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A207 Final
Final Notecards
41
Accounting
Undergraduate 1
05/03/2012

Additional Accounting Flashcards

 


 

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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
3 Determinants of Business Strategy
Definition
1. Core Competencies and Capabilities
2. Competitive Landscape
3. 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
Cost Leadership strategy
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
Leading Measure
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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