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100 Cards in this Set
- Front
- Back
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What is a system that measures the results of each responsibility center and compares those results with some measure of expected or budgeted outcome?
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Responsibility Accounting
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What is only responsible for revenues?
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Revenue Center
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What is only responsible for costs?
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Cost Center
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What is responsible for both revenues and costs?
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Profit Center
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What is responsible for revenues, costs, and investments?
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Investment Center
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What are the reasons for decentralization?
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Better access to local information, cognitive limitations, more timely response, focusing of central management, training and evaluation of segment managers, motivation of segment managers, and enhanced competition
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What is how well activities are performed?
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Efficiency
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What is whether the manager has performed the right activities?
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Effectiveness
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What is the most common measure of performance for an investment center?
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Return on Investment (ROI)
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What is the portion of sales available for interest, taxes and profit?
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Margin
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What is how productively assets are being used to generate sales?
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Turnover
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What refers to earnings before interest and income taxes?
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Operating Income
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What includes all assets used to generate operating income?
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Operating Assets
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What are the advantages of the ROI measure?
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Helps managers focus on the relationship between sales, expenses and investment, Encourages cost efficiency and Discourages excessive investment in operating assets
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What are the disadvantages of the ROI measure?
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Discourages managers from investing in projects decreasing divisional ROI but increasing profitability of the company overall and Encourages managers to focus on the short-term at the expense of the long-term
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What is the difference between operating income and the minimum dollar return required on a company's operating assets?
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Residual income
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What is an absolute measure of return which makes it difficult to directly compare the performance of divisions; and does not discourage myopic behavior?
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Residual income
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What is a dollar measure of performance- encourages managers to move beyond the focus of the percentage return on investment to look at the absolute dollar value of the additional profit?
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Residual income
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What is after-tax operating profit minus the total annual cost of capital?
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Economic Value Added (EVA)
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If EVA is positive, what is the company doing?
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Creating wealth
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What EVA is negative, what is the company doing?
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Destroying wealth
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What is the key feature of EVA?
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focuses on after-tax operating income and the actual cost of capital
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What are the behavioral aspects of EVA?
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Tends to focus on long-run and Discourages myopic behavior
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Why would managers not provide good service?
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They may have low ability. They may prefer not to work hard. They may prefer to spend company resources on prereqisites.
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What are more flexible unlike periodic raises for managers rewards?
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Bonuses
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What are frequently offered to managers to encourage them to focus on the longer term?
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Stock Options
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What is the right to buy a certain number of shares of the company's stock, at a particular price, after a set length of time?
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Stock Options
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What are the prices charged for goods produced by one division and transferred to another?
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Transfer Prices
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The price charged for transfer prices affects what two items?
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revenues of the transferring division and the costs of the receiving division
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What 3 objectives should satisfy transfer pricing system?
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Accurate performance evaluation, goal congruence, and preservation
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What approach identifies the minimum transfer price and the maximum transfer price?
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Opportunity Cost Approach
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What are three different types of prices to set for transfer prices?
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Market Prices, Negotiated Prices, and Cost Based Transfer Prices
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What are the disadvantages of Negotiated Transfer Prices?
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One divisional manager with private information may take advantage of another divisional manager, Performance measures may be distorted by the negotiating skills of managers, and Negotiation can consume considerable time and resources
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What offer some hope of complying with the three creiteria of goal congruence, autonomy and accurate performance evaluation?
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Negotiated Price Transfer
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What are the 4 cost-based transfer prices?
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Full-Cost transfer pricing, full-cost plus markup, variable cost per fixed fee and propriety of use
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What is a tool used for planning and decision making?
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Cost-Volume-Profit
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What emphasizes the interrelationships of costs, quantity sold and price?
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Cost-Volume-Profit
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What is the point of Zero Point?
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Break Even Point
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What are separated into fixed and variable components, in correlation with CVP?
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All costs
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What is income or profit before income taxes (includes only revenues and expenses from the firm's normal operations)?
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Operating income
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What is operating income less income taxes?
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Net Income
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What is sales revenue - variable expenses - Fixed expense= ?
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Operating Income
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What is sales revenue - total variable cost?
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Contribution Margin
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What is Fixed costs/ Unit contribution margin=?
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Number of units
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What is Total Fixed Costs/ Contribution margin Ratio=?
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Break-even Sales
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What play no role when calculating the break-even point?
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Income Taxes bc they are zero
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What is computed by subtracting income taxes from the operating income?
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After Tax Profit
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What is equal to Net Income/ (1-tax rate)?
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Operating Income
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What are those fixed costs which can be traced to each segment and would be avoided if the segment did not exist?
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Direct Fixed Expenses
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What are fixed costs that are not traceable to the segments and that would remain even if one of the segments was eliminated?
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Common Fixed Expenses
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What is the relative combination of products being sold by a firm?
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Sales Mix
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What portrays the relationship between profit and sales volume?
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Profit-Volume Graph
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What is the dependent variable of profit-volume graph?
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Operating Income
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What is the independent variable of profit-volume graph?
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Number of Units
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What is the equal to price * Units on CVP graph?
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The Total Revenue Line
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What is equal to (unit variable cost * units) + fixed costs?
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The Total Cost Line
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What are the assumptions of CVP analysis?
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The analysis assumes a linear revenue function and a linear cost function, the analysis assumes that price, total fixed costs, and unit variable costs can be accurately identified and remain constant over the relevant range; the analysis assumes that what is produced is sold; for multiple-product analysis, the sales mix is assumed to be known; and the selling price and costs are assumed to be known with certainty.
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What is the units sold or expected to be sold or the revenue earned or expected to be earned above the break-even volume?
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Margin of Safety
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What is the use of fixed costs to extract higher percentage changes in profits as sales activity changes?
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Operating Leverage
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The greater the degree of operating leverage; the more that changes in what?
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sales activity will affect profit
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What is total contribution margin/ profit?
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Degree of operating leverage
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What assumes that all costs can be divided into variable and fixed costs?
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Conventional CVP analysis
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What divides costs into unit and non unit based categories?
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ABC System
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What are the differences between ABC Break-even and Conventional Break-even?
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The fixed costs differ and the numerator of the ABC break-even equation has two nonunit-variable cost terms.
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What is a measure of the difference between what a firm puts into making and selling a product or service and what it receives?
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Profit
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Profits are measured to what? (4)
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Determine the viability of the firm, Measure managerial performance, Determine whether or not a firm adheres to government regulations, and Signal the market about the opportunities for others to earn a profit
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What is required for external financial reporting; assigns all manufacturing costs, direct materials, direct labor, variable overhead and a share of fixed overheadto each unit of product - thus, each unit of product obsorbs some of the fixed manufacturing overhead in addition to its variable manufacturing costs?
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Absorption Costing Approach
(Full Costing) |
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What assigns only unit level variable manufacturing costs to the product - these costs include direct materials, direct labor, variable overhead, and fixed overhead is treated as a period cost and is not inventoried with the other product costs - it is expensed in the period incurred?
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Variable Costing Approach (Direct Costing)
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What is when absorption income > Variable-Costing Income?
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When Production> Sales
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What is when absorption income< Variable-Costing Income?
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When Production< Sales
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What is when absorption-costing income = variable-costing income?
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Production = Sales
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What are the three types of inventory costs?
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The cost of acquiring inventory, the cost of holding inventory, and the cost of not having inventory on hand when needed
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What are the costs of placing and receiving an order?
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Ordering costs
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What type of cost are these an example of: clerical costs, documents, insurance for shipment, and unloading?
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Ordering Costs
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What are the costs of preparing equipment and facilities so they can be used to produce a particular product or component?
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Setup Costs
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What are the examples of setup costs?
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Setup labor, lost income (from idled facilities), and test runs
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What are the costs of not having sufficient inventory?
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Stock-Out Costs
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What are examples of stock-out costs?
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lost sales, costs of expediting (extra setup, transportation, etc) and the costs of interrupted production
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What are the costs of carrying inventory?
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Carrying Costs
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What are the examples for carrying costs?
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insurance, inventory taxes, obsolescence, opportunity cost of capital tied up in inventory, and storage (purchase orders)
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What are traditional reasons for carrying inventory?
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To balance ordering or setup costs and carrying costs, demand uncertainty, machine failure, defective parts, unavailable parts, late delivery of parts, unreliable production processes, to take advantage of discounts, and to hedge against future price increases
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What are the two questions for developing an inventory policy that deals with the tradeoff between acquisition costs and carrying costs?
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How much should be ordered (or produced) to minimize inventory costs?
When should the order be placed (or the setup done)? |
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Total ordering and carrying cost can be described as:
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TC = PD/Q + CQ?2
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The objective of inventory management is to identify the order quantity that minimizes the total cost called what?
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Economic Order Quantity
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What is the point in time when a new order should be placed?
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Reorder Point
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What is the time required to receive the economic order quantity once an order is place or a setup is initiated?
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Lead Time
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What is extra inventory carried to serve as insurance against fluctuations in demand?
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Safety Stock
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What reduces the costs of acquiring inventory to insignificant levels by drastically reducing setup time and using long-term contracts for outside purchases?
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Just-In-Case Inventory
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What are reduced so that the company can meet requested delivery dates and to respond quickly to customer demand?
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Lead Times
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How are lead times reduced?
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Reducing setup times, improving quality, and using cellular manufacturing
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Through the JIT Approach,What 3 objectives help the avoidance of shutdown?
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Total preventive maintenance to reduce machine failures, total quality control to reduce defective parts and the use of the Kanban system is also essential
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What type of constraint is a market demand?
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External Constraint
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What type of constraint is a machine or labor time availability?
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Internal Constraint
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What is choosing the optimal mix given the constraints faced by the firm?
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Constrained Optimization
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What expresses a constrained optimization problem as a linear objective function subject to a set of linear constraints?
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Linear Programming model
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What is a method that searches among possible solutions until it finds the optimal solution?
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Linear Programming
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What is to make money now and in the future by managing constraints?
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Goal of Theory of Constraints
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What recognizes that the performance of any organization is limited by its constraints?
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Theory of Constraints
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What are the three focuses on operational measures of systems performance by TOC?
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Throughput = (sales revenue - unit level variable expenses)/time
Inventory is all the money the organization spends in turning materials into throughput Operating expenses defined as all the money the organization spends in turning inventories into throughput and represent all other money that an organization spends |
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Through the TOC, What is the five step method for improving performance?
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Identify an organization's constraints, exploit the binding constraints, subordinate everything else to the decisions made in Step 2, elevate the organization's binding constraints, and repeat the process as a new constraint emerges to limit output
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