Final Terms Flashcards
Appraisal costs
Costs incurred to detect poor-quality goods or services.
Activity-based costing (ABC)
A costing method that assigns overhead and indirect costs to related products and services.
Value engineering
A systematic, organized approach to providing necessary functions in a project at the lowest cost.
Prevention costs
company spending intended to reduce the number of errors in products or services.
Book value
is equal to the cost of carrying an asset on a company’s balance sheet.
Book value = All tangible assets - liabilities
Sunk Cost
Costs are those which have already been incurred and which are unrecoverable.
Should not be considered in future decisions.
Examples of sunk costs include salaries, insurance, rent, nonrefundable deposits, or repairs (as long as each of those items is not recoverable)
Price-Taker
An entity that must accept the prevailing prices in the market of its products, its own transactions being unable to affect the market price.
-Product lacks uniqueness
-Heavy Competition
-Pricing approach emphasizes target costing
Price-Setter
An entity that has the ability to set its own prices, because its products are sufficiently differentiated from those of competitors.
- Product is unique
- Less competition
- Pricing approach emphasizes cost-plus pricing
Target Costing
a system under which a company plans in advance for the price points, product costs, and margins that it wants to achieve for a new product
Cost-plus pricing
a pricing method where a fixed percentage is added on top of the cost it takes to produce one unit of a product (unit cost
Operating Activities
The functions of a business directly related to providing its goods and/or services to the market
Non-Operating Activities
events that may affect revenues, expenses or cash flow but fall outside of the company’s routine, core business
High- Low Cost Method
taking the highest level of activity and the lowest level of activity and comparing the total costs at each level
current rate method
translate all the assets and liabilities, whether monetary or non-monetary, using the rates at the balance sheet date
Times-Interest-Earned
(TIE) Ratio
A measure of a company’s ability to meet its debt obligations based on its current income.
earnings before interest and Taxes (EBIT)/Total Interest payable
Flexible Budget
budgets that can be adjusted depending upon revenue and cost changes throughout the fiscal year, accounting for expected unpredictability
Master Budget
a company’s central financial planning document
Labour Efficiency Variance
(Actual hours - Standard hours) x Standard rate = Labor efficiency variance
Labour Price Variance
Standard rate (SR) - actual rate (AR) x actual hours worked (AH) = labor price variance
The internal rate of return (IRR)
is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.
Net present value (NPV)
the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
NPV=Cash Flow/(1+i)t −initial investment
where:
i=Required return or discount rate
t=Number of time periods
Discounted cash flow (DCF)
A valuation method that estimates the value of an investment using its expected future cash flows.
Weighted average cost of capita (WACC) or Discount Rate
the average rate that a business pays to finance its assets
Cost Center
e.g. A manufacturing Plant, Managers are responsible for Costs only
