Term
| 4 steps in the Decision making framework |
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Definition
Step 1: Specify the decision problem, including the decision-makers goals.
Step 2: Identify options.
Step 3: Measure benefits (advantages) and costs (disadvantages) to determine the value (benefits reaped less costs incurred) of each option.
Step 4: Make the decision, choosing the option with the highest value. |
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Term
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Definition
| Equals its benefits less its costs. |
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Term
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Definition
| The value to the decision-maker of the next best option |
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Term
| 2 differences in the decision framework for individuals and businesses |
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Definition
- 1st, unlike individuals' goals might have several factors, organizations tend to have focused goals.
- 2nd, because an organization is a collection of individuals, we need to think about how individual goals relate to organizational goals |
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Term
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Definition
| A group of individuals engaged in a collectively beneficial mission. |
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Term
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Definition
| To maximize the returns (the stream of profits or, equivalently, stream of cash flows) to shareholders investing in the company |
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Term
| Methods firms use to influence employees to strive for organizational goals |
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Definition
1. Policies and procedures to define acceptable behavior.
2. Monitoring to enforce policies and procedures (drug tests, supervisors)
3. Incentive schemes and performance evaluation to motivate employees to consider organizational goals (commissions, contests) |
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Term
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Definition
| Related choices about acquiring and using resources to deliver products and services to customers- includes deciding which products and services to offer, their prices, and the resources needed |
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Term
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Definition
| Relate to motivating, monitoring, and evaluating performance.- Often involve examining past performance, with the purpose of improving subsequent plans. |
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Term
| What does PIER stand for? |
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Definition
Plan
Implement
Evaluate
Revise |
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Term
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Definition
| Deciding which products and services offer, what resources to acquire, how much of each resource to acquire, and where to sell products and services. |
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Term
| Implementing stage of PIER |
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Definition
| Putting these choices into action, which includes determining how and when to use resources, as well as setting performance standards to motivate employees to achieve the formulated plan- Contains both elements of planning and control |
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Term
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Definition
| Deals with measuring actual performance in understanding the reasons for any deviations between actual and planned results |
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Term
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Definition
| Where we were correct, as necessary, police about the best products and services offer, the appropriate types and amounts of resources, the feasibility of performance targets, in the effectiveness of incentive schemes. |
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Term
| What is the primary role of accounting? |
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Definition
| To help measure the costs and benefits of decision options |
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Term
| 2 classes of decision makers who rely on Accounting |
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Definition
| decision-makers outside the firm who rely on financial accounting information, and decision-makers inside the firm who use managerial accounting information. |
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Term
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Definition
| Aims to satisfy the information needs of decision-makers outside the firm, such as shareholders, creditors, and taxing authorities. |
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Term
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Definition
| Aims to satisfy the information needs of decision-makers inside the firm. |
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Term
| How is managerial accounting used? |
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Definition
| Use managerial accounting data to determine, among other things, which products and services to offer, the prices of products and services, what equipment purchase, could a higher, and how to pay them |
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Term
| What does Sarbanes-Oxley mandate? |
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Definition
| that senior executives of publicly traded companies take individual responsibility for the accuracy and completeness of financial reports- |
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Term
| Controllable Benefit/Cost |
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Definition
| A cost or benefit that a decision-maker chooses to incur, relative to doing nothing |
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Term
| When is a cost controllable? |
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Definition
| When it differs from the status quo |
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Term
| Relevant costs and benefits |
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Definition
| Are the controllable costs and benefits that differ across decision options. |
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Term
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Definition
| A past expenditure that cannot be changed |
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Term
| What distinguishes short-term decisions from long term decisions? |
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Definition
| - The ability to change the levels of capacity resources related to plants, equipment, and salaried staff. |
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Term
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Definition
Deals with how activities influence costs and benefits
- The relation between the cost or benefit and an activity |
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Term
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Definition
| The degree to which we can directly relate a cost or benefit to a specific option |
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Term
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Definition
| A cost or revenue that we can uniquely relate to a decision option |
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Term
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Definition
| When only a portion of the cost or revenue pertains to a particular decision option. (Common costs in manufacturing overhead) |
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Term
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Definition
| The classification of costs into unit–level, batch–level, product–level, and facility–level |
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Term
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Definition
| Stated the same level for certain activity range would jump to a higher amount if the volume of activity increases beyond this range |
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Term
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Definition
| When cost indirect labor varies proportionally with production volume |
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Term
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Definition
| capital cost that varies in proportion to the number of batches of units made (used synonymously with step cost) |
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Term
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Definition
| Capital cost that varies in proportion to the number of products |
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Term
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Definition
| Cost that does not vary at the unit, batch, or product–level. Cost required to sustain your organization |
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Term
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Definition
| The costs associated with getting products and services ready for sale (always appear “above the line”) |
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Term
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Definition
| Revenues less product costs |
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Term
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Definition
| Costs that are not a part of providing programs and services, do not directly relate to readying products or services for sale (always appear “below the line”) |
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Term
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Definition
Cost of beginning inventory
+ Cost of goods purchased during the period
- Cost of ending inventory
= Cost of goods sold during the period |
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Term
| Selling and Administration Expenses |
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Definition
| Fixed costs, including management salaries, the cost of maintaining a legal staff, accounting and payroll costs, and other |
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Term
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Definition
| The sum of materials and labor costs (primary inputs into the manufacturing process) |
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Term
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Definition
| The sum of variable and fixed overhead–these indirect costs provide the firm with the ability they need to make their products |
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Term
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Definition
| The sum of labor and overhead–these are required to convert their raw materials to finished goods |
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Term
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Definition
| A procedure that allocates, or distribute, a common cost |
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Term
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Definition
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Term
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Definition
| The items or entities to which we allocate the costs and the cost pool |
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Term
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Definition
| Attributes that we can measure for each cost object |
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Term
| Allocation/Denominator Volume |
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Definition
| The sum of the cost driver amounts across all objects |
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Term
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Definition
Revenues
- Cost of Goods Sold
= Gross Margin
- Selling and Administration Costs
= Profit |
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Term
| Contribution Margin Statement |
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Definition
Revenues
- Variable Costs
= Contribution Margin
- Fixed Costs
= Profit |
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Term
| Cost of goods available for sale |
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Definition
| Beginning Balance + cost of goods made |
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Term
| What determines the slope of regression analysis? |
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Definition
| Under coefficients, the activity level number cell |
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Term
| What determines fixed cost in the regression analysis? |
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Definition
| The intercept coefficient |
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Term
| What does the R-Square value indicate? |
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Definition
| The goodness of fit, always between 0 and 1, the closer to 1 the better |
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Term
| What does the p-value indicate? |
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Definition
| The confidence that the coefficient estimates reliably differ from zero |
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Term
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Definition
| Contribution minus traceable fixed costs |
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