STANDARD COSTING (Cr. F, Dr.
U)
BASIC CONSIDERATIONS DM Sales:
CFO AQ X AP TY Q x TY SP
Basic Function (Decision Making)
AQ X SP MPV TY Q x LY SP Price-Recovery
• Planning - future course of action • Controller - accounting/recording LY Q x LY SP Growth
SQ X SP MQV
• Organizing - put plan to action • Treasurer - custody of funds
DL VC:
• Controlling - actual v. planned TY Q x TY VC
Production AH X AR
AH X SR LRV TY Q (LY Ratio) x TY VC Productivity
MA - internal, future, segment Line - core activity Sale SH X SR LEV TY Q (LY Ratio) x LY VC Price Recovery
LY Q s LY VC Growth
FA - external, past, whole, GAAP Staff - support line Delivery
OH
AFOH FC:
COST BEHAVIOR TY Q x TY FC
BAAH Spending
TC FC VCu BASH Efficiency Controllable TY Q x LY FC Price Recovery
y = a + bx SFOH Volume Noncontrollable LY Q x LY FC Growth
dependent Y intercept slope independent
Mix & Yield
AP X AQ X AM
HiLo = Cost = Y(Hi) - Y(Lo) SP X AQ X AM MPV/LRV
Activity Level X(Hi) - X(Lo) SP X AQ X SM Mix
SP X SQ X SM Yield
Least Square
∑y = na + b∑x eynabex
∑xy = a∑x + b∑x² RESPONSIBILITY ACCTNG
Performance Report
ROI Margin X Asset TO
Sales
Coefficient correlation (r) — linear relationship (-1) to 1 NI X Sales
— Variable Cost
Coefficient determination (r²) —variation explained 0 to 1 Sales Avg. TA
Contribution Margin
RI NI - (Avg. TA x RoR)
— Controllable DFC
EVA NIAT- [(TA - CL) x WACC)]
CVP Performance Margin
₱ units — Noncontrollable DFC
TRANSFER PRICING
BEP FC FC Segment Margin
CMR CMu Max. SP
— Alloctaed Common Cost
Min. Excess — VC
Operating Profit
Desired Profit FC + DP FC + DP Full — VC + OC (Lost CM)
(before tax) CMR CMu
BALANCED SCORECARD
Sales Mix FC FC 1. Financial - ROI, RI, EVA, Operating Cash Flow
*WACR *WACu
2. Customer
Sales Mix x CM Ratio/CM/unit
3. Internal - Cycle Time, Delivery, PQY, atbp.
4. Learning & Growth
MS NI/CM NI - BEP (₱) NI - BEP (u)
Quality Costs:
NPR/ROS NI/Sales Conformance (no defect)
Order Delivery Prod Thruput End • Appraisal
DOL CM/NI / %EBIT /100% • Preventive
Non conformance (defective)
%Sales CMR Wait Wait + Process + Move + Queue + Inspect • Internal failure
(VAT) • External failure
Sensitivity Analysis % Output
MCE VAT/Thruput
% Input
Delivery VAT/Delivery
Indifference Point FC
VC BUDGETING
Authoritative - Top Down
VARIABLE & ABSORPTION Participatory - Bottom Up
Cost/Unit Zero Based - justify expense each new period
Direct/VC = DM + DL + VFOH Continuous - rolling budget
AC = DM + DL + VFOH + FFOH
Kaizen - continuous improvement
Thruput = DM
Activity Based - ABC principle
Life Cycle
NI
VC AC Strategic - identify action plan
Sales Sales Budgetary Slack -underestimate revenue/overestimate cost
- VC - COGS Static (Fixed) - single level activity
CM GP Flexible (Variable) - adjust when actual activity differs from planned
- FC - OpExp Master (Pro forma/Comprehensive)
NI NI P>S, A>V, EI>BI Operating - Sales, Production, COGS, Selling & Admin
PSAI🤍 U
Financial - Cash, Working Capital, CapExp, B/S, Cash Flows
AC NI
+/- Inven x FFOH
+/- Over (Under) Applied FOH PROBABILITY ANALYSIS
VC NI Joint Probability - weighted probability of events
Decision Tree - possible outcome of decision alternatives
Decision Pay off Table - monetary value of possible decision outcomes
RELEVANT COSTING Expected Value of Perfect Info = EV w/ Perfect Info - EV w/o Perfect Info
GR: Relevant Cost
Excess — VC + AFC
NON-PROBABILITY ANALYSIS
Full — VC + AFC + OC (lost CM)
Regret Value Cost - Lowest
Maximax Lowest of the lowest
Decision Rule
Maximin Lowest of the highest
Special Order Incremental Revenue> Incremental Cost
Minimax 1. Regret value
Make-Or-Buy Lower Relevant Cost
2. Maximin
Drop Segment Avoidable FC > Lost CM
Product Mix Highest CM/scarce resource
Sell-or-Process Incremental Revenue>Addtl Processing Cost
(Joint Cost before split off always irrelevant)
WCM FS Analysis
Cash Mgmt. Inventory Mgmt, Vertical/Common Size BS - % TA, IS - % Sales
OCB/ECQ 2DT EOQ 2DO Horizontal/Trend/Index CY - PY
O C PY
TTC = TOC TOC = TCC Financial Ratios
No. trans, x TC = Avg, Bal. x OC No orders x OC = Avg, Inven x CC Liquidity
D/OCB x TC = OCB/2 x OC D/EOQ x OC = EOQ/2 x CC Current = CA/CL
Quick/Acid Test = (CA - Inven)/CL
ELS 2PS
C
Efficiency/Activity/Asset Utilization
TO Age
Reorder Pt. Delivery + Safety
AR Cr. Sales 360 or Avg. AR
(Normal Time x Use) + (Max. - Normal) x Use
Avg, AR AR TO Avg. Daily Cr. Sales
Short term Financing
Trade Credit D x 360 Inven COGS 360 or Avg Inven
100% - D (Cr. - Discount Period) Avg. Inven. Inven TO Avg. Daily COGS
Bank Loan Int x 360
P Term AP Cr. Purchase 360 or Avg, AP
Discounted w/ CB Int x 360 Avg, AP AP TO Avg. Daily AP
P - Int. - CB Term
CCC = Avg. Age AR + Avg. Age Inven - Avg, Age AP
COST OF CAPITAL Operating Cycle
Debt (Kd) Pref. Shs. (Kp) Equity (Ke) Solvency Profitability
Yield Rate AT Yield Rate Yield Rate + G TIE = EBIT/ Int Exp. GP = GP/Sales
Debt: Equity = TL/SHE Operating Profit = OP/Sales
YTM = Int + Discount - Prem kp = d1 kn = d1 +G
Equity: Debt = SHE/TL Net Profit = Profit/Sales
(NP + Face Val )/2 P0 - f P0 - f
Debt = TL/TA ROS = NIAT/Sales
Kre = d1 +G
Equity = SHE/TA ROA = EBIAT/Avg TA
Int. + Discount - Prem P0
Equity Multiplier = TA/SHE ROE = EAT/Avg. SHE
60%(NP) + 40%(Face Value)
market premium
Market Test
market risk premium
EPS = NI - P/S Div P/E X Div Yield = Div Payout
CAPM = rf + b (rm - rf)
WANOSO PPS X DPS = DPS
BVPS = SHE/# OCS EPS PPS EPS
DOL = CM/EBIT %EBIT/ %Sales Plowback = 1 - Payout
DFL = EBIT/EBIT - FFC %EPS/ %EBIT Earnings Yield = EPS/PPS
DTL = CM/EBIT - FFC %EPS/ %Sales
DuPoint Margin x Asset TO x Equity Multiplier / OI/SHE
CAP BUDGETING AFN Projected Inc Assets - Spontaneous Inc Liab - Inc. RE
Net Investment Outflow — Inflow (NA X S%) - (Proj. NI x Plowback Rate)
Purchase Price Proceeds
DACs Tax on Loss (Gain) ECONOMICS
Addtl WACC Avoidable Cost AT
Price Elasticity
MV Existing Asset Removal Cost AT Elastic >1 (luxury)
Arc/Midpoint = QD% / ₱% Unitary 0
Trade-in Allowance
MPC = Consumption/ Disposable Income Inelastic <1 (necessity)
Terminal Value PV Freed up WC
MPS = Savings/ Disposable Income
CIAT PY
Proceeds sale
Economic Growth & Development
Tax on Loss (Gain)
(Removal Cost NT) (GDP - Gawa Dito PH, GNP - Gawa Ng Pinoy)
Expense GDP = C+ G + I + NX
Nondiscounted Discounted Accept Income Ntl. Inc + Tax + Dep + Net Foreign Factor
PB Net Investment/Net Cash Flow NPV PV Inflow - PV Outflow ➕
ARR Net Income/Net Investment PI PV Inflow / PV Outfloq >1 Macro economics
Avg. Income/Avg. Investment IRR PV Inflow = PV Outflow > WACC Inflation Rate CPI2 - CPI1
PB Reciprocal 1/PB CPI1
EAA = NPV/PVOA (mutually exclusive)⚠ GDP Deflator Nom Rate X 100
Real Rate
Output Gap Actual - Potential X 100 (-) Recessionary Gap
Potential (+) Inflationary Gap
Unemployment Rate # Employed
Labor Force
= Natural Rate + Cyclical Rate
Income per capita = Ntl. Income/Population
Market Structure
Pure Competition - homogeneous products, no barrier
Monopolistic Competition - differentiated product, low barrier
Oligopoly - standardized, hard entry
price floor (surplus)
Demand ⬆ (➡ right) Pure Monopoly - unique product, blocked barrier
Supply ⬆ (➡ right)
MM Theory
No Tax VL = VU
Re = Ro + (Ro - Rd)*D/E
W/ Tax VL = Vu + (Debt x TR)
Re = Ro + (Ro - Rd)(1 - TR)*D/E
price ceiling (shortage)
Modigliani & Miller (M&M Proposition)
No Tax With Tax
(1958) (1963)
M&M Proposition I
(VL)
• Value of firm is unaffected by its capital structure • Debt increases firm value because of tax shield
• Perfect Market (no tax, no transaction cost, no • ⬆ Debt, ⬆ Tax Savings, ⬆ Firm Value
bankruptcy cost)
M&M Proposition
(Re)
• Cost of Equity rises sharply • Cost of Equity increases with leverage at slower pace
• ⬆ Debt, ⬆ Equity Risk, ⬆ Cost of Equity • ⬆ Debt ⬆ Equity Risk ⬆ Cost of Equity 🔻 WACC
Sales & Price Variance
Sales:
TY Q x TY SP
TY Q x LY SP Price-Recovery
LY Q x LY SP Growth
VC:
TY Q x TY VC
TY Q (LY Ratio) x TY VC Productivity
TY Q (LY Ratio) x LY VC Price Recovery
LY Q s LY VC Growth
FC:
TY Q x TY FC
TY Q x LY FC Price Recovery
LY Q x LY FC Growth
NON PROBABILITY ANALYSIS
Regret value - Cost Alt - Lowest 🔻 (State)
Maximax - lowest 🔻 of the lowest 🔻
Maximin - lowest 🔻 of the highest ⬆
Minimax
• Regret value/ state
• Maximin