Class 2

The model:

Mgmt - determines - Input - formulate - Business Model - execute - Output - risk reward - back to Mgmt

P = price

V = variable costs

F = fixed costs

X = volume

Everyone has a business model.

To be a doctor, there are high fixed costs. But the pay is high and the variable costs are low. These are the decision variables.

The class's business model:

3 exams and a final. Each exam is 150 points. You choose the best 2.

Final: 150 points a modification of the previous 3 exams. 100 points from the departmental final.

You get to keep the exams to study for the final.

There's a review session before the exams with a pretest.

10 multiple choice (30 points)

3-4 computations (120 points)

One page of cheat sheet is allowed for exams, but not the final.

Homework answers will be posted on Blackboard.

There will be an outline for the quiz.

Then we have the quiz (20 points).

Then the quiz questions and answers will be on Blackboard.

The brain is not run by gasoline, but by questions!

China has 2200 per capita GNP, higher than India's 800. But China is easier to start a business. Not as many delays as India.

Homework and quizzes are 150 points

Two midterms 300 points

No team assignments!

90% = A

80% = B

70% = C

All points will be posted on Blackboard.

Lectures are inspirational.

Exams are very mechanical.

Chapter 2 - Cost Behavior

4 key factors:

P = price

V = variable costs

F = fixed costs

X = volume

How does the business model affect the outputs and present reward or risk to the manager?

Budgeted/estimated - before the event

Real outcome - after the event

Compare the two and you have the discrepancy, technical term called variance.

Why budget?

You have data to reflect on. If you don't think beforehand, you may fail. To reflect is to learn.

First business model: see page 54. You need to construct the budget and decide how comfortable you need to be on your vacation.

Fixed costs aren't always really fixed. They may change with the situation. More people may change the fixed cost. The fixed cost per unit is actually what changes in many cases. See pg 56.

Operating leverage. It's related to F, V and X.

For each word problem, summarize the key factors, then write down formula in the chapter, then plug in the number and produce the output. You need to do it again and again until it's instinctive. That's the process of how to learn.

Risk and reward assessment

See page 58.

Variable cost behavior

Total variable cost = unit variable cost (v) times volume (X) = vX

High Low Method

(this will be on the test and the departmental final)

See page 68. Want to estimate the Fixed Cost (F) and Variable Cost (V).

You're given a list of data (units sold and total cost) for each month.

First step: Summarize key elements. High and Low. Find the high and low units sold and total cost in the list.

Total High = F + vXhigh

Total Low = F + vXlow

Thigh-Tlow = vXhigh - vXlow = v(Xhigh-Xlow)

Therefore,

v = Thigh-Tlow / Xhigh-Xlow = 540k-180k / 34k-10k = 360k/24k = 15