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52 Cards in this Set

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  • Back
Capital Budget
the final list of approved projects
Capital budgeting decisions
Investment decisions
Capital expenditure decisions
Investment decisions involving the acquisition of long-lived assets
Net present Value
the sum of the present values of all cash flows
Required Rate of Return
the minimum return that top management wants to earn on investments
Internal Rate of Return
The rate of return that equates the present value of future cash flows to the investment outlay
Cost of Capital
The weighted average of the costs of debt and equity financing used to generate capital for investments.
Depreciation Tax Shield
the tax savings resulting from depreciation
Accounting rate of return
the average after-tax income from a project divided by the average investment in the project
Payback Period
The length of time it takes to recover the inital cost of an investment
Budgets
formal documents that quantify a company's plan for achieving its goals
Flexible budget
a set of budget relationships that can be adjusted to various activity levels
Slack
a budget with targets that are easy to achieve
Budget committee
the group within a company that is responsible for approval of various budgets
Management by exception
only exceptional variences from the budget are investigated
Static budget
a budget that is not adjusted for the acual leval of production
Budget variences
Differences between budgeted and actual amounts
Master Budget
a comprehensive planning document that incorporates a number of individual budgets
Zero-based budgeting
a method of budget preparation that requires budgeted amoundts to be justified by each period at the start of each budget period, even if the amounts were supported in prior budget periods.
Standard cost
the cost that management believes should be incurred to produce a good or service under anticipated conditions
Budgeted cost
the cost of a single unit
Attainable Standards
standard costs that take into account the possibility that a variety of circumstances may lead to costs that are greater than ideal
Ideal Standards
costing standards developed under the assumption that no obstacles to the production process will be encountered
Standard Cost Vairence
analysis between the difference between a standard and an actual cost
Variance Analysis
breaking down the difference between standard and actual cost into two components (material price material quality, labor rate and labor efficiency)
Material price variance
equal to the difference between the actual price per unit of material and the standard price per unit of the material times the actual quantity of material purchased
Material quantity variance
equal to the difference between the actual quantity of material used and the standard quantity of material allowed for the number of units produced times the standard price
Labor rate variance
equal to the difference between the actual wage rate and the standard wage rate times the actual number of labor hours worked
Labor Efficiency Varience
equal to the difference between the actual number of hours worked and the standard labor hours allowed for the number of units produced times the standard labor wage rate
controllable overhead varience
the difference between the actual amount of overhead and the amount of overhead that would be included in a flexible budget for the actual level of production
overhead volume varience
equal to the difference between the amount of overhead included in the flexible budget and the amount of overhead applied to production using the standard overhead rate
Decentralized organizations
a firm that grants substantial decision-making authority to managers of sub units
Lack of goal congruence
managers of subunits may pursue peronal goals that are incompatible with goals of the company as a whole
Responsiblity centers
a subunit (department, subsidiary, or a division)
Cost center
a subunit that has responsibility for controlling costs but does not have responsiblity for generating revenue
Investment Center
a subunit that is responsible for generating revenue, controlling costs, and investing in assets
Profit Center
a subunit that has responsibility for generating revenue as well as for controlling costs
Relative performance evaluation
evaluating the profitibility of each profit center relative to the profitiblity of other, similar profit centers
Return on investment
the ratio of investment center income to invested capital
Profit margin
The ratio of income to sales
Investment turnover
the ratio of sales to invested capital
Net operating profit after taxes
investment center income
Noninterest-bearing current liabilities
current liabilities that do not require interest payments (accounts payable, income taxes payable, accrued liabilities, etc.)
Residual income
the net operating profit after taxes of an investment center in excess of its required profit
Economic value added
developed by stern stewart that accounts for accounting distortions that arise from following gaap
Balanced Scorecard
a set of performance measures constructed for four dimensions of performance (financial, customer, and internal process perspectives and learning and growth)
Strategy map
a diagram of the relationships across the four dimenstions of a balanced scorecard
Transfer price
the price that is used to value internal transfers of goods or services
Horizontal analysis
analyzing the dollar value and percentage changes in financial statment amounts across time
vertical analysis
analyzing financial statment amounts in comparison to a base amount
Management discussion and analysis
the section that management provides stockholders and other financial statement users with explanations for financial results that are not obvious simply from reading the basic financial statements
Financial leverage
the use of debt financing to acquire assets