Exam 3 Review

Question 1

Relevant Information

Answer 1

Expected future data that differs among alternatives.

Question 2

Sunk Cost

Answer 2

A past cost that cannot be changed regardless of which future action is taken.

Question 3

Cost-Plus Pricing

Answer 3

An approach to pricing used by price-setters; cost-plus pricing begins with the product’s total costs and adds the company’s desired profit to determine a cost-plus price.

Question 4

Target Costing

Answer 4

An approach to pricing used by price-takers; target costing begins with the revenue at market price and subtracts the company’s desired profit to arrive at the target total cost.

Question 5

Avoidable Fixed Costs

Answer 5

Fixed costs that can be eliminated as a result of taking a particular course of action.

Question 6

Common Fixed Expenses

Answer 6

Expenses than can not be traced to a particular product line.

Question 7

Product Line Income Statement

Answer 7

An income statement that shows the operating income of each product line, as well as the company as a whole.

Question 8

Segment Margin

Answer 8

The income resulting from subtracting only the direct fixed costs of a product line from its contribution margin. The segment margin contains no allocation of common fixed costs.

Question 9

Segment Margin Income Statement

Answer 9

A product line income statement that contains no allocation of common fixed costs. Only direct fixed costs that can be traced to specific product lines are subtracted from the product line’s contribution margin. All common fixed costs remain unallocated, and are shown only under the company total.

Question 10

Unavoidable Fixed Costs

Answer 10

Fixed costs that will continue to be incurred even if a particular course of action is taken.

Question 11

Constraint

Answer 11

A factor that restricts the production or sale of a product.

Question 12

Contract Manufacturers

Answer 12

Manufacturers that make products for other companies, not for themselves.

Question 13

Offshoring

Answer 13

Having work performed overseas. Offshored work can either be performed by the company itself or by outsourcing the work to another company

Question 14

Opportunity Cost

Answer 14

The benefit forgone by choosing a particular alternative course of action.

Question 15

Outsourcing

Answer 15

A make-or-buy decision: Managers decide whether to buy a product or service or produce it in-house.

Question 16

Budget Committee

Answer 16

A committee comprised of upper management as well as cross-functional managers that reviews, revises, and approves the final budget.

Question 17

Financial Budgets

Answer 17

The financial budgets include the capital expenditures budget and the cash budgets. It culminates in a budgeted balance sheet.

Question 18

Master Budget

Answer 18

The comprehensive planning document for the entire organization. The master budget includes the operating budgets and the financial budgets.

Question 19

Operating Budgets

Answer 19

The budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement.

Question 20

Participative Budgeting

Answer 20

Budgeting that involves the participation of many levels of management.

Question 21

Rolling Budget

Answer 21

A budget that is continuously updated so that the next 12 months of operations are always budgeted; also known as a continuous budget.

Question 22

Slack

Answer 22

Intentionally overstating budgeted expenses or understating budgeted revenues in order to cope with uncertainty, make performance appear better, or make room for potential budget cuts.

Question 23

Strategic Planning

Answer 23

Setting long-term goals that may extend 5 to 10 years into the future.

Question 24

Variance

Answer 24

The difference between actual and budgeted figures (revenues and expenses).

Question 25

Zero-Based Budgeting

Answer 25

A budgeting approach in which managers begin with a budget of zero and must justify every dollar put into the budget.

Question 26

COD

Answer 26

Collect on Delivery, or Cash on Delivery. A sales term indicating that the inventory must be paid for at the time of delivery.

Question 27

Safety Stock

Answer 27

Extra inventory kept on hand in case demand is higher than expected or problems in the factory slow production.

Question 28

Flexible Budgets

Answer 28

Budgets prepared for different volumes of activity.

Question 29

Line of Credit

Answer 29

A lending arrangement from a bank in which a company is allowed to borrow money as needed, up to a specified maximum amount, yet only pay interest on the portion that is actually borrowed until it is repaid.

Question 30

Sensitivity Analysis

Answer 30

A what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes.

Question 31

Cost of Goods Sold, Inventory, and Purchases Budget

Answer 31

A merchandiser's budget that computes the cost of goods sold, the amount of desired ending inventory, and amount of merchandise to be purchased.

Question 32

Cost Center

Answer 32

A responsibility center in which managers are responsible for controlling costs.

Question 33

Decentralize

Answer 33

A process where companies split their operations into different operating segments.

Question 34

Goal Congruence

Answer 34

When the goals of the segment managers align with the goals of top management.

Question 35

Investment Center

Answer 35

A responsibility center in which managers are responsible for generating revenues, controlling costs, and efficiently managing the division's assets.

Question 36

Profit Center

Answer 36

A responsibility center in which managers are responsible for both revenues and costs, and therefore profits.

Question 37

Responsibility Accounting

Answer 37

A system for evaluating the performance of each responsibility center and its manager.

Question 38

Responsibility Center

Answer 38

A part of an organization whose manager is accountable for planning and controlling certain activities.

Question 39

Revenue Center

Answer 39

A responsibility center in which managers are responsible for generating revenue.

Question 40

Common Fixed Expenses

Answer 40

Fixed expenses that cannot be traced to the segment.

Question 41

Direct Fixed Expenses

Answer 41

Fixed expenses that can be traced to the segment

Question 42

Favorable Variance

Answer 42

A variance that causes operating income to be higher than budgeted.

Question 43

Management by Exception

Answer 43

A management technique in which managers only investigate budget variances that are relatively large.

Question 44

Performance Reports

Answer 44

Reports that compare actual results against budgeted figures.

Question 45

Segment Margin

Answer 45

The operating income generated by a profit or investment center before subtracting the common fixed costs that have been allocated to the center.

Question 46

Unfavorable Variance

Answer 46

A variance that causes operating income to be lower than budgeted.

Question 47

Variance

Answer 47

The difference between an actual amount and the budget.

Question 48

Capital Turnover

Answer 48

Sales revenue divided by total assets. The capital turnover shows how much sales revenue is generated with every $1.00 of assets.

Question 49

Gross Book Value

Answer 49

Historical cost of assets.

Question 50

Net Book Value

Answer 50

Historical cost of assets less accumulated depreciation.

Question 51

Residual Income

Answer 51

Operating income minus the minimum acceptable operating income given the size of the division's assets.

Question 52

Return on Investment (ROI)

Answer 52

Operating income divided by total assets. The ROI measures the profitability of a division relative to the size of its assets.

Question 53

Sales Margin

Answer 53

Operating income divided by sales revenue. The sales margin shows how much income is generated for every $1.00 of sales.

Question 54

Transfer Price

Answer 54

The price charged for the internal sale of product between two different divisions of the same company.

Question 55

Vertical Integration

Answer 55

The acquisition of companies within one's supply chain.

Question 56

Flexible Budget

Answer 56

A summarized budget prepared for different levels of volume.

Question 57

Flexible Budget Variance

Answer 57

The difference between the flexible budget and actual results. The flexible budget variances are due to something other than volume.

Question 58

Master Budget Variance

Answer 58

The difference between actual results and the master budget.

Question 59

Volume Variance

Answer 59

The difference between the master budget and the flexible budget. The volume variance arises only because the actual sales volume differs from the volume originally anticipated in the master budget.

Question 60

Balanced Scorecard

Answer 60

A performance evaluation system that integrates financial and operational performance measures along four perspectives: financial, customer, internal business, and learning and growth.

Question 61

Key Performance Indicators (KPIs)

Answer 61

Summary performance metrics used to assess how well a company is achieving its goals.

Question 62

Lag Indicators

Answer 62

Performance indicators that reveal the results of past actions and decisions.

Question 63

Lead Indicators

Answer 63

Performance measures that predict future performance.

Question 64

Performance Scorecard or Dashboard

Answer 64

A report displaying the measurement of KPIs, as well as their short-term and long-term targets.