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