Term
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Definition
Expected future costs that differ among the alternative courses of action being considered.
Must occur in the future and differ among alternatives. |
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Term
| Why are historical costs irrelevant? |
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Definition
| Historical costs have occurred in the past and no matter which alternative is selected, the historical cost will remain the same for whatever action is taken. |
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Term
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Definition
| The contribution to operating income that is forgone by not using a limited resource in its next-best alternative use. |
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Term
Managers should always buy inventory in quantities that result in the lowest purchase cost per unit.
Agree or Disagree? |
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Definition
| Disagree because if your production capacity only requires that you buy 1000 inputs and the lowest cost you can purchase the inputs at requires a purchase of 2000, you will then incur the cost of housing the unused inventory. This cost of holding on to extra inventory may cost more than the cost savings incurred by buying more inputs or a lower per unit cost. |
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Term
Management should always maximize sales of the product with the highest contribution margin per unit.
Agree or Disagree? |
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Definition
| Disagree. Managers should aim to get the highest contribution margin per unit of the constraining factor. |
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Term
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Definition
What restricts or limits the production or sale of a given product.
For example: Availability of Machine-Hours |
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Term
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Definition
Specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objects.
--OR--
How an org creates value for its customers while differentiating itself from its competitiors. |
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Term
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Definition
A generic strategy
An organization's ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors |
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Term
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Definition
A generic strategy
An organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control. |
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Term
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Definition
| Describes how diferent competitors perform across various product attributes desired by customers, such as price, quality, customer service, and product features. |
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Term
| Five key forces to consider in industry analysis |
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Definition
1. Competitors
2. Potential entrants into the market
3. Equivalent products
4. Bargaining power of customers
5. Bargaining power of input suppliers |
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Term
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Definition
| Fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed and customer satisfaction. |
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Term
| Four key perspectives in the balanced scorecard |
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Definition
1. Financial perspective
2. Customer perspective
3. Internal business process perspective
4. Learning and growth perspective |
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Term
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Definition
| Evaluates the profitability of the strategy and the creation of shareholder value |
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Term
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Definition
| Identifies the targeted customer and market segments and measures the company's success in these segments |
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Term
| Internal business perspective |
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Definition
| Focuses on internal operations that further both the customer perspective by creating value for customers and the financial perspective by increasing shareholder value |
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Term
| Learning and growth perspective |
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Definition
| Identifies the capabilities the organization must excel at to acheive superior internal processes that create value for customers and shareholders. |
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Term
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Definition
| Diagram that describes how an organization creates value by connecting strategic objectives in explicit cause and effect relationships with each other in the financial, customer, internal business process and learning and growth perspectives |
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Term
| A good balanced scorecard design has these features... |
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Definition
1. Tells the story of a company's strategy by articulating a sequence of cause and effect relationships
2. It helps to communicate the strategy to all members of the organization by translating strategy to coherent and linked set of understandable and measurable operational targets.
3. It places strong emphasis on financial objectives and measure in for-profit companies. Nonfinancial measures are regarded as part of a program to achieve future financial performance.
4. Limits the number of measures to only those that are critical to the implementation of strategy.
5. Highlights suboptimal tradeoffs that managers may make when they fail to consider operational and financial measures together. |
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Term
| Pitfalls to avoid when implementing a balanced scorecard |
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Definition
1. Don't assume the cause and effect linkages are precise b/c they're
hypotheses. An org must gather evidence of these linkages over time.
2. Don't seek improvements across all of the measures all of the time.
3. Don't use only objective measures in the balanced scorecard.
4. Don't fail to consider both costs and benefits of different initiatives before including these initiatives in the scorecard.
5. Don't ignore nonfinancial measures when evaluating managers and employees. |
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Term
| Three key components in doing a strategic analysis of operating income |
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Definition
1. Growth component
2. price-recovery component
3. productivity component |
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Term
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Definition
Integrated approach configuring processes, products, and people to match costs to the activities that need to be performed to operate effecively and efficiently in the present and future.
Attempt to eliminate unused capacity. |
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Term
| Five steps in the decision process |
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Definition
1. Identify the problem and uncertainties
2. Obtain information
3. Make predictions about the future
4. Make decisions by choosing among alternatives
5. Implement the decision, evaluate performance, & learn |
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Term
| Two potential problems that should be avoided in relevant cost analysis |
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Definition
1. Do not assume all variable costs are relevant and all fixed costs are irrelevant.
2. Do not use unit-cost data directly. It can mislead decision makers because it may include irrelevant costs and comparisons of unit costs computed at different output levels lead to erroneous conclusions |
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Term
| Industries using process costing in their manufacturing area include... |
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Definition
| Chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals. |
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Term
| Process costing systems separate costs into... |
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Definition
| cost categories according to the timing when costs are introduced to the process. |
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Term
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Definition
| often added at one point in time, often the start or the end of the process |
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Term
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Definition
| are often added throughout the process, lasting from seconds to several months |
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Term
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Definition
A derived amount of output units that takes the quantity of each input in units completed or in incomplete units in WIP and converts the quantity of input into the amount of completed output units that could be made with that quanity of input.
Each EU is comprised of the physical quantities of DM or Conversion Costs inputs necessary to produce output of one fully complete unit. |
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Term
| Five key steps in process costing |
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Definition
- summarize the flow of physical units of output
- compute output in terms of equivalent units
- summarize total costs to account for
- compute cost per equivalent unit
- assign total costs to units completed an to units in ending WIP
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Term
| Three inventory methods associated with process costing are |
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Definition
Weighted average
FIFO
Standard Costing |
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Term
| Weighted-average process-costing method |
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Definition
| Calculates the equivalent-unit cost of all the work done to date, assigns this cost to equivalent units complete and transferred out of the process, and to equivalent units in ending WIP inventory. |
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Term
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Definition
| Managers can judge the performance in the current period independently from the performance in the preceding period. |
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Term
| Two reasons to distinguish between transferred-in and additional direct materials costs |
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Definition
1. all direct materials may not b added at the beginning of the process
2. the control methods and responsibilities may be different for transferred-in items and materials added in the department |
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Term
| Five stages of capital budgeting |
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Definition
Identification
Information - aquisition
Forecasting
Evaluation
Financing, implementation and control |
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Term
| Discounted cash-flow method |
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Definition
Calculates the expected cash inflows and outflows of a project as if they occurred at a single point in time.
Enable comparison with cash flows that might occur over different time periods. |
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Term
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Definition
Can be incorporated into DCF analysis by examining how the DCF of each project changes with changes in the inputs used.
Could include changes in revenue assumptions, cost assumptions, tax rate assumptions, and discount rates. |
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Term
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Definition
Measures the time it will take to recoup in the form of expected future net cash inflows, the net initial investment in a project.
Weaknesses: neglect of the TVM and of cash flows after the payback period |
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Term
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Definition
Divides and accrual accounting measure of average annual income of a project by an accrual accounting measure of investment
Ignores TVM and doesn't consider the CFs for a project |
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