Financial Analysis & Planning Flashcards

In a multi-product company, which method allocates overhead costs based on the activities that drive those costs?

Answer: Activity-based costing (ABC)

Activity-based costing allocates overhead to products based on actual consumption of cost-driving activities rather than a single overhead rate.

What is the financial implication when a product's price falls below its variable cost?

Answer: Each unit sold increases the contribution margin loss

When price is below variable cost, the contribution margin is negative, meaning every unit sold increases the loss beyond fixed costs.

Which ratio measures the number of times a company can pay its current liabilities using its most liquid assets?

Answer: Quick ratio

The quick ratio (acid-test ratio) measures liquidity using only cash, marketable securities, and receivables, excluding inventory.

A pricing analyst is evaluating a 'what-if' scenario where price is raised 8% and elasticity is -1.5. What volume change is expected?

Answer: -12%

Volume change = Price elasticity × Price change = -1.5 × 8% = -12%, indicating a 12% volume decline.

What does the Days Sales Outstanding (DSO) metric reveal about a company's financial health?

Answer: The average number of days to collect payment after a sale

DSO measures the average time to collect receivables, indicating the effectiveness of credit and collections policies.

When a company uses skimming pricing for a new product, what is the most relevant financial planning consideration?

Answer: Recovering high development costs quickly from early adopters

Price skimming targets less price-sensitive early adopters with a high initial price to rapidly recover R&D and launch investments.

Which financial planning document translates strategic goals into expected revenues, costs, and profits for a defined period?

Answer: Operating budget

The operating budget consolidates revenue forecasts and expense plans to show projected profitability over a defined planning horizon.