Explaining concepts Flashcards
Impact of using absorption by units or Labour hrs as compared to ABC
The total product cost when Absorbing on a Units or Labour Hours basis is AFFECTED by the ARBITRARY NATURE of that SYSTEM
Product X appears to be more expensive/cheaper to produce than if based on more accurate ABC.
This could RESULT in POOR DECISIONS Being made Eg with: Product pricing Production schedling Product Viability
Explain the difference between Non-disounted Net Cash Flow and Discounted Net Cash Flow (which gives NPV)
The non-discounted net cash flow does not take account of the TIME-VALUE of MONEY
The negative cash flows at the start of the LIFE-CYCLE and the positive cash flows later …
The NET PRESENT VALUE calculated from the DISCOUNTED Cash Flows takes account of the TIME-VALUE of money by discounting the cash flows that occur in the future based on the Orgs Cost of Capital.
