11: Differential Analysis (or Relevant Costs)
- Page ID
- 65772
\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)
\( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)
\( \newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\)
( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\)
\( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)
\( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\)
\( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)
\( \newcommand{\Span}{\mathrm{span}}\)
\( \newcommand{\id}{\mathrm{id}}\)
\( \newcommand{\Span}{\mathrm{span}}\)
\( \newcommand{\kernel}{\mathrm{null}\,}\)
\( \newcommand{\range}{\mathrm{range}\,}\)
\( \newcommand{\RealPart}{\mathrm{Re}}\)
\( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)
\( \newcommand{\Argument}{\mathrm{Arg}}\)
\( \newcommand{\norm}[1]{\| #1 \|}\)
\( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)
\( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\AA}{\unicode[.8,0]{x212B}}\)
\( \newcommand{\vectorA}[1]{\vec{#1}} % arrow\)
\( \newcommand{\vectorAt}[1]{\vec{\text{#1}}} % arrow\)
\( \newcommand{\vectorB}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)
\( \newcommand{\vectorC}[1]{\textbf{#1}} \)
\( \newcommand{\vectorD}[1]{\overrightarrow{#1}} \)
\( \newcommand{\vectorDt}[1]{\overrightarrow{\text{#1}}} \)
\( \newcommand{\vectE}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{\mathbf {#1}}}} \)
\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)
\( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)
\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 11.1: Chapter 10 Study Plan
- This page outlines a study plan on relevant costing for managers, emphasizing knowledge, reasoning, and skill targets. It defines key concepts such as avoidable costs and opportunity costs, and focuses on classifying costs. The skills include analyses for product line decisions, make-or-buy scenarios, special orders, and joint products at the split-off point, ultimately aiming to prepare effective cost analyses to aid management decision-making.
- 11.2: Calculating Trend Percentages
- This page discusses trend percentages, which facilitate comparisons of financial data to a selected base year, demonstrating changes over time. By assigning the base year a weight of 100%, subsequent years are expressed as percentages to reveal trends like rising net sales and profits, along with areas requiring further analysis.
- 11.3: Common-Size Financial Statements
- This page discusses vertical analysis in financial statements, which presents items as percentages of significant totals for clarity. Common-size statements focus on percentages, with balance sheets reflecting total assets and income statements showing net sales. An example from Synotech, Inc. highlights that about 51% of sales are allocated to cost of goods sold, while nearly 7% results in net income after taxes. This method enhances comprehension of financial performance over absolute figures.
- 11.4: Accounting in the Headlines
- This page discusses the benefits of using a common-size income statement for analyzing Pandora's operations, highlighting its effectiveness in comparing financial performance between 2014 and 2015. It reveals trends in revenue and expense growth, despite operational losses increasing due to rising costs. The common-size format offers insights into revenue composition and operational efficiency, making it a valuable tool for financial assessment over time.
- 11.5: Calculate Ratios That Analyze a Company’s Short-Term Debt-Paying Ability
- This page explains that ratios in financial analysis reveal relationships in financial statements, aiding in the assessment of a company's health through liquidity, solvency, profitability, and market metrics. Key ratios like current and acid-test ratios gauge short-term debt capacity, while turnover ratios evaluate efficiency in receivables and inventory.
- 11.7: Ratios That Analyze a Company’s Long-Term Debt Paying Ability
- This page discusses how creditors assess a company's ability to pay long-term debts using financial ratios, specifically the debt ratio and times interest earned ratio. The debt ratio shows the proportion of liabilities to assets, while the times interest earned ratio evaluates income against interest expenses, with a ratio above 5 indicating a sound ability to meet obligations. Low ratios, however, may signal potential default risks.
- 11.8: Analyzing Comparative Financial Statements
- This page discusses financial statement analysis methods to evaluate a company's solvency and profitability. It distinguishes between internal management's use of special-purpose reports for operational decisions and external users' reliance on general-purpose statements for overall insights. Key techniques highlighted include horizontal analysis, which identifies trends and performance indicators by comparing financial data over time, aiding informed decision-making.
- 11.9: Glossary
- This page provides a glossary of essential financial and managerial terms pertinent to cost analysis and decision-making, covering concepts like by-products, committed and discretionary fixed costs, differential analysis, joint products, make-or-buy decisions, opportunity costs, relevant revenues or costs, and sunk costs. These definitions facilitate a better understanding of the financial effects of operational decisions and the consequences of alternative strategies on business performance.
- 11.10: Ratios That Analyze a Company’s Earnings Performance
- This page discusses Synotech's equity ratio improvement from 22% to 25.7% from 20Y4 to 20Y5, reflecting enhanced stockholder investment. It highlights the significance of equity ratios, return on equity (ROE), and earnings per share (EPS) in assessing company performance.
- 11.11: Chapter 10- Exercises
- This page covers a series of short-answer questions and exercises focused on differential analysis in business decision-making, addressing concepts like fixed and opportunity costs, contribution margin income statements, and make-or-buy scenarios. It involves real-world applications across various industries such as lumber processing and ice cream production, emphasizing cost comparisons and implications for operations.
- 11.12: Ratio Summary
- This page details key financial ratios that evaluate a company's liquidity, solvency, profitability, and market prospects. Liquidity ratios (e.g., working capital, current ratio) assess short-term debt-paying ability. Solvency ratios (debt and equity ratios) measure financial leverage. Profitability ratios (profit margin, return on assets) gauge income efficiency, while market prospects are analyzed through price-earnings ratio and dividend yield, offering insights into stock performance.