Managerial Accounting

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Data

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reports, such as financial statements, customer lists, and inventory records

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information

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data that have been organized, processed, and summarized

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knowledge

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information that is shared and exploited so that it adds value to an organization

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accounting information system (AIS)

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a transaction processing system that captures financial data resulting from accounting transactions within a company

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enterprise resource planning systems (ERP)

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systems used to collect, organize, report, and distribute organizational data and transform that data into critical information and knowledge

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data warehouse

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central depositories for electronic data

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data mining

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a process of searching for and extracting information from data

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knowledge warehouses

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used to store and provide access to a wide variety of qualitative

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electronic data interchange (EDI)

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the electronic transmission of data, such as purchase orders and invoices

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financial accounting

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the area of accounting primarily concerned with the preparation and use of general-use financial statements for use by creditors, investors, and other users outside the company

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managerial accounting

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the are of accounting primarily concerned with generating financial and non financial information for users by managers in their decision-making roles within a company

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external users

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stockholders, potential investors, creditors, government taxing agencies, regulators, suppliers, customers, and others outside the company

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internal users

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individual employees, teams, departments, regions, top management, and others inside the company-- often referred to as managers

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planning

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the development of both the short-term (operational) and the long-term (strategic) objectives and goals of an organization and an identification of the resources needed to achieve them

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operational planning

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the development of short-term objectives and goals (typically, those to be achieved in less than one year)

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strategic planning

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addresses long-term questions of how an organization positions and distinguishes itself from competitors

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operating activities

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the day to day operations of a business

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controlling activities

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the motivation and monitoring of employees and the evaluation of people and other resources used in the operations of the organizations

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operations and production function

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produces the products or services that an organization sells to its customers

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marketing function

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involved with the process of developing, pricing, promoting, and distributing goods and services sold to customers

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finance function

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responsible for managing the financial resources of the organization

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human resource function

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concerned with the utilization of human resources to help an organization reach its goals

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decision making

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the process of identifying alternative courses of action and selecting an appropriate alternative in a given decision making situation

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quantitative

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can be expressed in terms of dollars or other quantities (units, pounds)

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qualitative

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deals with nonnumerical attributes or characteristics

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relevant costs

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those costs that differ among alternatives

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sunk costs

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costs that have already been incurred

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opportunity costs

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the benefits forgone by choosing one alternative over another

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risk

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the likelihood that an option chosen in a decision situation will yield unsatisfactory results

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sensitivity analysis

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the process of changing the values of key variables to determine how sensitive decisions are to those changes

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enterprise risk management (ERM)

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enterprise risk management is a process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise. It is designed to identify potential events that may affect the entity's risk appetite, in order to provide reasonable assurance regarding the achievement of entity objectives.

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cost behavior

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how costs react to changes in production volume or other levels of activity

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fixed costs

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costs that remain the same in total when production volume increases or decreases but vary per unit

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variable costs

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costs that stay the same per unit but change in total as production volume increases or decreases

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relevant range

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the normal range of production that can be expected for a particular product and company

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step costs

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costs that vary with activity in steps and may look like and be treated as either variable costs or fixed costs; step costs are technically not fixed costs but may be treated as such if they remain constant within a relevant range of production

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mixed costs

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costs that include both a fixed and a variable component, making it difficult to predict the behavior of a mixed cost as production changes unless the cost is first separated into its fixed and variable components

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regression analysis

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the procedure that uses statistical methods (least squares regression) to fit a cost line (called a regression line) through a number of data points

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dependent variable

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the variable in regression analysis that is dependent on changes in the independent variable

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independent variable

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the variable in regression analysis that drives changes in the dependent variable

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R square (R^2)

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a measure of goodness of fit (how well the regression line "fits" the data)

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cost-volume-profit (CVP) analysis

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a tool that focuses on the relationship between a company's profits and (1) the prices of products or services, (2) the volume of products or services, (3) the per unit variable costs, (4) the total fixed costs, and (5) the mix of products or services produced

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gross profit

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the difference between sales and cost of goods sold

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contribution margin per unit

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the sales price per unit of product less all variable costs to produce and to sell the unit of product; used to calculate the change in contribution margin resulting from a change in unit sales

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contribution margin ratio

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the contribution margin divided by sales; used to calculate the change in contribution margin resulting from a dollar change in sales

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break-even point

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the level of sales at which contribution margin just covers fixed costs and net income is equal to zero

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operating leverage

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the contribution margin divided by net income; used as an indicator of how sensitive net income is to the change in sales

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absorption (full) costing

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a method of costing in which product costs include direct material, direct labor, and variable overhead; fixed overhead is treated as a period cost; consistent with CVP's focus on cost behavior

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variable (direct) costing

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a method of costing in which product costs include direct material, direct labor, and variable overhead; fixed overhead is treated as a period cost; consistent with CVP's focus on cost behavior