BEC RETAKE
Potential GDP
level of real GDP that the economy would produce if ALL resources were full employed real GDP below potential - recession real GDP above potential - expansion
Living Expenses
loan repayment, insurance costs, grocery bills, transportation, rent, utility
Trough
low point of economic activity unused productive capacity and unwillingness to risk investment by consumers unemployment goes up people are risk averse
PEG Ratio
lower is better
FIFO and Weighted Average Method
lower of cost or NRV (market ceiling)
LIFO
lower of cost or market -> market floor, replacement cost, market ceiling AKA NRV
M2
m1 plus CDs < 100,000, money market accounts, mutual fund accounts, savings
M3
m2 + CDs > 100,000
Left Shift in AS, AD Remains the Same
If the aggregate supply curve decreases while the aggregate demand curve stays the same, it causes a shift to the left. We see the price level and quantity level change. Because fewer products are being made, when there is a shift to the left of the aggregate supply curve, fewer workers are needed. Therefore, employment decrease
Data Base Administrator (DBA)
maintains/supports database software and performs certain security functions performs functions for database software similar to system programmer technical
Inventory and COGS
only include variable manufacturing costs
Monopsony
only one employer in the market
Vertical Sloping Demand Curve
quantity demanded does not change with price
Value of Equity
ratio * denominator
Optimal Cost of Capital
ratio of debt to equity that produces the lowest WACC
Expenditure Approach
"GICE" Government purchases Investments (private and domestic) Consumption (personal) Exports (net = exports - imports)
Income Approach
"I PIRATED" Income of proprietors Profits of corporations Interest Rental income Adjustments Taxes Employee compensation Depreciation
Product Costs
"factory" all costs related to manufacturing a product includes: DM DL MO applied
Period Costs
"office" expensed in the period they incurred NOT inventoriable includes: SGA expenses interest expense
Control Environment
"tone at the top" - processes that provide foundation to establish internal control 5 principles - EBOCA
Total Number of Periods
# years * # periods per year
APR of Quick Payment Discount
(360/ (pay period-discount period) x (discount/(100-discount %)
Sales Price Variance
(actual sales price per unit - budged sales price per unit) x actual units sold
Sales Volume Variance
(actual sold units - budgeted sales units) * standard CM per unit
Weighted Average Cost per EU
(beginning cost + current cost) / equivalent units
Required Sales Volume for Target Profit
(fixed costs + pretax profit) / CM unit
Cost Push Inflation
(short run aggregate supply decrease and price goes up) caused by factors such as: an increase in oil price an increase in nominal wages Increase in materials costs are the principal cause, particularly when they occur suddenly in the form of supply shock
Acquisition
1 company acquires another
Merger
2 entities combine to form a single new corporation
CRIME
5 components of internal control control environment risk assessment information and communication monitoring existing control activities
SOD
2 principles of monitoring activities Ongoing and/or Separate evaluations - selection, develop, and perform ongoing/separate evaluations to ensure internal control components are present and functioning communication of Deficiencies - do so in a timely manner and monitor corrective actions
Weighted Average Equivalent Units
2 steps units completed + end WIP * % completed
Methods of Calculating Cost of Retained Earnings
1. CAPM 2. DCF 3. BYRP
4 Steps of a Money Market Hedge
1. Determine amount of payable 2. Determine amount of interest that an be earned prior to settling payable 3. Discount payable amount to net investment required 4. Purchase amount of foreign currency equal to net investment required and deposit into money market hedge
ORC
3 objectives of internal control operating reporting compliance
CAT P
3 principles of existing control activities select and develop Control Activities - integrate with risk assessment when selecting and considering factors select and develop Technology controls - determine dependencies between the use of technology and relevant control activities deployment of Policies and Procedures - establish responsibility for executing policies and taking correcting action
Steps in a Disaster Recovery Plan
1. assess risks 2. identify mission critical apps/data 3. develop plan for handling mission critical apps 4. determine responsibilities for personnel involved 5. test disaster recovery plan
Five Types of Competitive Strategies
1. cost leadership focused on broad range of buyers 2. cost leadership focused on narrow range of buyers 3. differentiation focused on broad range of buyers 4. differentiation focused on narrow range of buyers 5. best cost provider
Lease v. Buy - 2 Decisions
1. investment decision 2. financing decision
Types of Leasing
1. operating 2. finance
Two Ways Revenue Accounting Can Be Done
1. proceeds from sale of by products are a reduction to common costs for joint product costing; revenue earned is credited to joint costs incurred at time of production or sale OR 2. revenue from sale by products can be credited to income
5 Focus Areas of IT Governance
1. strategic alignment 2. value delivery 3. resource management 4. risk management 5. performance measures
OIE
3 principles of information and communication Obtain and use information - generates and uses relevant information to support internal control Internally communicate information - flow of information up/down/across/etc. communicate with External parties - open 2 way external communication channels
TIP
3 principles of information, communication, and reporting (Ongoing) leverages information and Technology - use IS to support org in decision making and competitive advantage communicates risk Information - communicate with internal and external stakeholders and board to support ERM reports on risk, culture, and Performance - multiple levels throughout the entity and can be a qualitative or quantitative report
SIR
3 principles of review and revision assess Substantial change - internal and external environment changes related to business context, and changes in culture pursues Improvement in ERM - improve efficiency and usefulness Review risk and performance - review entity performance and consider risk, including capabilities and practices of the org
FIFO Equivalent Units
3 steps beginning WIP * % to be completed + units completed - beginning WIP + end WIP * % completed
BRIC
4 leading emerging economies Brazil Russia India China
SAFR
4 principles of risk assessment Specify objectives - identify objectives that reflect management while complying with law identify and analyze Risks - analyze internal and external factors and determine response consider potential for Fraud - assess incentives, opportunities, and rationalizations identify and Assess changes - assess changes in external environment, business model, and leadership
SOAR
4 principles of strategy and objective setting evaluate alternate Strategies - evaluate from 2 perspectives: 1) doesn't align with mission and values 2) implications from it formulate business Objectives - develop SMART steps to achieve strategy Analyze business context - consideration of potential effects of business context on risk profile defines Risk appetite - in context of creating, preserving, and realizing value qualitatively and/or quantitatively
Types of Responsibility Segments
4 strategic business units "SBU" cost - controlling costs (lowest) revenue - generating revenue (highest) profit - accountability for both revenue increase and cost decrease investment - ROA (investment)
GOPRO
5 components of ERM Governance and culture strategy and Objective setting Performance Review and Revision information, communication, and reporting (Ongoing)
EBOCA
5 principles of control environment commitment to Ethics and integrity - tone at the top Board independence and oversight - establish oversight responsibilities Organizational Structure - establish reporting lines commitment to Competence - hire, develop, and retain competent employees Accountability - establish incentives and awards
DOVES
5 principles of governance and culture Defines desired culture - culture influences risk identification, acceptance, and management exercises board Oversight - oversee entity strategy to support objectives; maintain accountability and independence demonstrated commitment to core Values - risk inspired decisions align with core values attract, develop, and retain Employees - capable individuals establishes operating Structure - how day to day is carried out
VAPIR
5 principles of performance develop portfolio View - allows management and board to consider type, severity, and interdependence of risks Assess severity of risk - resources deployed to keep risk within risk appetite assess at multiple levels Prioritize risk - risks approaching risk appetite given higher priority Identifies risk - identify new and reevaluate current implements risk Response - accept, avoid, pursue, reduce, share
CAPM
= risk free rate + beta * (market return - risk free rate)
Inflationary Gap
A condition that arises when a country real GDP and the level of GDP with full employment causes an increase in consumption leading to higher prices.
LRAS Curve
A long run aggregate supply curve, is a vertical curve labelled LRAS above represents full employment of resources. When the economy is at equilibrium, the aggregate demand and the aggregate supply curve intersect over the LRAS curve
Long Run
A period of time in which all factors of production and costs are variable.
Cost Volume Profit Analysis
AKA break even analysis contribution approached is used assumes selling price remains unchanged
Discount Payback Method
AKA breakeven time method discount cash flows by projects cost of capital
Weighted Average Cost of Debt
AKA cost of borrowing effective annual interest payments / debt outstanding
Infrastructure as a Service (IaaS)
AKA hardware as a service outsources storage, hardware, networking components for customers to use on a per use basis
Flexible Budget Formula
AKA high low method flexible budget - series of budgets that are prepared for a range of activity levels rather than a single activity (FC constant, VC adjusted) TC = FC + (VC/unit * # units)
Job Cost Record
AKA job cost sheets or job orders includes materials requisite (what materials were requested) and labor time ticket (time card with rate and hours)
Pretax Cost of Debt
AKA yield to maturity AKA market rate
Natural Disasters
AS shifts left
What is a depression period?
An economic depression is a recession that is severe enough to reduce the price of goods and services. Exiting a depression period indicates that prices would begin rising from their lowest points and the rate of unemployment would begin falling from its highest point. Because the country is experiencing a reduction in consumer purchases as well as an increase in unemployment, they are more likely still in the midst of a recession.
Multiplier Effect
An increase in consumer, company or government spending produces a multiplier increase in the level of economy activity. The multiplier effect results from the marginal prospensity to consume (MPC).
Agricultural State are hit with a drought. What effect this environmental event have on aggregate supply?
As a result of very low rain fall, agriculture yields are down causing the per unit cost of output to rise. The end result is a decrease in the aggregate supply.
Short Run
As the price level rises, firms are willing to produce more goods and services
Determinants of Elasticity of Demand
Available of substitute Time Frame Category of Product (specific or broad) Necessities vs Luxury Purchase price
Enterprise Risk Management
CCPISS culture, capabilities, and practices integrated with strategy-setting and performance that organizations rely on to manage risk in creating, preserving, and realizing value
4 Types of Value
CEPR creation - benefits > costs of resources preservation - ongoing operations effectively and efficiently sustain created benefits erosion - faulty strategy and ineffective/inefficient operations caused value to decline realization - benefits created by the org are received by shareholders in (non)monetary form
Accounts Payable Turnover
COGS / average accounts payable
Variable Costs
DM DL VOH shipping and packing variable selling
Holding Monetary Liabilties
During inflation, those with a fixed amount of debt, example, those with home mortgages, will be aided. That is the debt will be repaid with inflated dollars. Thus, inflation also tends to benefit firms with large amount of outstanding debts. Value of $ Liabilities -> Goes Down (Good)
Factors other than Price on the Supply Curve
ECOST
Ways to Expedite Deposits
EFTs lockbox systems
Future EPS
EPS ( 1 + g) OR net income / number common shares outstanding
EOQ
ESOC
Most Common Economic Measures or Indicators
real GDP unemployment rate inflation rate interest rate
Reduction in Supply
Economy activity real GDP goes down, leading to a contraction in the economic activity and a possible recession. As a result, firms reduce their supply, they are also likely to reduce their workforce, leading to higher unemployment. GDP decrease, Profit decrease, unemployment high and price high
Reduction in Demand
Economy activity real GDP goes down, leading to a contraction in the economic activity and a possible recession. As a result, reduction in demand tends to cause firms profit to decline, Firms are likely to experience an increase in excess capacity, leading to a reduction in the workforce. GDP decreasse, Profit decrease, unemployment increase and price decrease.
Increase in Supply
Economy activity real GDP goes up, leading to a expansion phase in the economy. As a result, firms increase their supply, they are also likely to increase their workforce, leading to lower unemployment. GDP increase, Profit increase, unemployment down and down
ECOST
Expectation of price change of the supply firm Cost of Inputs Other goods price changes Subsidies or Taxes Technology in the production process
Fixed Costs
FOH fixed selling most SG&A
Net Domestic Product
GDP - depreciation
Contractionary Phase - AKA Recession
GDP decrease, profit decrease, unemployment increase potential output exceeds actual output because businesses will produce less because of not enough demand
Aggregate Demand Decreases
GDP down profits down unemployment UP price down when product or service demand falls ---> GDP falls, so does the company's profit falls. Then companies lay off people, which will increase in unemployment and companies decrease their product or service prices to strive in this struggling economy.
Reduction in Supply
GDP down profits down unemployment UP prices up
Increase in Supply
GDP up profits up unemployment DOWN prices down
Aggregate Demand Increases
GDP up profits up unemployment DOWN prices up
Net National Product
GNP - depreciation
4 Types of Risk Associated with IT Systems
strategic operational financial information
Right Shift in AS, AD Remains the Same
If there is an increase in the aggregate supply curve while the aggregate demand curve stays the same, Price level and the quantity demand change. Price level will decrease. Still there is more quantity needed; therefore, new workers will need to be hired and Employment will increase.
Long Run Aggregate Supply
In the long run, if all resources are fully utilized, output is determined soley by the factors of production, This curve correspond to the potential level of output in the economy
Worker productivity is on the rise perhaps due to manufacturing technology. How should increase technology affect the aggregate supply curve?
Increase productivity means that firms have increased the amount of output produced per unit of input. This type of increase allows an economy to obtain more output from its limited resources. As a result, aggregate supply will increase showing a rightward shift.
Inflation and the Value of Money
Inflation has an inverse relationship with purchasing power. As the price level rises, the value of money (purchasing power) declines. -> An Increase in Oil Prices (Profit Down) -> An Increase in Nominal Wages (Profit Down)
What is an inflationary period?
Inflation is a sustained increase in the general level of prices. As prices increase, consumers spend a greater portion of their income on consumption and therefore savings decrease. A decrease in savings decreases the supply of funds to lend and increases interest rates. Price increases also decrease aggregate demand (i.e., purchases). Thus, when an economy is exiting an inflationary period, it is expected that interest rates will decrease and consumer purchases will increase. However, the country's consumer purchases actually decreased. Therefore, the country's economy is likely not exiting an inflationary period.
Inflation
Inflation is when there are increases in general prices of goods and services. It occurs when prices on average are increasing over time.
What is Marginal Propensity to Consume (MPC)
It is a change in consumption /change in disposable income The MPC is the change in consumption due to $1 increase in income. Because people tend to spend part of their income, the MPC is typically less than 1
Which is superior? NPV or IRR?
NPV > IRR because it is flexible enough to handle inconsistent rates of return for each year
Dupont ROE
Net Profit Margin x Asset Turnover x Financial Leverage
LRAS v SRAS
LRAS - determined solely by factors of production SRAS - assumes productivity is fixed
Inflation
Labor rates generally are set up by negotiation to ensure that wages keep up with inflation (Wages are reflective of current labor rates) A seller can adjust its prices to reflect the effects of inflation (Sales are reflective of current product prices) A new debt arrangement are entered into, their rates will be reflective of current borrowing costs. (Interest expense is reflective of current borrowing rates)
Money Supply
M1 M2 M3
Decision Support System (DSS)
MIS subsystem provides interactive tools to support decision making EX - production planning, inventory control, revenue optimization, capital investment planning
Executive Information System (EIS)
MIS subsystem provides senior executives with immediate and easy access to information to assist in strategic decision making EX - sales forecasting, profit planning, KPIs, macroeconomic data, financial reports
Accounting Information System (AIS)
MIS subsystem ½ transaction processing system, ½ knowledge system
Raising the Required Reserve Ratio
MS - decrease
Effects of Contractionary Monetary Policy
MS - decrease interest rate - increase AD - decrease GDP - decrease unemployment - increase prices - decrease
Decreasing the Required Reserve Ratio
MS - increase
Effects of Expansionary Monetary Policy
MS - increase interest rate - decrease AD - increase GDP - increase unemployment - decrease prices - increase
Producer Price Index (PPI)
Measures the overall cost of a basket of goods and services typically purchased by firms.
National Income
NNP - business taxes
Oil price has increased dramatically. How does this development affect aggregate supply?
Oil is the key input for many economies. The cost of oil rises that increase per unit production cost at all level of output. The increase per unit cost of goods and services will result in a decrease of leftward shift in aggregate supply. Even the expectation of input prices can shift aggregate supply as producer prepare for higher cost
Growth Rate of Earnings
ROA * retention / 1 - (ROA * retention)
Potential Level of Output
Refers to the level of real GDP (national output) that the economy would produce if its resources (capital and labor) were fully employed. When real GDP below potential level of output, the economy is in a recession. An above potential level it is an expansion
Systems Analysts and Computer Programmers
SA - design IS to meet user needs (hardware) CP - use design to create IS by writing computer programs (software)
First Budget
SALES
What is an economic stagflation?
Stagflation occurs when inflation and recession occur simultaneously. Under an inflationary period, interest rates are more likely to be increased to combat the effects of inflation. Because interest rates decreased, the country's economy is likely not in an inflationary period and therefore not entering an economic stagflation.
SWOT Analysis
Strengths Weaknesses Opportunities Threats
Multiplier Effect Example
Suppose the MPC is 0.8 (i.e. the change in consumption due to $1 increase in income is 80 cents) and the spending increases by $100 Calculate the change in the Real GDP ___1____ *100 = $500 (1-0.8) Thus, a $100 increase in spending results in a $500 increase in real GDP Facts An increase in the resources available in an economy, will make the economy capable of producing more goods and services
Factors that Affect Aggregate Demand
TWICEG
A lender and a borrower signed a contract for a $1,000 loan for 1 year. The lender asked the borrower to pay 3% interest. Inflation occurred and prices rose by 2% over the next year. The borrower repaid $1,030. What is the amount worth in real terms, after inflation?
The amount repaid in nominal terms at the end of the year is $1,030.00 ($1,000 × 1.03). To convert this amount to real terms, that is, to state it in terms of its actual buying power, it must be adjusted for inflation ($1,030.00 ÷ 1.02 = $1,009.80).
Aggregate Supply
The total output of goods and services produced in a nation at varying price levels.
Long Run Equilibrium
The level at which an economy is considered to be at full employment of its available resources.
How is inflation calculated?
The percentage of inflation is calculated by using the Consumer Price Index
Aggregate Demand
The total demand for all goods and services in a country at varying price levels. Aggregate demand is expressed by the equation AD = C + I + G + Xn.
Increase in Demand
This will lead to a recovery or an expansion in economic activity. Increase in demand tends to cause firms profit to rise. Firms will experience reduction in excess capacity leading to an increase in workforce. GDP increase, Profit increase, unemployment decrease and price increase.
A hospital is comparing last year's emergency rescue services expenditures to those from 10 years ago. Last year's expenditures were $100,500. Ten years ago, the expenditures were $72,800. The CPI for last year is 168.5, as compared to 10 years ago when it was 121.3. After adjusting for inflation, what percentage change occurred in expenditures for emergency rescue services?
To compare monetary amounts in constant dollars, both amounts must first be deflated using the appropriate price index. Last year's expenditures in constant dollars equal $59,644 ($100,500 ÷ 1.685). Those from 10 years ago equal $60,016 ($72,800 ÷ 1.213), for a net decrease of $372 ($59,644 - $60,016). Thus, after adjusting for inflation, expenditures decreased by 0.6% ($372 ÷ $60,016
Short Run Equilibrium in a Recession
To show what a recession looks like, we draw the short run equilibrium to the left of full employment. In this situation, the output in the economy has decreased. With a decrease in output, businesses don't need as many workers. Therefore, unemployment increases. With a decrease in employment of economy activities, the price level in the economy will tend to be lower. This situation is depicted with the graph above.
Short Run Equilibrium in Inflation
To show what an inflation looks like, we draw a short run equilibrium to the right of full employment. In this situation, the output in the economy has increased. With an increase in output, businesses have to pay more to workers and other resources since both are in short supply. In this situation, price level output and employment all increase.
Variations between business cycle are most likely attributes to:
Variations between business cycles are usually attributable to duration (varying lengths of time) and intensity (the magnitude of the economic growth or contraction). For example, a recession is defined as a period during which real GDP falls and unemployment rises. However, if the recession is severe and prolonged, the phase is a depression.
Factors other than Price on the Demand Curve
WRITEN
WRITEN
Wealth Related Goods Price Income of Consumer Taste and Preferences of consumer Expectation of Consumer Numbers of Consumer
Recessionary Gap
When an economy is currently operating at a GDP level below its full employment GDP.
Full Employment
When the economy is operating at a neutral level of unemployment, which in the United States has been considered 4-5% unemployment.
Right Shift in AD, AS Remains the Same
When there is a shift above in the aggregate demand curve and aggregate supply curve remain the same, it creates a new quantity and a new price level. Because of an increase in both price and output, suppliers will need to hire more workers; thus, when the aggregate demand curve shift to the right, there is an increase in employment.
Left Shift in AD, AS Remains the Same
When there is a shift to the left above with the aggregate demand curve, while the aggregate supply curve remains the same, we create new quantity and new price level because there is a drop in quantity and a drop in price. Suppliers will need to have few workers; therefore, when the aggregate demand curve shift to the left, we see a decrease in employment.
Business Process Management
a management approach that seeks to coordinate the functions of an organization toward an ultimate goal of continuous improvement in customer satisfaction incremental "plan do check act"
Backflush Costing
accounts for certain costs at the end of the process in circumstances where there is little need for in-process inventory valuation
JIT
achieves efficiency by scheduling deployment of resources to meet requirements "inventory does not add value" greater efficiency in use of employees with multiple skills
Systematic Interdependence
acknowledges that all members of the global community share the planet earth actions of governments that adversely affect the climate or reduce our safety affect all nations
FOH Spending Budget
actual FOH - budgeted FOH
2. Applied Overhead
actual cost driver * overhead rate (step 1)
Effective Interest Rate
actual finance charge after reducing proceeds for charges/fees interest paid per period / net proceeds of loan
DL Rate Variance
actual hours worked x (actual rate - standard rate)
VOH Spending Variance
actual hours x (actual rate - standard rate)
DM Price Variance
actual quantity purchased x (actual price - standard price)
Expansion Phase
aggregate demand is strong, meaning the unemployment rate will fall. People are getting jobs in this phase due to strong demand. Inflation rate will increase (price will rise) because of high confidence in the market and lots of spending, therefore; profit will increase and thus GDP will increase.
Contractionary Phase
aggregate demand is weak which will result in People starting to lose their jobs. Price will decrease; therefore Profit will go down and GDP will decrease
Labor Force
all 16 year olds and above not in jail actively seeking work
Disclosures in Periodic Reports
all material correcting adjusting journal entries should be reflected in the FS -> off balance sheet transactions (op leases, contingent obligations, relationships with unconsolidated subs) conformance of pro forma FS -> no untrue or omitted info AND reconciled with GAAP use of special purpose entities
Joint Product Costing
allocating the cost of a single process amount several final products if two or more final products are produced from the same raw material or input
Platform as a Service (PaaS)
allows customers to rent virtual servers and related services that can be used to develop and test new software applications
Target Residual Risk
amount of risk entity prefers to assume knowing management will implement actions
Computer Programmer
app programmer - writes and maintains programs system programmer - installs, supports, monitors, and maintains operating system neither should be given write/update access
Conformance Costs
appraisal costs - discover and remove defective parts BEFORE shipped to customer or next department; quality checks, testing, inspection prevention costs - prevent production of defective units; employee training, preventative maintenance, redesign of product/process, high quality suppliers
Vision
aspirations of entity what it hopes to achieve over time
Monitoring Activities
assess internal control performance over time and take necessary corrective action 2 principles - SOD
Factors that Affect Price Elasticity of Supply
feasibility of producers storing the products
Activity Based Costing
assigns cost based on activity's consumption of resources job order or process cost long term view point and treats production costs as variable cost driver is usually nonfinancial variable (DL hours) internal usage removes much of the distortion of cost caused by traditional volume based costing
Trailer Record
at end of file and contains baton totals calculated during input
Risk Responses
avoid, transfer, reduce, accept depending on frequency and severity
Product
balance sheet
FICA
balanced scorecard critical success factors Financial Internal business processes Customer satisfaction Advancement of innovation and HR development
Discount Rate Increase
bank borrows less MS decrease
Discount Rate Decrease
bank borrows more MS increase
Porter's Five Forces
barriers to entry - government regulation, supplier access, capital requirements, economies of scale market competitiveness - equalized firms, no strong brand preference, existing cost > continuing cost existence of substitute products bargaining power of customers bargaining power of suppliers
Header Record
beginning of each file and contains file name and expiration date
Categories of IT Risk
benefit/value enablement risk program and project delivery risk operations and service delivery risk
Absorption Costing
benefits - required by IRS and GAAP limitations - level of inventory affects net income, net income less reliable because product includes fixed costs
Variable Costing
benefits - variable and fixed costs are separate and can be easily traced, net income more reliable for use in performance evaluations because product excluded fixed costs, isolates CM to aid in decision making limitations - not GAAP or IRS approved
Subordinated Debenture
bond thats unsecured and ranks behind senior creditors in liquidation higher interest rates
FOH Volume Variance
budgeted FOH - (actual production * standard rate)
1. Overhead Rate
budgeted OH costs / estimated cost driver
Law of Demand
buyer side of the market inverse relationship between quantity and price
Expand the Money Supply (Increase)
fed buys govt securities MS - increase interest rate - decrease AD - increase
Causes of inflation and Deflation
caused by a shift in the aggregate demand and short run aggregate supply curves (price level increase) rightward shift in the aggregate demand curve will cause the price level to rise leading to inflation leftward shift in the short run aggregate supply curve will cause price to rise, leading to inflation
Structural Budget Deficit
caused by a structural imbalance between government spending and revenue
Demand -Pull Inflation (AD increase)
caused by factors such as: increase in government spending decrease in taxes increase in wealth increase in the money supply
Cyclical Budget Deficit
caused by temporarily low economic activity EX: recession
Economic Systems
centrally planned - government owns factors of production (china) market economics - factors of production owned by individuals (USA) conglomerates - creates self sustaining entities that couldn't exist in US (probably would violate anti-trust laws)
Coincident Indicators
change at approximately the same time as economy - provide information about current state ex: industrial production, manufacturing and trade sales, GDP
4 Determinants of AD
change in consumer spending change in investment spending change in government spending change in net export spending
Determinants of Aggregate Supply
change in input price such as raw material or expectation change in productivity change in legal/institutional environment such as changes in regulation, taxes or subsidies change in supply of labor changes in capital
Change in Quantity Demanded
change in price caused movement along the demand curve
Factors that Shift SRAS
changes in input prices supply shocks (crop failure, natural disaster)
M1
coins, currency, checks, travelers checks
Culture
collective thinking of people within an org related to core values
Vertical Combination
combination of companies at different stages of the production process
COSO
committee of sponsoring organizations all about internal control AKA treadway commission
Horizontal Combination
companies in the same industry that produce join together under single management
Diagonal Combination
company integrates with company that provides ancillary support for a primary activity
Tender Offer
company makes offer directly to shareholders to buy outstanding shares only shareholders can accept or reject
Manufacturing Overhead Variance
compares actual OH incurred to OH applied
Diagnostic Control System
compares actual performance with planned performance
Capabilities
competitive advantage produces value for an entity
Net Export
component of GICE import and export adds to GDP import subtracts from GDP
Consumption Expenditure
component of GICE largest GDP component use of goods and services by a household
Gross Private Investment
component of GICE most volatile GDP component consists of purchases that companies make to produce new consumer goods
Government Purchases
component of GICE new goods and services by the local, state, and federal government transfer payments NOT included
Portfolio View
composite view of risk the entity as a whole faces positions management and the board to consider types, severity, and interdependencies of risk and how they may affect performance
Risk Profile
composite view of the risk assumed at a particular level of the entity of aspect of the business positions management to consider types, severity, and interdependencies of risk and how they affect performance
Quantitative Easing
fed buys govt securities from banks to increase MS usually done during recession
Monopoly
concentration of supply in hands of single company conditions -> single firm with unique product, insurmountable barriers to entry, price setters, no substitutes, inelastic demand, economic profit positive in the long run strategies -> ignore market share, focus on profitability from production levels
Factors That Impact Global Competitive Advantage
conditions of factors of production conditions of domestic demand related/supporting industries firm strategy/structure/rivalry
Cost of Quality
conformance costs "AP" nonconformance costs "IE" "APIE"
Strategy and Objective Setting
consider internal and external factors and their effect on risk 4 principles - SOAR
Binomial Model
considers underlying security over period of time rather than point in time (black scholes) can be used for dividend paying stocks without modifying the model american style options (exercisable over a period of time)
Shared Services
consolidated redundant services within an org (HR/Payroll) benefits -> efficiency issues -> flow disruption
Upward Sloping Demand Curve
consumer purchase more of a product if its price is raised
Functional Interdependence
contemplates participation of nations in worldwide institutions such as the UN, WTO, IMF
Six Sigma
continuous quality improvement program that requires specialized training rigorous metrics
Forward Hedges
contracts between business and banks and are normally larger transactions
Contribution Margin Ratio
contribution margin / sales price
Opportunity Cost (special order)
contribution margin that would've been produced if special order were not accepted
File Librarian
control file libraries which store and protect programs from damage/unauthorized use
Differential Backup
copies all changes made since the last full backup each differential backup contains cumulative effects of all activity since last full backup only need to load most recent file
Incremental Backup
copying only the data items that have changed since the last incremental backup each file contains results of one days transactions must load each individually
Mission
core purpose of entity why it exists what it hopes to accomplish
SOX Title VIII
corporate and criminal fraud accountability penalties for altering documents failure to retain audit/review work papers for 7 years whistle blower protection penalty for securities fraud
SOX Title XI
corporate fraud accountability tampering with documents to impede official proceedings SEC has authority to require issuer to escrow potential penalty payments for 45 days SEC can prohibit persons from serving as officers or directors in cease and desist proceedings retaliation against informants
Inventory Turnover Ratio
cost of goods sold / average inventory
Make v. Buy - No Excess Capacity
cost of making product internally is cost that will be avoided if product is is not made PLUS opportunity cost associated
Make v. Buy - Excess Capacity
cost of making product internally is cost that will be avoided if product is not made (maximum outside purchase price)
Avoidable Costs and Revenues
costs and revenues that result from choosing one course of action instead of another relevant to decision
Cost Approach for Valuing Intangibles
costs include: materials labor overhead legal development/production opportunity costs exclude: sunk costs
Ordering Costs
costs of labor associated with order placement centering PO, processing receipt of inventory, inspecting inventory to ensure goods received are acceptable, and processing of vendor invoice (payment)
Budget Deficit
country spends more than it takes in
Spin-Off
creates new, independent company by separating subsidiary from parent unit is less profitable from core business no cash received
OWNES
criteria for finance lease classification Ownership transfer at end of lease Written purchase option that lessee is reasonably certain to exercise NPV of all lease payments/guaranteed value is greater than or equal to underlying assets fair value Economic life of asset is primarily encompassed within lease term Specialized asset - no alternate use to lessor
Enterprise Resource Planning (ERP) System
cross functional enterprise system that integrates and automates the many business processes that work together considered back office system
Net Working Capital
current assets - current liabilities
FIFO Cost per EU
current cost / EU
Failure Demand
customer is unhappy bc of shared services
Job Order Costing
customer order -> relatively few units and each is unique (VIN number) each has a job cost record
Contract the Money Supply (Decrease)
fed sells the govt securities MS - decrease interest rate - increase AD - decrease
Parity Checking
data checking technique takes sum of bits in a byte and adds a 0 (even parity) or 1 (odd parity) to make sure message has not been changed during transmission
Operating Cycle
days in inventory + days sales in AR
Business Taxes/Consumer Taxes
decrease - AD shifts right increase - AD shifts left
Interest Rates
decrease - AD shifts right increase - AD shifts left
Cost of Land/Labor/Capital
decrease - AS shifts right increase - AS shifts left
Government Business Taxes
decrease - AS shifts right increase - AS shifts left
Government Regulations
decrease - AS shifts right increase - AS shifts left
Deflation
decrease in the general prices of goods and services. It occurs when prices are falling over time. Deflation is a bigger problem that inflation since deflation, firms are likely to experience significant excess productivity capacity. Shift in aggregate demand leftward (will crash the stock market or large increase in taxes. A shift in short run aggregate supply rightward will cause price to fall
Supply and Demand of Money
demand - inversely related to interest rates supply - determined by the Fed
Economic Order Quantity Assumptions
demand is known/constant throughout the year doesn't consider stockout costs or safety stock carrying cost and ordering cost per unit is fixed
Causes of Peak
demand outstrips supply real output (GDP) is at its highest point economy reaches saturation point maximum limit growth is reached employment is near or full cost and income are at their highest consumers restrict budget
Future Hedges
denominated in standard amounts and usually are used for smaller transactions
Capital Budgets
detail planned expenditures for capital items (facilities, equipment, new products, LT investments) financing is significant component
Review and Revision
determine how well ERM practices have increased value 3 principles - SIR
IRR
determines PV factor and related interest rate that yields NPV = 0 focuses on discount rate at which PV inflows = PV outflows
Gap Analysis
determines the gap or difference between industry best practices and the current practices of the organization
Flexible Budget Variance
difference between actual results and flexible budget at the actual budget
Volume Variance
difference between the flexible budget at the actual and master budget
Circular Combination
different business units with relatively remote connections come together may use similar advertising channels or require similar production process
Price Elasticity of Supply
direct < 1.0 = inelastic > 1.0 = elastic =1 = unit elasticity
Disclosures of Transactions Involving Management and Principal Stockholders
direct and indirect ownership of more than 10% -> filed at the time of registration, when person achieves 10% ownership, and if there is a change of ownership
Conversion Costs
direct labor + manufacturing overhead
Prime Costs
direct materials + direct labor
AS, Price, and Total Output
direct relationship as price increases, total output increase SHIFT RIGHT TO INCREASE SHIFT LEFT TO DECREASE
Audit Committee
directly responsible for appointment, compensation, and oversight of the auditor resolves disputes between audit and management members must be on the board and be otherwise independent -> no compensation for consulting and must not have the ability to influence financial decisions
Investment Decision
discount cash flows at WACC (hurdle rate)
Financing Decision
discount cash flows specific to each financing option at the after tax cost of debt preferred financing option is that with the lowest NPV of cost
Currency Appreciation
domestic currency appreciates and becomes more expensive in terms of foreign currency, so outflows decline as exports more expensive inflows increase as imports become cheaper
Cash Conversion Cycle
less than or equal to industry standard days in inventory + days sales in AR - days payables outstanding
Currency Depreciation
domestic currency depreciates and becomes less expensive in terms of foreign currency, so outflows rise as exports become cheaper inflows decrease as imports become more expensive
Recovery Phase
economic activity starts to increase and return to its long term growth trend profits stabilize
Recession
economy experiences 2 consecutive quarters of falling national output caused by shifted in AR and SRAS
Causes of a Trough
economy growth rate reaches its lowest point negative saturation point for an economy rapid decline in national income and expenditure interest rate decrease unemployment is high unused resources investors unwilling to risk new investments
Interest Rates
effective interest rate annual percentage rate effective APR compound interest
EFT
electric fund transfer provided by third party vendor
Digital Certificate
electronic document created and digitally signed by a trusted party that certifies the identity of owners of a particular public key
Management Information Systems
enable companies to use data as part of strategic planning and execution provides users predefined reports that support effective business decisions subsystems -> DSS, EIS, AIS
Days of Payables Outstanding
ending AP / (COGS/365)
Days Sales in Accounts Receivable
ending AR / (COGS/365)
Days in Inventory
ending inventory / (COGS/365)
SOX Title IV
enhanced financial disclosures disclosures in periodic reports disclosures of transactions with management and principal stockolders managements assessment of IC code of ethics for senior officers
Integration Tests
ensures set of components operate smoothly together bottom up -> begins with unit testing, followed by tests of progressively higher level combinations of units top down -> highest level modules test first and progressively lower level after
ERM Integrated Framework
enterprise risk management issued by COSO in 2004 developed to assist organizations in developing a comprehensive response to risk management
Leading
entity that is owed may bill in advance
Program Framework Policy
establishes the overall approach to computer security adds detail to program by describing elements/org of program and department that will carry out IT security strategy
High Low Method
estimated fixed and variance portions of cost use either high volume or low volume to calculate variable costs by taking volume * VC/unit subtract VC from total costs to obtain fixed costs
Full Backup
exact copy of an entire database time consuming
Existing Control Activities
example: segregation of duties 3 principles - CAT P
Inherent Risks of International Operations
exchange rate fluctuations foreign economies political risk
Inflationary Expectations
expect inflation to decrease - AS shifts right expect inflation to increase - AS shifts left
Net Exports
exports increase/imports decrease - AD shifts right imports increase/exports decrease - AD shifts left
Price Risk
exposure that investors have to decline in the value of their individual securities or portfolios
Warm Site
facility that is stocked with hardware is takes to create reasonable facsimile of primary data center latest backups must be retrieved and delivered to back up site restoration can be done in reasonable amount of time
TWICEG
factors that shift AD Taxes Wealth Interest rates Consumer confidence Exchange rates Government spending
OH Overapplied
favorable OH account will have CREDIT balance
Oligopoly
few sellers dominate sales of a product and entry of new sellers is difficult/impossible conditions -> relatively few large firms with differentiated products, significant barriers to entry, firms control price and quantity, firms are independent, kinked demand, match price cuts but not price increases, economic profit positive in the long run strategies -> market share, adaptation, ads
Whistle Blower Protection
file complaint with secretary of labor may receive compensatory damages
Disclosure of Audit Committee Financial Expert OR Reason Why They Don't Have
financial expert must have understanding of GAAP, experience in preparing/auditing FS for comparable issuers, experience with internal control, can qualify through education or experience as CPA, CFO, controller, etc.
Flexible Budgeting
financial plan prepared in a manner that allows for adjustments for changes in production or sales and accurately reflects expected costs for adjusted output designed to predict outcomes and accommodate changes in actual activity benefits - can display different volume levels within a relevant range to pinpoint efficiencies or wasted areas limitations - highly dependent on accurate identification of fixed and variable costs and determination of relevant range
Excluded from GDP
financial transactions - purchase of stock resale goods transfer payments - pensions, tax credits, social security payments black market transactions intermediate goods - goods used in production process of a final good (tires)
Failure to Retain Audit/Review WPs for 7 Years
fine or imprisoned not more than 10 years
Penalties for Altering Documents
fine or imprisoned not more than 20 years
Penalty for Securities Fraud
fine or imprisoned not more than 25 years
Retaliation Against Informants
fined or imprisoned up to 10 years
Tampering with Documents to Impede Official Proceedings
fined or imprisoned up to 20 years
Certify Statement Knowing It Doesn't Comply with ALL Requirements?
fined up to $1 million and/or imprisoned up to 10 years
Willfully Certify Statement Knowing It Doesn't Comply with ALL Requirements?
fined up to $5 million and/or imprisoned up to 20 years
Nonmarket Risk
firm specific risk diversifiable risk
Fixed FOH Contribution
fixed FOH is a PERIOD cost expensed in period incurred
Fixed FOH Absorption
fixed FOH is a PRODUCT cost included in inventory/COGS
Monetary Assets and Liabilities
fixed in dollar amounts regardless of changes in specific prices or general price level. EX: Cash, Accounts Receivables, Notes Payable
Non-Monetary Assets and Liabilities
fluctuate with inflation and deflation EX: building, land, machinery, rent in advance
Validation Tests
focus on visible user actions and user recognizable outputs from system "did we build the right thing?"
Recovery
follows the trough economic activity begins to increase and return to its long term growth trend firms profits begin to stabilize as the demand for goods and services begin to rise real GDP increasing, price level increasing
Governance and Culture
forms base for all other ERM components sets tone at the top 5 principles - DOVES
Junk Bonds
frequently used to raise capital for acquisitions and leveraged buyouts
Four Types of Unemployment
frictional structural seasonal cyclical
Natural Unemployment
frictional + structural + seasonal unemployment
Types of Backups
full incremental differential
Balanced Scorecard
gathers information defined by critical success factors "FICA"
Supply Chain Operations Reference (SCOR) Model
generic model for supply chain analysis 1. plan 2. source 3. make 4. deliver
Kanban Inventory Control
gives visual signals that a component required in production must be replenished
Consumer Confidence
good outlook - AD shifts right bad outlook - AD shifts left
Budget Defecit
government could print money, which would cause inflation because money supply increases
High Operating Leverage
greater risk, but greater possible returns
Data Librarian
has custody of and maintains the entity's data and ensures that production data is released only to authorized individuals when needed
Cross Hedging
hedging one instrument's risk with a different instrument by taking a position in a related derivatives contract done when no derivative contract for instrument being hedged OR contract exists but highly illiquid
Categorize Risks by Likelihood
high -> risks highly motivated and sufficiently capable, controls to prevent are ineffective medium -> threat is motivated/capable but controls in place may impede low -> source lacks motivation/capability or controls to prevent/impede are already in place
Peak
high point of economic activity the end of expansionary phase firms are likely to face capacity constraints and input shortages
Business Combinations
horizontal vertical circular diagonal
Equilibrium between Aggregate Demand and Aggregate Supply Curve
how to identify what happens to price level and output with changes in AD and AS
IC Limitations
human error/failure biased judgement issues relating to suitability of entity's objective external events circumvention of controls through collusion management override
WACC
hurdle rate
Risk Assessment
identification/analysis of risks to the achievements of its objectives 4 principles - SAFR
Performance
identify and assess risks that affect entity's ability to achieve objectives 5 principles - VAPIR
Sell or Process Further
if incremental revenue > incremental cost, process further
Keep or Drop Segment
if lost contribution margin > avoided costs, keep segment
Joint Cost Allocation
if relative sales values at split off are not known... sales value at split off point = final selling price - identifiable costs incurred after split off
Incremental Cost
includes ALL variable costs and any AVOIDABLE fixed costs associated with a decision
Period
income statement
Government Subsidies
increase - AS shifts right decrease - AS shifts left
Supply Shock (Plentiful)
increase - AS shifts right decrease - AS shifts left
Technology Improvements
increase - AS shifts right decrease - AS shifts left
Long Run Aggregate Supply Changes
increase - shift right decrease - shift left
Consumer Spending Increases
increase -AD shifts right decrease - AD shifts left
Government Spending
increase -AD shifts right decrease - AD shifts left
Multiplier Effect
increase in consumer/government spending produces multiplied increase in level of economic activity
Factors that Shift Short Run Aggregate Demand
increase in input prices leads to decrease in GDP
Inelastic Demand Curve
increase in price reduces the quantity demanded by a little higher and more vertical slope
Elastic Demand Curve
increase in price reduces the quantity demanded by a lot flatter and more horizontal slope
Monetary Policy
increase/decrease money supply by open market operations, change in discount rate, change in reserve ratio
Fiscal Policy
increase/decrease taxes and/or government spending
Finance Lease
interest and amortization accounted for separately 5 criteria for finance lease classification - OWNES
Compounded Interest Rate
interest earning based on original principal + any unpaid interest
Disadvantages of Holding Cash
interest obligation > interest income takeover target investor dissatisfaction (no dividends paid)
Value Chain Analysis
internal costs analysis - sources of profits and costs of internal firm activities internal differentiation analysis - analyze ability to create value through differentiation vertical linkage analysis - understanding activities of suppliers and buyer, find where value can be created
Nonconformance Costs
internal failure - cure defects BEFORE product sent to customer; rework, scrap, tooling changes, disposal costs, cost of lost units, downtime external failure - cure defects AFTER product sent to customer; warranty costs, cost of returning goods, liability claims, lost customers, reengineering
System Analyst
internally developed system - determine system requirements, design the overall system, determine type of network needed purchased system - integrate with existing applications, provide training
Price Elasticity of Demand
inverse < 1.0 = inelastic > 1.0 = elastic =1 = unit elasticity
Inflation and Unemployment
inverse relationship
AD, Price, and GDP
inverse relationship as price increases, GD decreases SHIFTS RIGHT TO INCREASE SHIFTS LEFT TO DECREASE
Demand for Money and Interest Rates
inversely related
Selecting Improvement Initiatives
irrational - intuitive and emotional rational - structural and systematic
How to Mitigate Risk in Legacy Systems
isolate system virtual patches
Structural Unemployment
jobs in market don't correspond to skills OR workers don't live near the jobs
Risks of Legacy Systems
lack of vendor support old threatscape less advanced code reutilization educated hackers patch lags evolving hacker tools dependency of insecure platforms
Operating Leasing
lease expense on income statement represent interest and amortization of right of use asset if OWNES is not met OR lease is 12 months of less -> operating lease
Liquidity Risk
lender/seller wants to sell security but cant do so in a timely manner
Holding Monetary Asset
less purchasing power During inflation, those with fixed amount of money or income, example, retired persons) will be hurt. That is their purchasing power will be eroded. Purchasing Power -> Goes Down Value of $ Cash -> Goes Down (Bad)
Acceptance Tests
make sure software works correctly for intended user in normal work environment MOST IMPORTANT TYPE OF TESTING alpha -> software tested by customer under supervision at developers site beta -> software tested by computer at own site
Monopolistic Competition
many sellers compete to sell differentiated products (ex - brand name cosmetics) conditions -> numerous firms with differentiated products, firms small, few barriers to entry, firms exert some price influence (mostly quantity), highly elastic demand, economic profit of zero in the long run strategies -> maintaining market share, plan for enhanced product differentiation, resources for advertising/marketing/r&d
Margin of Safety Percentage
margin of safety in dollars / total sales
Gross National Product
market value of all final goods and services produced by residents of a country
COSO Major Deficiency
material IC deficiency (or combination of) that significantly reduces the likelihood the organization can achieve its objectives
Price Ceiling
max price set below equilibrium price QD > QS shortage
Herfindahl Index
measure of the size of firms relative to the industry that gives more weight to larger firms
Profitability Index
measures cash flow return per dollar invested
Coefficient of Correlation (r)
measures strength of linear relationship between independent and dependent variables -1 to 1 0 = no correlation
Real GDP
measures the value of all final goods and services in constant prices (nominal GDP / GDP deflator) * 100
Nominal GDP
measures the value of all final goods and services in current prices
Transactions
merger acquisition tender offer purchase of assets divestiture
Software as a Service (SaaS)
method of software distribution where apps hosted by vendor ex - ASP
Price Floor
min price set above equilibrium price QD < QS surplus
By - Product
minor products of small value that incidentally result from the manufacture of main product
Business Cycles Controlled Through...
monetary policy fiscal policy state control of private investment international measures to control of business cycle fluctuation reorganization of economic system
Discretionary Income
money available after all living expenses are made disposable income - living expense
Life Cycle Costing
monitor costs throughout products life style and expands on traditional costing systems that focus only on manufacturing phase of a products life
Change in Real GDP
multiplier x change in spending
Personal Income
national income - social security contributions - corporate income tax - undistributed corporate profit + transfer payment OR disposal income + personal tax payments
Standard Cost Systems
natural extension of ABC standards are set at activity levels based on cost drivers and variances are calculated -> actual v. standard
Elastic Demand and Revenue
negative relationship
Residual Income
net income - required return
ROI
net income / average invested capital OR profit margin * investment turnover OR net income / invested capital
Profit Margin
net income / sales
Economic Value Added
net operating profit after taxes minus the firm's cost of capital in dollar terms
Perfect Competition
no individual firm can influence market price of product or shift supply sufficiently conditions -> large # of suppliers, firms smaller, NO barriers to entry, firms are price TAKERS, demand is perfectly elastic, economic profit of zero in the long run strategies -> maintaining market share, responsiveness of sales price to market conditions
Annual Percentage Rate (APR)
noncompounded effective periodic rate * # of periods
Income Elasticity
normal good - positive coefficient inferior good - negative coefficient
Unemployment Rate
not affected by recession seeking / employed + seeking
Information, Communication, and Reporting (Ongoing)
obtain information and share throughout entity 3 principles - TIP
Equilibrium GDP
occurs at the level where GDP equals personal consumption expenditures, gross private investments, government purchases, and net imports minus taxes
Cold Site
off-site location that has all the electrical connections and other physical requirements for data processing, but it does not have the actual equipment requires 1-3 days to be operational
Hot Site
off-site location that is equipped to take over the company's data processing backup copies of essential data files/programs may also be maintained at location
Tools of the Fed
open market securities (buy and sell government securities) change in discount rate (increase interest rate, decrease money supply) change in reserve ratio (increase reserve ratio, decrease money supply)
Expansionary and Contractionary Phrase
opposite each other expansion - GDP up, profit up, unemployment down contractionary - GDP down, profit down, price down, unemployment up
Total Quality Management
organization commitment to customer focused performance
Practices
organization practice continually applied to the entire scope of business activities
Certificate Authority
organization that issues public and private keys and records the public key in a digital certificate
Theory of Constraints
organizations are impeded from achieving objectives by the existence of one or more constraints internal - inefficient equipment external - system produces more than market requires buffers can be added before/after each constraint to ensure enough resources exist to accomodate
Core Values
orgs beliefs/ideals about what is good and bad; acceptable and unacceptable influence orgs behavior
Sell-Off
outright sale of subsidiary because core competencies don't align with overall companys
COSO Framework Document
overall assessment component evaluation principal evaluation summary of IC deficiencies
Divestiture
partial or full disposal of a component of a company types: sell-off, spin-off, equity cave out
Trailing PE Ratio
past earnings
SG&A
period costs under BOTH methods
Business Cycle
periodic fluctuations of economic activity, as measured by levels of employment, prices, and production shift in the aggregate demand and supply curves
Computer Operators and Computer Programmers
person performing both functions could make unauthorized and undetected program changes
Disposable Income
personal income - personal income tax
IS Steering Committee
plans and oversees IS function facilitate coordination and integration of IS to increase goal congruence
Control Charts
plots comparison of actual results by batch show if trend is toward improved quality conformance or deteriorating quality conformance GOAL POST CONFORMANCE
Certainty Equivalent
point at which investor is indifferent to risk
Split Off Point
point in the production process at which the joint products can be recognized as individual products
Purchase of Assets
portion of all selling company's assets are purchased by acquiring company may result in dissolution of selling company
Inelastic Demand and Revenue
positive relationship
Risk
possibility that events will occur and affect the achievement of strategy and business objectives
Projections
precursors to actual forecasts (internally)
Cost of Preferred Stock
preferred stock dividends / net proceeds of preferred stock
IS Risk Assessment
prepare business impact analysis to identify which business units are essential to entity survival categorize info resources by impact high impact -> can not operate without medium impact -> could operate without for a few days low impact -> could operate without for extended period
Forecasts
prepared both internally and externally
Special Order Decisions
presumed full capacity -> opportunity cost of producing special order should be included in analysis
Pretax Bond Yield Plus Risk Premium
pretax cost of LT debt + market risk premium
After Tax Cost of Debt
pretax cost of debt * (1 - tax rate)
Dumping
price charged to foreign customers on exports is less than either the price charged in the domestic market or less than production cost
Coefficient of Determination (r2)
proportion of total variation in y explained by x will be between 0 and 1 higher = better fit of regression line
Cash Budgets
provide management with information about availability of funds for distribution, repaying debt, or investment
Application Service Provider (ASP)
provides access to application programs on rental basis responsible for software updates
Fishbone Diagrams
provides framework for managers to analyze problems that contribute to occurrence of defects used to identify sources of problems in production process by resource
Sarbanes-Oxley Act of 2002
public companies corporate responsibility fraud enhanced disclosures Title III, Title IV, Title VIII, Title IX, Title XI
SOX Title III
public companies must have an audit committee CEO and CFO have a corporate responsibility
Direct Foreign Investment
purchasing a foreign company as a subsidiary or starting subsidiary within foreign country
Causes of Recovery
real output (GDP) is increasing employment rises price level slowing increasing inflation rate accelerate interest rate increase credit increase production, trade and investment are also increasing
Total Factor Productivity Rates
reflect quantity of all output produced relative to the cost of all inputs used can be used to compare actual cost per unit production levels to budgeted (or PY) production levels
Partial Productivity Ratios
reflect quantity of output produced relative to the quantity of individual inputs used can be used to compare actual levels of production input needed to produce a given output MOST FREQUENTLY USED
Failure of Officers to Certify Financial Reports
reports filed with the SEC must be accompanied by: statement that fully complies with SEC 1934 information fairly represented must be signed by CEO AND CFO
Absorption Approach
required for GAAP does NOT segregate fixed and variable costs
IT Governance
responsibility of executive management and the board of directors
Data Administrator (DA)
responsible for definition, planning, and control of data within database administrative
Computer Operator
responsible for scheduling and running processing jobs mostly automated
Project Development Team
responsible for the successful design and implementation manage human element hold regular meetings
Cyclical Unemployment
results from declines in real GDP real GDP < potential GDP = cyclical when economy is at full employment, cyclical unemployment is ZERO
Frictional Unemployment
results from workers routinely changing jobs or being temporarily laid off time required to match qualified job seekers with available jobs
Business Process Reengineering
rethink how work is done to dramatically improve customer satisfaction radical
Stagflation
rising unemployment and rising price level
Black Scholes Model
risk free rate and volatility are constant no taxes or transaction costs no dividends (although could be adapted) european style options (exercisable ONLY at maturity)
Strategic Risk
risk of choosing inappropriate technology
Operating Risk
risk of doing the right things in the wrong way
Financial Risk
risk of having financial resources lost, wasted, or stolen
Information Risk
risk of loss of data integrity, incomplete transactions, or hackers
Country Risk
risk of political and economic uncertainty in a foreign country that affects the value of loans or investments in that country
Actual Residual Risk
risk remaining AFTER management has taken action
Reorder Point
safety stock + (lead time x sales during lead time)
Order of Budgets
sales production DM, DL, OH COGS
Receivables Turnover
sales / average accounts receivable
Investment Turnover
sales / invested capital
Contribution Margin
sales price - variable cost
Attempt and Conspiracy
same penalty as those who actually commit the crimes
Seasonal Unemployment
seasonal changes in demand/supply of labor
Security Administrators, Computer Operators, and Computer Programmers
security admin restricts access to systems/apps if i was also a programmer or operator, i could give myself access to unauthorized areas and steal information
Law of Supply
seller side of the market direct relationship between quantity and price
Business Information System
set of software used by business allows a business to collect, process, store, transform, and distribute data
Two Types of Aggregate Supply Curves
short run long run
Limitations of ROI
short term focus investment myopia disincentive to invest
CEO and CFO Corporate Responsibility
sign annual and quarterly reports with assertions that they have been reviewed and don't contain untrue statements nor omit material information, assertions on the effectiveness on internal control, disclose to the auditors all significant deficiency/material weakness in internal control, any fraud involving management or other key roles, any significant changes to IC IC must be evaluated within 90 days of the report
High Financial Leverage
small change in EBT will have greater effect on profits and shareholder value
DM Quantity Variance
standard price x (actual quantity used - standard quantity allowed)
VOH Efficiency Variance
standard rate x (actual hours - standard hours allowed for actual production volume)
DL Efficiency Variance
standard rate x (actual hours - standard hours allowed)
Effective Annual Rate (EAR)
stated interest rate adjusted for number of compounding periods per year
Economic Indicators
statistics that historically have been highly correlated with economic activity types - leading, lagging, coincident
PV of a Perpetuity
stock value per share
Integration with Strategy Setting and Performance
strategy aligns with mission and vision, business objectives flow from strategy, and business objectives drive activities of all business units and functions mission and vision correlate with strategy and business objectives
Game Theory
study of mathematical models of conflict and cooperation between intelligent rational decision-makers
Equity Carve-Out
subsidiary made public through IPO creating new company parent has controlling interest
Cross Elasticity
substitute goods - positive coefficient complementary goods - negative coefficient
Hash Totals
sum of invoice numbers to confirm correct source docs included
Balance in OH Account
sum of volume, efficiency, and spending variances
Information and Communication
support the identification, capture, and exchange of information in a useful and timely manner 3 principles - OIE
Materials Requirement Planning (MRP)
system for calculating materials needed to manufacture a product mainly applies to WIP and raw materials
Market Risk
systematic risk nondiversifiable risk
Depreciation Tax Shield
tax rate x depreciation expense
Target Costing
technique used to establish the product cost allowed to ensure both profitability per unit and total sales volume = market price - required profit
Lagging Indicators
tend to follow economic activity - change AFTER trend already started ex: prime rate charged by banks, average duration of unemployment, commercial loans outstanding, CPI for services, consumer debt to income ratio, change of labor cost per unit, inventories to sales ratio
Leading Indicators
tend to predict economy - change BEFORE economy starts to follow a certain trend ex: average new unemployment claims, building permits, average length of work week, money supply, S&P 500, orders for goods, change of price of materials, index of consumer expectations, interest rate spread
System Testing
tests the system as a whole, performed by specialized testing team
Operating Leverage
the degree to which a company uses fixed operating costs rather than variable operating costs fixed costs/variable costs company with higher fixed costs will retain higher % of additional revenue as operating income
Risk Capacity
the maximum amount of risk the entity is able to absorb in pursuit of strategy and business objectives
Market Equilibrium
the point where the supply and demand curves meet AKA market clearing price
Relevant Range
the range of production over which cost behavior assumptions are valid
Microeconomics
the study of how households and firms make decisions and how they interact in markets
Aggregate Demand
the total demand for all the final goods and services that households, firms, and the government are willing and able to purchase at a given price level during a stated point in time
GDP
the total market value of all final goods and services produced WITHIN BORDERS of a nation in a particular period nations output of goods and services
NPV
theoretical dollar change in the market value for the firms equity due to the project
Payback Period
time required for net after tax operating cash inflows to recover initial investment in project emphasis on liquidity/risk shorter payback = better
Payback Method Limitations
time value of money is ignored cash flows after initial investment is recovered are NOT considered reinvestments of cash flows are not considered total project profitability is neglected
Breakeven Point in Units
total fixed costs / contribution margin per unit
Simple Interest Rate
total interest rate over the life of a loan
Aggregate Supply
total production of all final goods and services that producers are willing and able to produce at a given price level at a particular point in time
Margin of Safety in Dollars
total sales - breakeven sales in dollars
Importance of Business Cycle
tracking the cycle helps professionals forecast the direction of the economy
Motives for Holding Cash
transactions motive precautionary motive - take advantage of temporary opportunities speculative motive - cushion
Measuring GDAP
two approaches: 1. expenditure "GICE" 2. income "I PIRATED"
Joint Products
two or more generated from the same input
Overhead Application
two steps 1. overhead rate 2. applied overhead
Benefits of JIT
tying production scheduling with demand more efficient flow of goods between warehouses/production reduced setup time greater employee efficiencies
Best Cost Provider
type of competitive strategy combines cost leadership with differentiation to give customers higher value (high quality product at reasonable price) works well when generic products are not acceptable but buyers are still sensitive to value they're receiving plays "the middle" -> faces risk of losing customers to other firms
Causes of Recession
unemployment increase real GDP falls profit falls wages grow slowly business investment drop sharply interest rate falls stock price falls appreciation in exchange rate
OH Underapplied
unfavorable OH account will have DEBIT balance
Breakeven Point in Dollars
unit price * BE in units total fixed costs/CM ratio
Types of IT System Testing Strategies
unit tests integration tests validation tests acceptance tests system tests
IRR Limitations
unreasonable reinvestment assumption (assumes all cash flows reinvested at IRR) less reliable than NPV when several alternating periods of inflows/outflows differ significantly does not consider dollar value of the project, only %
Debenture
unsecured obligation holder has status as general creditor in event of a default
Commercial Paper
unsecured, short term debt issued by a corporation matures in 270 days or less (usually 30)
Short Run Aggregate Supply
upward slope price rises, demand increases
Money Market Hedge
use domestic currency to purchase foreign currency at current spot rates and invest them in securities timed to mature at the same time as the related payable 4 steps
Program Level Policy
used for creating a management sponsored computer security program prescribes need for information security and may delegate creation and management "mission statement" for IT
Pareto Diagrams
used to determine quality control issues that are most frequent and demand greatest attention demonstrates frequency of defects from highest to lowest frequency
Real GDP per Capita
used to figure out what is the country's GDP per person living in that country compare standards of living across countries or across time real GDP/population
Unit Tests
used to validate smallest components of the system and ensure they handle known input/output correctly performed by developers before setup handed over to testing team test individual parts
Operations Costing
uses components of both job order costing and process costing
Assymetric Encryption
uses public key and private key
Contribution Approach
uses variable costing (AKA direct costing) doesn't represent GAAP, but useful for internal decision making
Value of Levered Firm
value of unlevered firm + PV of interest tax savings
Learning Curve
variable costs per unit will decline until a steady-state period is achieved (labor units per unit will be constant) as cumulative production doubles, cumulative average time per unit falls to a fixed percentage of previous average time
Sales Dollars Needed to Obtain Desired Profit
vc + fc + pretax profit (fixed costs + pretax profit) / CM ratio
Long Run Aggregate Supply
vertical line determined SOLELY by production and the availability of resources - not by price
Cloud Computing
virtual servers available over the internet 3 types 1. Iaas 2. Paas 3. Saas
Impact of Business Cycle on Economy
volatile business cycle is considered bad for the economy biggest problem of the business cycle is that recession - spend less, unsold inventory increases, and businesses respond by reducing production and laying off workers uncertainty created by volatile BC tends to cause lower investment, and can lead to lower long term economic growth
4 V's of Big Data
volume velocity variety value
FOH Favorable
volume higher than anticipated -> more units produced using same amount of fixed costs
Nominal GDP
wages + rents + interests + profits - american income earned abroad + depreciation + indirect business tax
Lagging
wait until exchange rate is favorable before settling
Mash Ups
web pages that are collages of other web pages ex - google maps
Supply Chain Management
what/where/when/how includes purchasing, materials handling, production planning, warehousing, inventory, delivery
How Do Firms Operate Best?
when MC = MR
Code of Ethics for Senior Officers
whether issuer has adopted one if not...must have reason why
SOX Title IX
white collar crime penalty enhancements attempt and conspiracy failure of officers to certify financial reports
In Demand Full Inflation
· Aggregate demand goes up · Prices goes up In demand pull inflation, if the economy cannot produce enough to meet demand, the prices of existing goods increase In modern times, demand pull inflation occurs when an economy approaches full employment and demand continues to increase Pull demand result of too many dollars chasing few goods