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71 Cards in this Set

  • Front
  • Back
Product Cost
all costs that are involved in the purchase of goods. DM, DL, MOH
Direct Materials
become a part of a finished product
Direct Labor
Factory labor costs traced to individual units of product
All costs assoc. with manuacturing except direct materials and direct labor.
Variable costs
a cost that varies in total in direct proportion to vanges n the level of activty. Constant per unit
Fixed costs
A cost that remains constant in total regardless of changes in the level of activity. Varies inversely with the level of activity when expressed per unit.
Differential costs
a difference in cost between two alternatives
Sunk costs
any cost that has been incurred and cannot be changed by any decision made now or in the future
Opportunity costs
the potential benfit that is fiven up when one alternative is selected over another
Contribution margin
the amount remaining fr. sales revenue after variable expenses have been deducted
Contribution Margin Ratio
contribution margin/sales
break even analysis
the level of sales at which profit is 0

Equation method: sales=variable expenses+fixed expenses + profits

CM method:
break even pt in units= fixed expenses/unit contribution margin

break even in sales dollars: Fixed expenses/CM ratio
target profit analysis

unit sales to target profit= fixed+target profit/unit CM

dollar sales to reach target profit= fixed + target profit/ Cm ratio
cost center
q business segment whose manager has control over cost but has no control over revenue or the use of investment funds
Profit Center
a business segment whose manager has control over cost and revenue but ahs no control over the useof investment funds
Investment center
A business manager who has control over cost, revenue and the use of investment funds
traceable fixed cost
a fixed cost that isincutted because of the ecistance of a particular business segment and would be eliminated if the segment were eliminated. \example: the maintence fixed cos for the building in which boeings are mafe is a traceable cost of that segment of boeing
common fixed cost
a fixed cost that supports more than one business segment but is not traceable in whole or in part to anyone of the business segments
example: the cost of heating a grocery store is a common fixed cost of the various departments
dangers of common costs
allocating common costs to the segments that fixed costs suppor tis a recipe for disaster
Return on Investment
net operating income/average operating assets

margin x turnover
net opearating income/sales x sales/average operating assets
how to improve Roi
increase sales, reduce expeses, reduce assets
criticisms of ROI
-no balanced scorecard, mgt not know how to increase it

-mgrs inherit committed cost s that they have no control over
-mgrs evaluated on ROI may reject profitable investment opportunites.
Residual income
net operating income over some minimum return on operating assets

operating assets x required rate of return=required income
actual income-required income= residual income
-encourages mgrs to make profitable investments
Transfer pricing
the price charged when one segment of the company provides goods or services to another segment of the company

-transfer prics>VCU+CM on lost sales/units transferred
negociated transfer price
results from negotiations between the buying and selling division

-they preserve the autonomy of division
-mgrs negotiating the price usally have a better understanding of the costs and benfits of the transfer than others in the company.
market price
the priced charged for an item in the open market, usually the best approach to transfer pricing
relevant cost
a cost that differs between alternatives
avoidable costs
relevant costs. can be avoided in part or whole y choosing one alternative over another
make or buy decision
carry out value chain internally or buy from an external seller

all of the costs that deal with making the product compared the cost of buying the good... Outside suppliers price+DM, DL, VOH, FOH.
special order
1 time order, 1 time deal, fixed costs should not be affected by this order or it is not a good deal

increase in incremental revenue-increase in incremental costs= incremental NOI
joint product
two or more products produced from a common input
split off point
the ponit in the maufacturing process where the joint products can be recognized as separate products.
sell or process further
it is always profitable to continue to continue prodcucing a product after the split off point as long as the incrementall revenue is greater than the incremental processing costs after the split off point

-sales value after further processing (-sales value at the split off pt.)=incremental revenue- cost of further processing=profit/loss from further processing
the machine or process that is limiting overall output-the constraint
using the constraint
a)CM per unit.....
b)Time to produce one unit...
CM of constraint=a)/b)

CM of constraint....
(X) additional units that can be processed in one hour.....
= Additional contribution margin
so one would meet current demand for prouct with highes unit CM margin and then use the rest of the time/money to make the other product
tax revenue
tax revenue=tax rate X tax base
taxing jurisdictions
local, state, federal, international
sufficient tax
it provides enough funds to pay for th epublic goods and services needed by the gov't. levying the tax.
income effect
-tax increase--> base increase
-tax decrease--> base decrease
-work to keep after tax income the same
-more powerful for lower income tax payers
substitution effect
-tax increase-base decrease
-tax decrease-base increase
-substitute between labor and leisure
- more compelling to higher income tax payers
gov't viw- a tax is convenient if it is easy to administer, easy to understand and it offers few opportunities for non-compliance
taxpayers view: the tax is easy to pay, easy to determine and requires minimal time to comply
horizontal equity
persons with the same ability to pay the tax should owe the same amount
vertical equity
persons with a greater ability to pay owe more tax than persons with a lesser ability to pay
regressive structure
the rate of tax paid cdecreases with an increase in tax base
proportionate structure
levies a tax that is the same percentage of income regardless of the tax base amount
progressive structure
levies a tax which as a proportion of income, increases as income increases.
average tax rate
the tax rate on income determined by dividing the tax paid by an income measure
margnal tax rate
the rate of tax applied to the next dollar of taable income
progressive-rate increases as income increases
proportionate-average and marginal rates are the same
tax avoidance
legitimate means of reducing taxes
tax evasion
illegal means to reduce taxes
in a federal tax system who are the two primary entities that pay tax on business income?
individuals and corporations
income shifting
transfer income form a high tax rate to a lower tax rate entity
deduction shifting
transferring expenses from a low tax rate enity to a high tax rate entity
opportunity costs
the potential benefit given up when one alternative is chosen over another
tax costs decrease and cash flows increase when tax is generated in a jurisdiction with a lower tax
character variable
tax costs decrease and cash flows increase when income is taxed at a preferential rate because of its character
implicit taxes
reduction in the rate of return that a taxpayer receives because the market has bid up the price f the tax favored asset
trnasaction based tax
tax that is triggered when an event occurs or a transaction takes placeactivity based tax
activity based tax
when a tax is imposed on the cumulative result of an ongoing activit
realty tax
tax that is on the ownership of real property
ad valorhem taxes
real property and personal property taxes
tax emption granted by the government for a limited period of time
any asset that is not realty.

3 general categories: household tangibles, business tangibles and intangibles
sales tax
tax on the retail sale of tangible personaly.
use tax
every state wth a sales tax imposes this, when the owner of goods does not pay the sales tax to obtain the good( get it out of state)
excise tax
imposed on retail of specific goods (gas, cigarettes ,liquor)
how can governments impose a new tax to create revenue?
by taxing a new base, by increasing the tax on an ecsting base and by expanding the base of an existing tax.
static forecast
assumes that the base variable is unrelated to the rate variable. Increase in the tax rate incraeases government revenues
dynamic forecast
when a jurisdiction can predict how the ax rate will affect the base and incorporate this prediction into its revenue projection
ordinary income
the income generates by routine sales or services to customers
capital gain
the sale or exchange or certaunb types of property(capital assets)