Price Elasticity of Demand=Percentage change in quantity demanded

Percentage change in Price

Income Elasticity of Demand= Percentage Change in Quantity
demanded
Percentage change in income
Cross-Elasticity of Demand= % change in the Q demanded of Product X
% change in the price of product Y
Marginal Propensity to Consume= The % of the next dollar of income
that the consumer would be expected to spend (MPC)
Marginal Propensity to Save= the % of the next dollar that the
consumer would be expected to save (MPS)
MPS + MPC = 1
Return to Sale= % increase in output
% Increase in input
Gross Domestic Product (GDP)= The total dollar value at market prices
of all final goods and services produced within one countrys borders
during a period of time
Ex- Consumption by households + investments + Government
spending + Net Exports
Real GDP= the total dollar value of all the final goods and services
produced expressed using a price level that is constant over time
Gross National Product (GNP)= total dollar value of all goods and
services produced by a countrys RESIDENTS
Multiplier Effect increase in output (Equilibrium GDP)
Increase in output= Change in Spending
Marginal Propensity to Save (MPS)
Forward Premium (Discount) Formula=
Forward Rate Spot Rate x
Months in a year (12)
Spot Rate
Months in the foreword Period
Spot Rate: is the exchange rate at which a financial party will exchange
two currencies at this time
Forward Rate: is the exchange rate at which a financial party will
exchange two currencies at a specific future date called the settlement
date

Control Activities PIPSPerformance Review- Actual vs. Budget

Information Processing- (IT) General vs Application, Application controls
include
input, processing, and output controls
Physical Controls- Access to Assets
Segregation of Duties- assign different people responsibilities of
authorizing
transactions, recording transactions,
maintaining custody of assets, and
performing
comparisons
Segregation of Duties ARCCSAuthorize Transactions
Recording (posting) Transactions
Custody of Assets
Comparisons
Limitations of Internal Control COCOCollusion
Override by Management
Competence- errors or mistakes, poor human judgment
Cost/Benefit Constraints
Obsolesce- Change in Companys operations or size
Internal Control Component CRIMEControl Activities
Risk Assessment
Information & Communication
Monitoring
Control Environment
Return on Investment= Revenues Expenses
Average Assets
Working Capital WC= Current Assets CA- Current Liabilities CL
Current Ratio= Current Assets
Current Liabilities
Quick Ratio= Quick Assets
Current Liabilities
Quick Assets= Cash + Marketable securities + Accounts Receivable

Cash Conversion Cycle CCC- the # of days from when a business pays
for its inputs to when the business collects cash from the sale of
finished goods
Inventory Conversion Period ICP- Average # of days to convert
inventory to sales
ICP= Average Inventory
COGS per day
Accts Receivable Collection Period RCP- Average # of days required to
collect A/R
RCP= Average Accounts Receivable
Average Credit Sales per Day
Accounts Payable Deferral Period PDP- Average # of days between
buying inventory and paying for that inventory
PDP= Average Payables
Purchases per Day
CCC= ICP + RCP PDP
Accounts Receivable Turnover=
Net Credit Sales
Average Accounts Receivable
Number of days of sales in average receivable= 360
A/R Turnover
Re-Order Point= Average Daily Demand
* Average lead-time
= Re-order point without safety stock
+ Safety Stock
= Re-order point with a safety stock
Economic Order Quantity EOQ- Decides the appropriate quantity to
order
A= Annual Usage of Inventory
P= Costs involved in Placing Orders
S= Storage costs for carrying inventory
EOQ=

2 AP
S

Inventory Turnover Ratio= Cost of Goods Sold

Average Inventory
Number of days of supply in average inventory= 360
Inventory
Turnover

Payback Period= Initial Investment

After Tax Annual Net Cash Inflows
Internal Rate of Return IRR= Investment
Annual Cash Flows
Accounting Rate of Return ARR= Accounting Income Net of all
expenses dep.+taxes
Avg. or Initial Investment
Net Present Value NPV= Present Value of future C.F. Required
Investment
Annual Financing Cost AFC- Calculates the cost of not taking the
discount
AFC= Discount % x
(100- Disc %)

365 ( or 360)
(total pay period discount period)

Compensating Balances, Cost of the Loan= Interest Paid

Net funds available ( Principle Compensating
Balance)
Current Yield= Annual Interest Paid
Bond Market Price
Effective Annual Interest Rate (EAR) Yield to Maturity
r= stated interest rate
m= compounding frequency
EAR =

r m
1
m

( )
1+

Cost of Debt financing= yield to maturity x (1-effective tax rate)

=(Interest expense tax deduction for interest)
Carrying value of debt
Cost of Preferred Stock Financing= Dividend

Net Issue Price

Cost of Existing Common Stock

Capital Asset Pricing Model=

Risk fee rate + [ ( Expected market rateRisk free rate ) Beta ]
Dividend Yield Plus Growth Rate=
Net expected Dividend + expected growth in earnings
Current Stock Price
Cost of New Common Stock= Net expected Dividend + expected
growth in earnings
(Current stock price floatation costs)
Economic Value-Added= Net operating profits after taxes costs of
financing
Residual Income = revues expenses and required return of assets

Total Cost= Fixed + Variable(X)

Y= A + Bx
Y= total cost dependent variable
x= volume, independent variable, cost driver
A= fixed costs
B= Variable cost per unit
Cost of Good Sold= Beginning Inventory
+ Purchases
= Cost of goods available for sale
-Ending Inventory
= Cost of Goods Sold
Direct Materials Used= Beginning direct materials inventory
+ Direct Materials Purchased
- Ending Direct Materials Inventory
= Direct Materials used
Cost of Goods Manufactured = Direct Materials used
+ Direct Labor incurred
+ Overhead applied
= Costs added to production
+ Beginning WIP inventory
- Ending WIP inventory

= Cost of Goods Manufactured

Cost Volume Profit Break even in Unites
=Fixed Costs + Profit (Loss)
Sales Price- Variable Costs (CM)
Break even in Sales Dollars
=Fixed Costs + Profit (Loss)
CM Ratio (CM/Sales Price)

Direct Materials Price Variance= AQ(SP AP)

Direct Materials Usage Variance= SP(SQ AQ)
Direct Labor Rate Variance= AH(SR AR)
Direct Labor Efficiency Variance= SR(SH AH)
Overhead Spending Variance
= (ADLH PVOHR + Budgeted Fixed Overhead) Actual Overhead
Overhead Efficiency Variance= PVOHR

(SDLH ADLH)

Overhead Production Volume Variance= (SDLH

Fixed OH

PFOHR) Budgeted

Weighted Average: Total Costs/Total Equivalent Units= Cost Per Unit

FIFO: Costs this Period/ Units Worked on this Period= Cost per unit
Economic Value Added: Operating Profit Cost of Capital
Derivatives (NUNS): No net investment
an Underlying and a Notional amount
net Settlement
Return on Investment=
NET INCOME
Total Assets or Avg invested Capital
Residual Income= Operating Profit Interest on Investment
Free Cash Flow= NOPAT

+ Depreciation
+ Amortization
- Capital Expenditures
- Net increase in Working Capital
Free Cash Flow