Final Flashcards
What is product undercoating
A product consumes a high level of resources but is reported to have a low cost per unit
What is product overcosting
A product consumes a low level of resources but is reported to have a high cost per unit
Product-cost cross subsidization means?
That if a company undercosts one of its products, it will overcoat at least one of its other products. And vice versa
What’s is activity based costing (abc)?
Refines a costing system by identifying individual activities as the fundamental cost objects
What is a cost hierarchy
Categorizes various activity cost pools in the basis of different types of cost drivers, or cost allocation based, or different degrees of difficulty in determining cause-and-effect relationships
What are output unit-level costs
Costs of activities performed on each individual unit of a product or service
What are batch level costs
Costs of activities related to a group of units of a product or service rather than each individual unit of product or service
What are product sustaining costs
Also know as service sustaining costs. Costs of activities u see taken to support individual products or services regardless of the number of units or batches in which the units are produced
What are facility sustaining costs
Costs of activities that cannot be traced to individual products or services but that support the organization s a whole
What is activity based management (ABM)
Using abc info to guide management decisions
What are value added activities
The costs plus some predictable profit will be fully recovered when the output is sold
What are non value added activities
Added costs that fail to improve desirability and for which customers will not pay
What is a budget
A quantitative expression of a proposed plan of action by management for a set time period
Why are budget constraints
The combination of limitations on bonfinancial and financial resources within a company’s management control
What is the master budget
It summarizes all the financial and nonfinancial plans into a single document
WhT is a standard
A carefully predetermined price, cost or quantity used for judging performance
What is a benchmark
A type of standard using information from outside of the firm
What are stretch goals
They challenge managers to achieve excellent performance rather than maintain the status quo
What are the advantages of budgets
- Compel planning and monitoring of the implementation of plans
- Provide reliable performance assessment criteria
- Promote communication and coordination within the organization
What is strategic analysis?
The evaluation of how well the organization has matched its own capabilities with the relevant features of the competitive environment to progress toward its future success
What are the approaches to budgeting
- Traditional incremental/decremental
- priority
- Zero-based
- Activity based
- Kaizen
What is traditional incremental/decremental approach
Classic every department gets the same percentage increase or decrease next year
What is the priority approach
Direct contrast to traditional approach. The organization uses its strategic plan to establish the priorities for allocating new resources or areas that need to be protected if resources have to be cut
What is zero based budgeting
Involves all areas of the organization building their budgets from the ground up or from starting point of zero
What is activity based budgeting
(ABB) develops budgets based on the level of the various activities needed to fulfill the organizational goals
What is kaizen budgeting
Concept of continuous improvement and lean manufacturing. Steadily decreases or increases in budget instead of sudden changes
What is a rolling budget
A budget or plan that is always available for a specified future period by adding a month, quarter, or year in the future as the current month, wuarter or year is completed.
Why is the operating budget
It presents the results of operations in many value-chain business functions prior to financing and taxes
What is padding or budgetary slack
Underestimating budgeted revenue or overestimating budgeted costs to make budgeted targets easier to achieve
What is the cash budget
A schedule of expected cash receipts and disbursements, and is essential for forecasting any expected interest expense as a result of borrowing
What is a self liquidating cycle sometimes called a working capital cycle, cash cycle, or operating cycle
The movement of cash from producing inventories to receivables and back to cash
What is organizational structure
The arrangement of centres of responsibility within an entity.
What is a responsibility centre
A part, segment or sub unit of an organization whose manager is accountable for a specified set of activities
What is responsibility accounting
A system that measures the plans and actions of each responsibility centre
What are the four major types of responsibility centres
- Cost centre
- Revenue centre
- Profit centre
- Investment centre
What is the cost centre
The manager is accountable for costs only not revenue
What is a revenue centre
The manager is accountable for revenue only not costs incurred to generate the revenue
What is profit centre
The manager is accountable for revenue and costs and has some authority over others who decide upon key factors affecting both revenue and cost
What is the investment centre
The manager is accountable for investments, revenue and costs
What is controllability
The degree of authority that a specific manager has over costs, revenue, or other items in question
What is a controllable cost
Any cost that is primarily subject to the authorization of a specific manager of a specific responsibility centre for a specific time span.
What is cost volume profit analysis (cvp)
A model to analayze the behaviour of net income in response to changes in total revenue, total costs, or both.
What is the breakeven point (bep)
The point at which total revenue minus total business function costs is 0$
What is the contribution margin per unit
The difference between selling price and variable cost per unit
What is a contribution statement of comprehensive income
Groups costs as either variable or fixed according to their behaviour
What is a contribution margin percentage
Equals the contribution margin per unit divided by the selling price per unit or contribution margin over revenue
Gross margin
A measure of competiveness- how much a company can charge for its products over and above the cost of either purchasing or producing them
What is operating margin
Same meansing as operating income
Net income margin percentage
Calculated by diving net income by revenue
What is sensitivity analysis
A ‘what if’ technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes
what is risk
the possibility that actual future results will differ from expected results
What is risk tolerance
the risk of loss measure in percent that a person or team is willing to take
what is operating leverage
describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin
what are capital intensive companies
companies with a high percentage of fixed costs in their cost structure
what is the expected value
the sum of the risk-weighted average of the outcomes of each choice.
what does risk neutral mean
looking at the expected operating income under each alternative contract
