Core 2 Flashcards
Engineered costs
are costs driven by production levels
discretionary cost
occurs at the discretion of management
conversion costs
Relevant costs
re those that will occur in the future that differ between the courses of action that could be chosen. They must be included in the analysis when decisions are being made.
Committed costs
incurred as a result of past commitments by an organization. Committed costs are incurred to keep an organization functioning as it is intended to, as without them, manufacturing cannot continue.
variable manufacturing overhead
Traditional budgeting
is a classic approach to budgeting in which organizations assign an increase or decrease percentage across all line items (revenues and expenses). This can be on a per-account basis or to the budget as a whole.
e priority budgeting.
organizations allocate resources based on their strategic plan. Priority budgeting requires a strong understanding of the organization and the different subunits and their contributions to the strategic plan
top-down budgeting
in which higher-level managers impose operating targets and/or budgets on their direct reports in the organization. Consider a regional manager who oversees three retail locations. The regional manager is given their budget for the region as a whole, and then, based on that budget, develops the individual retail locations’ budgets
e participative budgeting
which top management sets overall operating targets based on strategic objectives, and lower-level managers prepare their own departmental budgets based on what they believe is achievable. Then, top management and lower-level managers usually negotiate the final budgets together.
h bottom-up budgeting
generally considered more effective than top-down budgeting, the decision of which to use ultimately depends on where specialized knowledge is located
Zero-based budgeting
alternative method that approaches the budget as a “blank sheet of paper.” It differs from the traditional incremental process in that all expenses for each new period must be examined and justified, not just the incremental changes. The starting point is zero, not last year’s actual or budget figures.
Activity-based budgeting
cost budgets are developed from the activities for each functional area, including activities involved in the direct and indirect production of goods/services, and administration and support. Using this approach, the demand for each activity is first estimated, and then a budgeted cost per unit of activity is used to develop budgeted costs by function/product/service
Static budgets
re created based on a planned level of sales and/or production, and they are not adjusted if actual units or activity levels (such as machine hours) differ from plan. Static budgets allow for high-level analysis and are a good tool for communicating an organization’s budget to external stakeholders who don’t require additional details
Flexible budgets
are adjusted automatically to reflect planned costs for the actual level of activity (units sold or produced). Static and flexible budgets differ in their level of detail (fineness). A static budget only provides one layer of detail, whereas a flexible budget provides more depth into an organization’s activities
opportunity cost
forgone benefit from choosing one alternative; there is no alternative use for the research and development costs, which have already been incurred
An incremental cost
a cost resulting from taking a course of action, such as investing in a new project. The research and development costs have beenincurred and this expenditure does not change regardless of the decision made for the project
side effect
an incidental increase (or decrease) in cash inflows in other parts of the business arising from investment in the project. The research anddevelopment costs are incurred regardless of the decision related to the investment in the project.
PV tax shield on CCA
Secondary capital markets provide a source of liquidity for investors
Capital markets are venues where savings and investments are channeled between suppliers who have capital and those who are in need of capital. They are divided into primary and secondary market
