Cost acc chapter 13 notes PDF

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Chapter 13 notes, contains bulleted list of important topics covered in the chapter....

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Cost Accounting Chapter 13 Notes 

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Capital budgeting- managers plan significant investments in projects that have long term implications such as the purchase of new equipment or the intro of new products Any decision that involves a cash outlay now to obtain a future return is a capital budgeting decision Two categories of cap budgeting: screening decisions (whether a proposed project passes a preset hurdle), and preference decisions (selecting from among several acceptable alternatives)

Working capital- current assets-current liabilities   

Time value of money- recognizes that a dollar today is worth more than a dollar a year from now. Discounting cash flows attempts to translate the value of future cash flows to their present value Payback period- length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates.

Payback period= investment required/annual net cash inflow        

The payback method is not very accurate it simply shows how long it will take the business to pay back their initial investment If new equipment is replacing old equipment, then any salvage value should be deducted from the cost of the new equipment Any depreciation should be added back according to payback method Net present value- present value of inflows – present value of outflows Cost of capital- the average rate of return that the company must pay to tis long term creditors and its shareholders for the use of their funds Out of pocket costs- actual cash outlays for salaries, advertising, and other operating expenses Internal rate of return- the rate of return of an investment project over its useful life. Internal rate of return- discount rate that causes NPV to equal 0

Amount of additional cash flows per year from the intangible benefits that would be needed to make the project financially attractive = negative NPV to be offset/present value factor The higher the internal rate of return the more desirable the project Project profitability index= NPV/investment required The higher the project profitability index, the more desirable the project.

Simple rate of return = annual incremental net operating income/initial investment Postaudit- involves checking whether or not expected results are actually realized. The data used in the post audit analysis should be actual observed data rather than estimated data....