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Acc 333- Exam 2
Terms in this set (47)
What is CVP
cost volume profit analysis. As we make different decisions, it helps show how these decisions affect all the other variables around profit. "what if analysis"
Break Even point
TR-TC-TFC=0. This tells you how many units that must be sold to cover all costs, anything above it will yield profit. Fixed/CM
Difference between sales and variable expenses, anything leftover covers fixed expenses
Plots TR and TC against output volume and dollars. Breakeven is where the two lines meet. Y-intercept is the fixed cost component
Profit volume graph
Plots the profit line against output volume and operating income. When no sales are made, the company loses the amount of profit equivalent to fixed costs
Multiple product analysis and Sales mix
When each product has its own price and variable costs.
Sales mix: relative combination of products sold by a firm (ex: 2:1, 3:2)
Multiply this number by the number in the ratio.
level of output at which two alternatives generate the same profit. It doesn't matter if we choose one alternative over another, the profit will be the same at this point
if x> indifference point, choose the option with the bigger fixed cost
Before tax calculation
Income after tax/ (1-rate)
The growing importance of enterprise risk management and CSR
If you are good at these, you will make your shareholders and stakeholders very happy. You will attract more investors, banks will be more likely to lend you money, you can get the best employees and suppliers.
Enterprise risk management: cross functional approach to better manage the outcomes that come from uncertainty.
You need to understand company from a cross functional approach to better manage the outcomes of uncertainty.
It is about optimizing the outcomes, not minimizing them.
Negative outcomes of risk
a risk that turns out badly for a company. Need to look at leading indicators of future events to see what risks might occur.
Portfolio approach to risks
You want to manage risk from a portfolio, whole combined perspective. Do not want to look at just one risk, they all balance each other out.
Two factors of risk
Likelihood of risk (probability) and the magnitude of impact if the risk occurs
How much risk we are willing to take. Shows the risks and opportunities. Above the line you are taking too high risks, below the line not taking enough risks
Three risk response options
Accept- do nothing differently
Avoid: stop the activity
Reduce: form an alliance, insurance, business process.
Calculating the benefit of a risk reduction
Likelihood (impact)- likelihood (impact)=benefit
Challenge to an organizations risk appetite
The risk appetite is understood and approximated, but we face difficulties getting specific numbers on things
Challenge to likelihood and impact of risk
It is difficult to measure these accurately.
Correlation between risks
Companies are realizing that risks are related. This could be good or bad. reputation and risk management could increase together.
Communicating ERM effectivness to stakeholders
Understanding the risks, managing these, and then communicating your effectiveness to stakeholders.
what is CSR
Corporate sustainability report: voluntary reporting of any information, financial and non financial in nature.
Does not mean green, it means business sustainability- creating long term success
Pertains to all stakeholders, however very challenging to address all of them in a report
New financial statement?
CSR is very cutting edge. high level of importance, integrated reporting. It is optional, no regulations, no auditing, and becoming to be more expected from businesses.
51% have CR in their annual reports but only 11% are actually integrated into the report to help explain the financials.
Tripple bottom line: financial, environmental, social: pillars to sustainability reporting. Not a link between TBL performance and money paid
multi-stakeholder independent institution whose mission is to create a process for developing globally applicable CSR guidelines.
More companies trying to enhance transparency to improve stakeholder decision making.
Core vs. comprehensive declaration
Core: some general standards are incorporated, 1 performance measure
comprehensive: reports everything
Strategy and analysis GRI standard
sets overall context for understanding the company's measurements. View of their strategy, key stakeholders,
Entity profile GRI standard
information to provide the full picture of the entity's operations, products, and services. Geographic breakdown, customer types
Material Aspects GRI standard
steps taken to identify material aspects (energy, biodiversity). PRocess for defining report content, including methods and assumptions and decisions taken.
Stakeholder engagement GRI standard
provides overview of the stakeholder engagement during the period. Identifies key stakeholders and stakeholder selection.
Report Profile GRI standard
reporting period, reporting cycle, CSR contact point, table of content
Governance GRI standard
highest oversight structure of the entity. Committees and responsibilities, link between compensation and governance members
Ethics and integrity GRI standard
overview of organizations values, principles, and standards. Training for governance members, mechanisms for reporting unethical behavior
Traditional costing system
volume based, costs are either variable or fixed. Take resources and allocate the costs to cost objects.
Steps for a job costing system
1. identify job
2. direct costs
3. allocation base
4. indirect costs associated
6. allocate using rate
7. assign costs (direct and indirect)
Peanut butter costing
a cost system that allocates costs to products in a uniform way, when in reality they don't work like this.
not enough costs are allocated to these products, underpriced products
product cost cross-subsidization
overcosted products are paying for or subsidizing the undercoated products
process based in selecting cost drivers. designed to capture the economics of complex production processes. Trying to find a better mapping to how we consumer costs and allocate them
Unit level costs
costs that vary with output
Batch level costs
costs that vary with the number of groups we run
PRoduct sustaining costs
costs that are incurred in relation to a particular product/service (menu size). offer less diverse products to cut these costs
facility sustaining costs
costs that are incurred in relation to a plant or a service firm (marketing)
Need proportionality in OH cost pools if a traditional, one driver system is to accurately map into the business environment
what are the cost drivers and why are we incurring these costs? Need to understand the cost structure, behavior in order to improve performance
making strategic decisions based on ABC information. How can we redesign the process to make it cheaper and increase our margins?
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