BEC Final Review Items

• GDP cacl (input & output approach)

• Increase in demand for loan funds leads to increased interest rates
• Overvalued exchange rate = effectively taxes exports and subsidy to imports
• Balance of Pmts (current/capital accounts)
• Surplus/reduction in deficit = more money enters a nation than leaves it
• Current acct = net trade of Goods/services, net unilateral transfers (gifts), investment
pmts/receipts (dividends, interest pmts)
• Capital Acct = Capital transfers ONLY between nations
• Flexible exchange rates eliminate balance of trade surpluses/deficits
• Interest coverage ratio = EBIT / interest pmts owed
• Cash flow cycle equation = CCC = avg INV days + Avg A/R – Avg A/P
• Float = effectively is a zero interest loan to the check writer.
• ST debt rates = lower than LT rates
• Conservative working capital policy = finance all CA’s w/ LT debt
• Credit collection cost:
• Calculate avg daily credit sales
• Multiply by increase in collection days (e.g. 28 to 38 = 8)
• Daily sales * increase in A/R days * interest rate = minimum savings
• A/R turnover ratio = (net credit sales / Avg AR)

• Capital employed T/O rate = (sales / Invested Capital)

• ROI = (Op income / Sales) x (Sales / Avg invested capital)

• ROI = (Op income / avg invested capital)

• Residual income = NI – (cost of capital * avg invested capital)

 • ROA = (NI / avg total assets)

• ROA = (profit margin on sales * asset turnover)

• Asset turnover = (Sales / avg total assets)

• Common stock BV = (par + APIC + R/E – divs in arrears) / shares outstanding

• Cost of P/S = (annual dividends / [mkt value per share – underwriting costs])
• DOL = CM / EBIT
• DFL = EBIT / (EBIT – interest)
• Times Interest Earned ratio = (EBIT / total interest payable)

Active Dividend policy = divs send signals to the market

Residual Div policy = only give divs after profitable capx’s have been funded

Warrants (primary reason to issue) -> Lower the cost of debt

• CM ratio = (Sales – VC’s) / Sales

• Hi-Low Method = (change in costs) / (change in output)
• The price necessary to realize a 15% profit margin on sales is determined as follows:
500P - $990,000 (traceable
.15 (500) P
costs) =

• Transfer pricing between cost & profit centers: Use Std budgeted rate
• Direct Costing: Product costs are DM, DL, VMOH (all S & A, fixed costs are period costs)
• CM = Sales less ALL variable expenses (including S&A)

EU’s under FIFO => Subtract Beg WIP!!

Cost per EU under WA method: Considers current costs + Beg WIP inventory cost

FOH Volume Variance = FOH budgeted – Applied FOH

= (100,000 x $4) – (76,000 x $4)

Three Way Variance

• Actual factory OH incurred
• Spending Variance
• Budget allowance based on actual hours
• Efficiency Variance
• Budget allowance based on std hours
• Volume Variance (equal to Budgeted fixed OH – Fixed OH applied to production)
• Factory OH Applied