Accounting for Management Decision Making

Activity-based pricing - correct answer Established a base price for a proposed customer order based on the estimated cost of producing and delivering the order. Administered transfer price - correct answer A transfer price set by some authority in the organization to price the exchange of a good or service between two organization units. For example, the general manager of a car dealership may set the price that the Service Department will bill other organization departments at 75% of the rate changed to external customers. Applied indirect costs - correct answer Indirect costs, such as the costs of capacity related resources, that are applied to a cost object. Appraisal costs - correct answer The costs related to inspecting materials or products to ensure that they meet both internal and external customer requirements. Appropriations - correct answer Planned and approved cash outflows, or spending plans, in government agencies. Authoritative budgeting - correct answer A budgeting process that occurs when a superior informs subordinates what their budget will be without requesting input. Avoidable costs - correct answer The costs that can be eliminated when a part, product, product line, or business segment is discontinued. Balanced Scorecard - correct answer A strategic management system that translates an organization's strategy into clear objectives, measures, targets, and initiatives organized by four perspectives. Bench-marking - correct answer The process of studying and adapting the best practices of other organizations to improve the firm's own performance and establish a point of reference by which internal performance can be measured. Bench-marking (performance) gap - correct answer The gap between actual performance and the performance level of the organization that established the benchmark level of performance. Breakeven point - correct answer The level of sales units or sales dollars at which the contribution from sales revenue less variable costs covers fixed costs. At the breakeven point, net income equals zero. Budget - correct answer A quantitative expression of the money inflows and outflows that reveal whether the current operating plan will meet the organization's financial objectives. Budgeting process - correct answer The approach used to determine how to allocate financial resources to each part of an organization based on the planned activities and short-run objectives of that part of the organization. Capacity cost rate - correct answer The cost of supplying capacity for each group of similar resources, such as people and equipment; calculated by dividing the total cost of supplying the resources by their practical capacity, typically measured by the time available to perform productive work. Capacity-related costs - correct answer The costs associated with capacity-related resources. Capacity-related resources - correct answer Resources that are acquired and paid for in advance of when the work is done. Capacity-related resources provide the organization with the capacity to make or deliver goods and services. Cash bonus - correct answer A payment method that pays cash based on some measured performance. Also called lump-sum reward, pay for performance, or merit pay. Certified supplies - correct answer A set of suppliers that are certified by a company because they are dependable and consistent in supplying high -quality items as needed. Consultative budgeting - correct answer A method of budget setting that occurs when managers ask subordinates to discuss their ideas about the budge but no joint decision making occurs. Consumable resources - correct answer A resource that is consumed as a result of some activity. Examples of consumable resources are wood used to make furniture and the time of an hourly paid worker who makes the furniture. Continuous budget - correct answer A budget that is continuously updated as the current period is dropped from the budget and a new period is added. Contribution margin - correct answer Sales less variable costs. Contribution margin per unit - correct answer The contribution margin per unit of consumption of a constraining factor of production. For example, the contribution per machine hour. Contribution margin ratio - correct answer The ratio of a product's contribution margin to its selling price. It is the fraction of each sales dollar that contributes to covering fixed cost and providing a profit. Controllability principle - correct answer States that the manger of a responsibility center should be assigned responsibility only for the revenues, costs, or investments controlled by responsibility center personnel. Conversion costs - correct answer Costs of labor and support activities to convert the materials or product at each process stage. Cooperative bench-marking - correct answer The voluntary sharing of information through mutual agreements. Cost-based transfer prices - correct answer A cost-based transfer price occurs when the price of a good or service exchanged between two organization units is based on the costs incurred by the supplying (selling) organization unit. Cost based transfer prices reflect decisions about which elements of the product or services' cost should be included, such as fixed plus variable or just variable costs, standard or actual costs, and any mark-up over the transferred costs. For example, one cost-based transfer price might be standard variable cost plus a mark up of 34%. Cost centers - correct answer Responsibility centers in which employees control costs but do not control revenues or investment levels. Cost driver - correct answer A cost driver is an activity or variable that causes a cost. For example, increased production volume causes increased investment in production equipment and, in turn, higher levels of machine depreciation. The number of miles driven in a car is the cost driver for the cost of gasoline. The term cost driver is also used for the activity whose quantity is the denominator for a cost driver rate or predetermined overhead rate. Cost object - correct answer Something for which a cost is computed. Examples of cost objects are a product, a product line, a department, a division, and a geographical area. Cost of non-conformance (CONC) to quality standards - correct answer The cost incurred when the quality of products and services does not conform to quality standards. Cost of unused capacity - correct answer The cost of unused capacity-related resources. Cost-of-quality (COQ) report - correct answer A report that details the cost of maintaining quality production processes and products. The report details prevention, appraisal, internal failure, and external failure costs. Cost pool - correct answer Each subset of total support costs that can be associated with a distinct cost driver. Cost-volume-profit (CVP) analysis - correct answer A study of how costs and profits vary with changes in volume. Cross-functional product teams - correct answer Made up of individuals representing the entire value chain, both inside and outside the organization, to guide the target-costing process. Customer lifetime value (CLV) - correct answer The total profits earned over all time periods of a customer's relationship with the company; measured by subtracting the initial cost of acquiring the customer from the discounted sum of annual net profits during the years that the customer maintains a relationship with the company; often, CLV is estimated prospectively for newly-acquired customers. Customer loyalty - correct answer A measure of the ability of the company to retain existing customers; loyalty can be measured in multiple ways, such as percentage of repeat customers, year-to-year growth in sales with existing customers, and a customers' willingness to recommend the company to other potential customers. Customer management processes - correct answer Processes that select, acquire, retain, and deepen relationships with targeted customers. Customer perspective - correct answer The Balanced Scorecard perspective that identifies objectives and measures for the targeted customer segments, and for the value proposition for customers in these segments. Customer satisfaction - correct answer A measure of how a customer views its current relationship with the company, usually evaluated on a scale where one end represents "extremely satisfied with the relationship," and the other end is "extremely dissatisfied." Cycle time - correct answer The chronological time taken to complete an activity. For example, manufacturing cycle time is the time from start to finish taken to produce a product. Data falsification - correct answer The process of knowingly altering company data in one's favor. Database bench-marking - correct answer A policy in which companies usually pay a fee in return gain access to information from a database operator. Death spiral - correct answer The process by which a company goes out of business through calculating cost by allocating overhead to a diminished volume of business, raising prices to cover the high unit costs, losing more business because of higher prices, calculating higher unit costs, setting higher prices to cover them, and , eventually, having no business and very high unit costs. Decentralization - correct answer The process of delegating decision-making authority to front line decision makers. Diagnostic control systems - correct answer Formal information systems that managers use to monitor organizational outcomes and correct deviations from standard measures of performance. Direct cost - correct answer A cost of a resource or activity that is acquired for or used by a single cost object. An example is the cost of leather used to make a leather coat. Direct labor cost - correct answer Direct labor cost refers to the wages paid to workers whose time can be traced reasonably and accurately to a single cost object, usually a product. Direct materials costs - correct answer The cost of materials that can be traced reasonably and accurately to a single cost object, usually a product. Direct method (for service department allocations) - correct answer A method of allocating service department costs that only considers service units provided to production departments (thereby ignoring service units provided to other service departments). Dysfunctional behavior - correct answer Occurs when employees knowingly manipulate or falsify performance measures. Earnings management - correct answer Methods by which managers knowingly manipulate the reporting of income. Economic value added (EVA) - correct answer An estimate of the wealth increment to owners from the current years' operations; measured as adjusted accounting income minus estimated cost of capital for the investment level. Efficiency (quantity) variance - correct answer The difference between the amount of a resource used and the amount allowed, given the level of production , costed at the standard cost of the resource. Employee self-control - correct answer A managerial method in which employees monitor and regulate their own behavior and perform to their highest levels. Environmental costing - correct answer A costing system that calculates the costs that an organization imposes on the environment. Equivalent unit of production - correct answer In process costing, calculated by multiplying the number of partially completed units by the percentage of competition. Ethical control system - correct answer A management control system to ensure and provide evidence that the organization's stated and practiced ethics are the same. External failure costs - correct answer The costs incurred when customers discover a defect. Extrinsic rewards - correct answer Rewards that are given by one person to another to recognize a job well done. Examples include: money, recognition in a corporate newsletter, stock options, or congratulations. Financial accounting - correct answer The process of producing financial statements for external constituencies - such as shareholders, creditors, and governmental authorities. Financial budgets - correct answer Budgets that identify the expected financial consequences of the activities summarized in the operating budgets. Financial control - correct answer A process used to assess an organization's success by measuring and evaluating its financial outcomes. Financial perspective - correct answer The Balanced Scorecard perspective that focuses on financial measures of an organization's success, such as return on investment and operating income. Finished goods inventory - correct answer The costs of the resources for completed units that are not yet sold. First-level variance - correct answer Difference between the actual costs and the master budget costs for individual cost items.