverage * When we are at breakeven we are just covering our fixed costs so we have a high degree of risk because there is a big chance we will suffer a loss. * The further we get away from EBIT (farther away from 0) the DOL falls because the fixed costs become a…
contribution margin, to just cover short-term variable costs, what consequences could it experience? (5 marks)
If Wilkerson were to cut costs based on contribution margin, it is actually using variable costing method. Under Variable costing method, products costs such as variable manufacturing costs are capitalized. In contrast, period costs such as fixed costs are expensed. In this particular case, direct material and direct labour are variable costs that will be capitalized. In fact, they are…
Customer value propositions consist of business functions that add value to a company’s products, such
as research and development, product design, and distribution.
B. Firms like Amazon are permitted to inventory shipping-out costs because those costs are key components
of earning sales revenue.
C. The following three costs all include direct labor as a component: product costs, manufacturing costs,
D. The cost object determines which costs are direct and which are indirect.…
financial statement user would find this information most important?
They are intended to be understandable by the reader and for them to have a reasonable knowledge of business and economic activities. For larger organizations they are used for business purpose to analyze financial statements and how they are able to succeed in the business world.…
types of cost information, variable and fixed costs. Variable costs are costs that change when some variable used in the cost to produce a product changes. For example if you were in the business of producing knives, then the price of the metal used to manufacture those knives would be your variable cost. Another variable cost that has to be accounted for in the cost of manufacturing is labor costs and supply costs. So the variable cost for each knife manufactured would equal the variable cost of metal…
a lot of cost such as labour, transportation cost and have also been beneficial as the company is well-known in many other countries. This strategy of geographical diversification has been very successful as 80% of the company’s profits are earned by the operations of these foreign subsidiaries.
We will analyse budgeted profit and loss in different scenario as per the case study through the Variable costing method.
Variable costing method varies with the production cost. More the cost of production…
application. It has established six cost pools and
identified appropriate cost drivers. The new cost pools, allocation bases, and rates are as
$70 per setup
30 per machine hour
15 per direct labour hour
Material handling costs
2 per kilogram of material received
150 per customer return
8 per machine hour
During 2006, the company experienced the following volume for each cost
a high recommend restaurant. The business will capitalize on the fact that there is no other food available on campus except for a vending machine on the tenth floor.
The company which will be owned and is going to be managed by a mother and son team, Ms.Gomez will opening a restaurant on the tenth floor of the campus, where all students and people that go to the school can enjoy a good meal. Ms.Gomez son is an ex student of graduated with a BA in business management. But he always wood be…
Economy of Scale
-bigger you are, lower the production cost
-buy in bulk, less equipment cost
-the more products a company makes, the lower the production costs for each individual product
1. Developing Products for Private-Label Companies
-same product for the brands, just price is different
-only cost to manufacturer is variable costs, high costs are the fixed costs but manufacturer already reached the break-even point so fixed costs have all been paid
-store gets low priced product to sell…
calculations based upon a static volume of sales and production. He was also calculating only the cost of goods sold and did not take into consideration the respective amounts of fixed versus variable costs. While the fixed costs remain constant in total, when the volume of goods produced and sold increases, the amount of fixed cost attributed to each individual unit goes down. Following this logic the variable cost per unit will remain constant on a per unit basis, assuming a constant level of efficiency…
product after having acquired the technology of Canadian Biking. The company’s vice president has directed that a cost study be conducted and an activity-based cost analysis be conducted at the San Diego plant. This summary report will include the following:
1. A recommendation whether the company should change its costing method to activity-based costing.
2. An evaluation based on cost-volume-profit that includes the following:
a. Analysis of the breakeven point of Competition Bikes Inc. with regard…