# Shared Flashcard Set

## Details

A207 Final
Final Notecards
41
Accounting
05/03/2012

Term
 Profit Margin
Definition
 • Profit Margin= Contribution Margin – Allocated Capacity Costs- Profit margin is the appropriate measure of value for long-term decisions
Term
 Gross Margin
Definition
 Gross Margin=Revenue – Product Costs
Term
 Contribution Margin
Definition
 • Contribution Margin= Revenue- Variable Costs
Term
 4 roles of Allocation
Definition
 • Decision Making• Reporting Income• Reimbursement & Cost Justification• Influence Behavior
Term
 Direct or Variable Costing
Definition
 A format of costing that groups variable costs and fixed costs separately- Fixed manufacturing is entirely expensed- no inventory remains
Term
 Biggest criticism regarding absorption costing
Definition
 that is provides incentives to produce more than what is necessary to satisfy demand- a firm can report higher income by increasing production (less fixed costs, same variable)
Term
 How do you reconcile the difference between variable and absorption incomes
Definition
 Income reported under variable costing+ Fixed Manufacturing costs in ending inventory- Fixed Manufacturing costs in beginning inventory= Income reported under absorption Costing
Term
 What is not needed in variable costing?
Definition
 Allocations
Term
 Capital Budgeting
Definition
 Refers to the set of tools companies use to evaluate large expenditures
Term
 4 Important elements of a capital expenditure
Definition
 - Initial Outlay- The costs associated with acquiring the resources and getting it ready for use- Estimate Life and Salvage Value- How long can you keep the resource, are there costs associated with disposing of the resource and can the resource be sold when done with it- Timing and Amounts of Operating Cash flows- What are expected operating expenses every year, what are the expected revenues or cost savings- Cost of Capital- Opportunity cost of capital required for the proposed investment
Term
 Net Present Value
Definition
 • NPV- The total present value of all of its cash flows• Can compute this by using the present value tables• An investment is desirable if its NPV is positive
Term
 Internal Rate of Return
Definition
 • IRR- The discount Rate at which a project has zero NPV• A project is profitable if its IRR exceeds it opportunity cost of capital
Term
 Modified Payback Method
Definition
 Computes the payback period using discounted cash flows, meaning that the method accounts for the time value of money
Term
 Payback method
Definition
 • Under this method, we compute how long it takes to recoup the initial investment using undiscounted cash flows
Term
 Accounting Rate of Return
Definition
 ARR= Average Annual income for the project/ Average annual investment• Must subtract annual depreciate expense from net cash flows• First, decrease the book value of the MRI equipment by the depreciation amount• Next, Calculate the average investment balance for each year as the average of the beginning and ending book values• Final step is to compute ARR as the ratio of average income/average investment
Term
 Depreciation Tax Shield
Definition
 • Depreciation Tax Shield= Tax Rate x Depreciation deduction in that year
Term
 After-Tax operating cash inflow
Definition
 After Tax Net Inflow + Depreciation shield
Term
 Return on Investment
Definition
 • Profit/Investment• Profit results from operations• Most firms use the average operating assets as a measure of invested capital
Term
 Dupont Model
Definition
 • ROI= Profit/Sales X Sales/Investment = Profit Margin X Asset Turnover
Term
 Residual Income
Definition
 The amount an investment generates above and beyond the required rate of return on operating assets, or the residual after subtracting the expected return• RI= Profit - (Required Rate of Return X Investment)
Term
 Value Proposition
Definition
 The key source of customer value for a firm
Term
 Core Competencies and Capabilities
Definition
 • Core competency- Term used to refer to the skill set and expertise that characterizes a firm and its employees, and advantages the firm relative to its competitors• A strategy not anchored firmly in core competencies is destined to fail
Term
Definition
 1. Core Competencies and Capabilities2. Competitive Landscape3. Sustainability
Term
 5 competitive forces firms must pay attention to
Definition
 - Industry Competitors: Who are the major competitors? What are their core competencies? How much market share do they command? What is their cost structure? Do they have high or low operating leverage?- New Entrants: Does the chose business segment offer enough potential to new entrants? Are there barriers to entry?- Substitute Products: Is there a threat from substitute products? How well do these substitutes perform relative to the company’s products? Do they offer a price advantage?- Supplier Power: Will the company have to rely excessively on a few key suppliers? How important is the company’s business to it’s suppliers? Will the company have some negotiating power with its suppliers?- Customer Power: How dispersed or concentrated is the target market? Is the market composed of a few large consumers? How much flexibility does a firm have?
Term
 Sustainability
Definition
 • A sustainable strategy is difficult to imitate by competitors because of the unique resource capabilities and market power it brings
Term
Definition
 A strategy that finds innovative ways to improve their business processes and cut costs
Term
 Value Differentiation
Definition
 Focus on R and D and product innovations• Firms stay ahead by being quicker to develop and market the next generation of products
Term
 Value-Chain
Definition
 A set of logically sequenced, value-adding activities that convert input resources into products or services in a manner consistent with the chosen business strategy
Term
 5 generic sequences of value chain
Definition
 1. Inbound logistics 2. Production operations 3. Outbound logistics 4. Marketing and Sales and 5. Service Activities
Term
 4 stages of a products life cycle
Definition
 1. Development 2. Introduction and growth 3. Maturity 4. Decline
Term
 Target Costing
Definition
 • Target Costing- A structured approach to cost planning and management• The premise for target costing is that the firm is the price taker and that there is intense competition to acquire, retain, and grow customers• Determines cost by working backwards from the customer’s value
Term
 Cost gap
Definition
 the difference between the current cost and the allowable cost
Term
 Lagging Measure
Definition
 A computation that reflects past performance- contain limited info about an organization’s potential for future performance
Term
Definition
 A measure such as customer satisfaction and product return raters which are the drivers of future performance
Term
 Critical Success Factors
Definition
 Also known as key performance indicators, are performance measures that must go right for an organization to implement its strategy successfully and achieve its mission
Term
 What are operational CSF's
Definition
 short-term metrics- focus on the efficiency with which an organization is utilizing its resources
Term
 Strategic CSFs
Definition
 long-term, firm specific measures- Help companies monitor the success of their unique corporate and business strategies
Term
 4 characteristics of good CSFs
Definition
 - Simple and easy to understand- Readily quantifiable- Easy to monitor- Linked to strategy
Term
 Balanced Scorecard
Definition
 • A performance measurement system that includes a systematic approach for linking strategy to planning and control
Term
 Dimensions of the balanced scorecard
Definition
 - Financial and nonfinancial measures of performance- Short-term and long-term objectives- Past outcome and forward looking measures of performance- “Hard” objective and “short” subjective measures of performance- External and internal measures of performance
Term
 4 different perspectives by which managers look at their firms
Definition
 1. Financial perspective- How does the company look from a shareholder’s perspective?2. Customer Perspective- How does the company look from a customer perspective?3. Internal Business Perspective- What are the areas in which the company must excel?4. Innovation and Learning Perspective- What must we do to continue to improve?
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