ACCT 102 1st Edition Final Study Guide Lectures 30 36 Lecture 30 April 20th Relevant information differs among the alternatives and is future oriented Sunk Cost a past transaction that cannot be changed and is not relevant for making current decisions Opportunity Costs by choosing one option your giving up all the other options Quantitative data features of the company such as reputation welfare of employees and customer satisfaction personal preference quality Qualitative data numbers or amounts used to make decisions Avoidable Costs costs managers can eliminate by making specific choices Differential Revenue the difference in revenue when choosing different options Special order a mass production not normally made for a lower price Unit Level Cost cost a company pays by making one unit of product Batch Level making a batch of a product Product Level getting rid of an entire product Facility cost getting rid of an entire factory Outsourcing buying goods and service from other companies rather than producing them internally Opportunity Cost sacrifice represented by a lost opportunity Segment EliminationDecisions looking as discontinuing something in your company product store etc 1 Determine the amount of relevant revenue that pertains to eliminating the segment 2 Determine the amount of cost that can be avoided by eliminating it 3 Determine if the relevant revenue is less than the avoidable cost Lecture 31 April 27th Budget financial plan for business Strategic planning making long term decisions Capital budgeting intermediate range planning and involves decisions assets such as equipment Operations budgeting short term objectives Advantages of budgeting promotes planning coordination and enhances performance measurement and corrective actions Sales budget marketing department showing expected sales and collections Inventory Purchases Budget amount of inventory to purchase is computed by consideration of budgeted sales and budgeted inventory balances Lecture 32 April 29th Capital Expenditure Budget summarizes plans for acquiring assets and investing projects 3 7 years planning for buying big things and long term goals Pro Forma Financial Statements give management an estimate of expected profitability and financial condition of the business assuming all budgets are met Make a financial statement from the budget Importance of setting a reasonable budget o Discourage employees when expectations are too high o Budgets set too loosely may lead to employees spending unnecessarily o Goal conflict occurs when employees or managers self interest is different from the company s goals Lecture 33 May 1st Decentralization process of spreading decision making over more than one person Cost Center a business segment that incurs expenses but does not generate revenue Evaluate managers on what they spent Profit Center part of the business that has control over both revenues and expenses but no control over investment funds Evaluate managers on both what they sold and what they spent Static Budget set of numbers that aren t going to change Flexible Budget expected revenues and costs based off of the numbers from the static budget but changed for what is sold Variance any difference that would occur Favorable good difference Unfavorable bad difference Lecture 34 May 4th Present Value of an Amount the value of 1 today is worth more than 1 received in a future date Present Value of an Annuity sum of the present values of multiple payments Interest amount you pay to use someone s money I P x R x T Compoundinterest getting interest on your interest To find interest you need to know annual interest time and single sum or annuity Annuity investment that involves a series of payments Lecture 35 May 6th Purchases of long term operational assets arecapital investments Once a company purchases operational assets it is committed to these investments for an extended period of time Most companies consider the cost of capital to be the minimum expected return on investment opportunities Creditors expect interest payments in most companies owners expect dividends and increased stock value The blend of creditors and owners costs is considered the cost of capital for an organization Net present value subtracting the cost of the investment from the present value of future cash inflows Lecture 36 May 8th Cash Inflows cash is being brought in increases revenue savings on costs and salvage value Cash Outflows cash is being brought out Initial investments and increase in operating expenses Payback Method simple and easy approach to looking at the recovery of an investment Payback period net cost of investment annual net cash inflows Accumulation method add up each year until you get something that breaks even with your purchases Average method find the average cost of all the years then use the payback method