Exam 3 Review Flashcards
Relevant Information
Expected future data that differs among alternatives.
Sunk Cost
A past cost that cannot be changed regardless of which future action is taken.
Cost-Plus Pricing
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.
Target Costing
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.
Avoidable Fixed Costs
Fixed costs that can be eliminated as a result of taking a particular course of action.
Common Fixed Expenses
Expenses than can not be traced to a particular product line.
Product Line Income Statement
An income statement that shows the operating income of each product line, as well as the company as a whole.
Segment Margin
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.
Segment Margin Income Statement
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.
Unavoidable Fixed Costs
Fixed costs that will continue to be incurred even if a particular course of action is taken.
Constraint
A factor that restricts the production or sale of a product.
Contract Manufacturers
Manufacturers that make products for other companies, not for themselves.
Offshoring
Having work performed overseas. Offshored work can either be performed by the company itself or by outsourcing the work to another company
Opportunity Cost
The benefit forgone by choosing a particular alternative course of action.
Outsourcing
A make-or-buy decision: Managers decide whether to buy a product or service or produce it in-house.
Budget Committee
A committee comprised of upper management as well as cross-functional managers that reviews, revises, and approves the final budget.
Financial Budgets
The financial budgets include the capital expenditures budget and the cash budgets. It culminates in a budgeted balance sheet.
Master Budget
The comprehensive planning document for the entire organization. The master budget includes the operating budgets and the financial budgets.
Operating Budgets
The budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement.
Participative Budgeting
Budgeting that involves the participation of many levels of management.
Rolling Budget
A budget that is continuously updated so that the next 12 months of operations are always budgeted; also known as a continuous budget.
Slack
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.
Strategic Planning
Setting long-term goals that may extend 5 to 10 years into the future.
Variance
The difference between actual and budgeted figures (revenues and expenses).
Zero-Based Budgeting
A budgeting approach in which managers begin with a budget of zero and must justify every dollar put into the budget.
COD
Collect on Delivery, or Cash on Delivery. A sales term indicating that the inventory must be paid for at the time of delivery.
Safety Stock
Extra inventory kept on hand in case demand is higher than expected or problems in the factory slow production.
Flexible Budgets
Budgets prepared for different volumes of activity.
Line of Credit
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.
Sensitivity Analysis
A what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes.
Cost of Goods Sold, Inventory, and Purchases Budget
A merchandiser’s budget that computes the cost of goods sold, the amount of desired ending inventory, and amount of merchandise to be purchased.
Cost Center
A responsibility center in which managers are responsible for controlling costs.
Decentralize
A process where companies split their operations into different operating segments.
Goal Congruence
When the goals of the segment managers align with the goals of top management.
Investment Center
A responsibility center in which managers are responsible for generating revenues, controlling costs, and efficiently managing the division’s assets.
Profit Center
A responsibility center in which managers are responsible for both revenues and costs, and therefore profits.
Responsibility Accounting
A system for evaluating the performance of each responsibility center and its manager.
Responsibility Center
A part of an organization whose manager is accountable for planning and controlling certain activities.
Revenue Center
A responsibility center in which managers are responsible for generating revenue.
Common Fixed Expenses
Fixed expenses that cannot be traced to the segment.
Direct Fixed Expenses
Fixed expenses that can be traced to the segment
Favorable Variance
A variance that causes operating income to be higher than budgeted.
Management by Exception
A management technique in which managers only investigate budget variances that are relatively large.
Performance Reports
Reports that compare actual results against budgeted figures.
Segment Margin
The operating income generated by a profit or investment center before subtracting the common fixed costs that have been allocated to the center.
Unfavorable Variance
A variance that causes operating income to be lower than budgeted.
Variance
The difference between an actual amount and the budget.
Capital Turnover
Sales revenue divided by total assets. The capital turnover shows how much sales revenue is generated with every $1.00 of assets.
Gross Book Value
Historical cost of assets.
Net Book Value
Historical cost of assets less accumulated depreciation.
Residual Income
Operating income minus the minimum acceptable operating income given the size of the division’s assets.
Return on Investment (ROI)
Operating income divided by total assets. The ROI measures the profitability of a division relative to the size of its assets.
Sales Margin
Operating income divided by sales revenue. The sales margin shows how much income is generated for every $1.00 of sales.
Transfer Price
The price charged for the internal sale of product between two different divisions of the same company.
Vertical Integration
The acquisition of companies within one’s supply chain.
Flexible Budget
A summarized budget prepared for different levels of volume.
Flexible Budget Variance
The difference between the flexible budget and actual results. The flexible budget variances are due to something other than volume.
Master Budget Variance
The difference between actual results and the master budget.
Volume Variance
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.
Balanced Scorecard
A performance evaluation system that integrates financial and operational performance measures along four perspectives: financial, customer, internal business, and learning and growth.
Key Performance Indicators (KPIs)
Summary performance metrics used to assess how well a company is achieving its goals.
Lag Indicators
Performance indicators that reveal the results of past actions and decisions.
Lead Indicators
Performance measures that predict future performance.
Performance Scorecard or Dashboard
A report displaying the measurement of KPIs, as well as their short-term and long-term targets.
