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102 Cards in this Set
- Front
- Back
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Controllability |
A cost is controllable if a manager is responsible for it being incurred or is able to authorise the expenditure. |
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Absorption costing |
When using absorption costing to determine the cost per unit we focus on the production cost only ( direct-prime- cost and indirect cost) |
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Direct costs |
A direct cost is a price that can be directly tied to the production of specific goods or services. A direct cost can be traced to the cost object, which can be a service, product, or department. Eg Materials and labour Also referred to as prime costs |
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Indirect costs |
Indirect costs are costs used by multiple activities, and which cannot therefore be assigned to specific cost objects Eg factory rent, supervisor’s salary, electricity depreciation Also referred to as production overheads |
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Non production costs |
Non-manufacturing costs refer to those incurred outside the factory or production department. These are costs are not needed in transforming materials into finished goods. Non-manufacturing costs include: selling expenses and general expenses. |
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Pre determined overhead absorption rate |
Used to smooth out seasonal fluctuations in overhead costs and to enable unit costs to be calculated quickly throughout the year.
Budgeted overhead /budgeted volumes |
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Overhead absorption rate (OAR) |
is the amount of indirect costs assigned to cost objects Production overhead / activity levels Over absorption occurred if absorbed > actual Under absorption occurred if absorbed < actual |
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Marginal cost |
Is the extra cost arising as a result of making and selling one more unit of a product or service |
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Contribution |
The difference between sales value and the variable costs of sales. represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. |
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Marginal costing |
costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution. More useful method for decision making but not useful for financial reporting
Marginal Cost = Direct Material + Direct Labor + Direct Expenses + Variable Overheads
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Data |
Facts or figures in raw, unprocessed format |
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Information |
Is data that has been processed in such a way that it has a meaning to the person who is receiving it. |
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Information technology (IT) |
Describes any equipment concerned with the capture storage transmission or presentation of information. The IT is the supporting hardware that provides the infrastructure to run the information system |
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Information system (IS) |
Refers to the provision and management of information to support the running of the organisation |
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Cost benefit analysis (CBA) |
Can be usedto asses the expected costs and benefits of the IS. |
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Intranet |
Is an internal network used to share information. A private network contained within an organisation. It allows company information and computing resources to be shared among employees. |
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Extranet |
A collaborative network which uses internet technology to join organisation., for example to link businesses with their suppliers. |
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Internet |
A global system of interconnected networks carrying a vast array of information and resources. |
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Optical character recognition (OCR) |
Description or optical character reader is the electronic or mechanical conversion of images of typed, handwritten or printed text into machine-encoded text, whether from a scanned document, a photo of a document, a scene-photo or from subtitle text superimposed on an image |
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Magnetic ink character recognition (MICR) |
These applications are used mainly to clear bank cheques. It’s advantages are that data is input fast and human errors are avoided. Disadvantage is the equipment is expensive |
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Data capture costs |
Cost of internal information Data is input into the computer through a reader |
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Strategic planning |
Takes place at the top of the organisation and is concerned with setting a future course of action for the organisation Eg long term forecasts |
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Strategic planning |
Takes place at the top of the organisation and is concerned with setting a future course of action for the organisation Eg long term forecasts |
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Management control |
Concerned with the effective use of resources to achieve targets set at strategic planning. Eg labour statistics (hours, turnover ) |
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Operational control |
Concerned with the day-to-day implementation of the plans of the organisation. Eg detailed short term transactions data |
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Executive information system (EIS) |
Gives senior executives access to internal and External information. Information is provided in a summarised form with the option to “drill down “ to a greater level of activity |
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Decision support system (DSS) |
Computer based systems which enable managers to confront ill-structures problems by direct interaction with data and problem solving programs. An aid to making decisions. The system predicts the consequences of a number of possible scenarios and the manager then uses their judgement to make the final decision. |
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Transaction processing system (TPS) |
Records historic information and represents the simple automation of manual systems. A system for processing routine business transactions, often in large volumes , eg sales and purchase information |
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Management information system (MIS) |
converts internal and external data into useful information which is then communicated to managers at all levels and across all functions to enable them to make timely and effective decisions for planning directing and controlling activities. Provides computer based methods and procedures for conducting analyses, forecasts and simulations. |
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Big data analytics |
Process of scrutinising big data to identity patterns correlations relationships and other insights. |
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Cost pool |
Is an activity which consumes resources and for which overhead costs are identified and allocated. |
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Cost driver |
A factor that influences or drives the level of cost. It is the unit of an activity that causes the change in activity's cost or any factor which causes a change in the cost of an activity |
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Total quality management |
Is the continuous improvement in quality, productivity and effectiveness through a management approach focusing on both the process and the product. |
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Just in time |
is a pulled based system of production, pulling work through the system in a response to a customer demand. This mean that foods are only produced when they are needed, eliminating large stocks of materials and finished goods. |
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Throughput accounting |
Aim to make the best use of scarce resources in a JIT environment Measure of profitability (Sales Rev- direct material cost) |
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Throughput (return) per factory hour |
Throughput per unit / product’s time on the bottleneck resource |
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Cost per factory hour |
Total factory cost/ total bottleneck resources time available |
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Throughput accounting ratio (TPAR) |
Return per factory hour/ cost per factory hour |
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Target costing |
Setting a target cost by subtracting a desired profit from a competitive market price. |
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Database system |
These systems process and store information which becomes the organisations memory |
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Cost plus pricing |
DescriptionCost-plus pricing is a pricing strategy in which the selling price is determined by adding a specific amount markup to a product's unit cost. |
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Value analysis |
Which features of a product are essential to customer perceived quality. Seeks to close the cost gap Eg design production sales or finance |
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Cost value |
This is the cost incurred by the firm incurring the product |
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Exchange value |
The amount of money that consumers are willing to exchange to obtain ownership of product |
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Esteem value |
The status or regard associated with ownership. Higher esteem value often associated with premium prices. |
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Life cycle costing |
Tracks and accumulates costs and revenues attributable to each product over its entire product lifecycle Total cost of product A over its entire lifecycle / total number of units of A |
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Environmental management accounting (EMA) |
Concerned with the accounting information needs of managers in relation to corporate activities that affect the environment as well as environment-related impacts on the corporation |
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Shadow (dual) prices |
Shadow or dual price of a limiting factor is increase in contribution created by the availability of one additional unit of the limiting factor at the original cost. |
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Monopolistic competition |
Products are similar but not identical. There are many producers (price setters) and many consumers in a given market but no business has total control over the market price |
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Price elasticity |
show the responsiveness, or elasticity, of the quantity demanded of a good or service to increase in its price when nothing but the price changes. |
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Direct control system |
Systems to monitor and report on activities such as output levels, sales ledger and credit accounts in arrears |
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Mark up |
Is the profit expressed as a percentage of cost (cost is 100%) |
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Margin |
Is the profit expressed as a percentage of the sales price ( sales is 100%) |
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Market skimming |
Charging high prices when a product is first launched in order to maximise short term profitability. Initially high prices may be charged to take advantage of the novelty appeal of a new product when demand is initially inelastic. |
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Penetration pricing |
Charging of low prices when a new product is initially launch in order to gain rapid acceptance of the product. Demand is highly elastic |
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Complementary product pricing |
Complementary Product pricing is a method in which one of the products is priced to maximize the sales volume and which in turn stimulates the demand of other product. |
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Product line pricing |
Product line pricing is oriented on separating goods into cost categories in order to create various quality and feature levels in the minds of consumers. This strategy is typically adopted where you wish to market to different customer types or wish to anchor your products. |
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Volume discounting |
Offering customers a lower price per unit if they purchase a particular quantity of a product. |
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price discrimination |
charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. |
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Sunk cost |
Costs that have already been incurred in the past |
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Opportunity cost |
Value of the best alternative that is foregone when a particular course of action is undertaken. |
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Enquiry systems |
Which are based on databases which provide specific Information such as the performance of a department or an employee. |
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Support systems |
Systems that provide computer based methods and procedures for conducting analyses, forecasts and simulations. |
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Expert systems |
Computer program that captures human expertise in a limited Domain of knowledge. Can be used at all levels of management and gold specialist knowledge and allow non-experts to interrogate them for information,advise and recommend decisions. |
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Enterprise resource planning system (ERPS) |
integrate the data from all operations within the organisation into one single system. It ensures everyone is working off the same system. |
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Customer relationship management (CRM) systems |
Approach to build and sustain long term business with customers. It consists of the processes a company uses to track and organise its contacts with its current and prospective customers. |
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Big data |
extremely large data sets that may be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions. |
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Big data management |
Is the storage administration and control of vast quantities of both structured and unstructured data |
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Risk |
Variability of possible return There are a number of possible outcomes and the probability of each outcome is known. |
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Focus groups |
Small group (8-10) selected from the broader population. The group is interviewed through facilitator-led discussions in an informal environment in order to gather their opinions and reactions to a particular subject. |
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Motivational research |
The objective is to understand factors that influence why consumers do or do not buy particular products |
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Measurement research |
The objective is to build on motivational research by trying to quantify the issues involved |
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Depth interviewing |
Undertaken at a length by a trained person who is able to appreciate conscious and unconscious association and motivation and their significance. |
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Pseudo-participation |
Is an approach to management in which managers cultivate an impression of openness but are careful to retain decision-making in their own hands. It is associated with the use of direct communication and other weak forms of employee participation. |
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Bottom up (participative) budgeting |
Is a budgeting system in which all budget holders are given the opportunity to participate in setting their own budgets. |
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Budgetary slack (padding the budget) |
deliberate under-estimation of budgeted revenue or over-estimation of budgeted expenses. This allows managers a much better chance of "making their numbers," which is particularly important for them if performance appraisals and bonuses are tied to the achievement of budgeted numbers. |
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Incremental budgets |
Starts with the previous periods budget or actual results and adds/subtracts an incremental amount to cover inflation and other know charges. |
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Zero based budgeting |
Method of budgeting that requires each cost element to be specifically justified as though the activities to which the budget relates were being undertaken for the first time. |
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Rolling budget |
continually updated to add a new budget period as the most recent budget period is completed. Thus, the rolling budget involves the incremental extension of the existing budget |
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Activity based budgeting |
A method of budgeting based on an activity framework and utilising cost driver data in the budget-setting and variance feedback process. |
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Feedback control |
The measurement of difference between planned outputs and actual outputs achieved, and modifications of subsequent actions and/or plans to achieve future required results. |
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Single loop feedback |
Control which regulates the output of a system. We do not change the target just try different approach |
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Double loop feedback |
Having attempt the target on different occasions and in light of experience they modify or reject target |
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Word association testing |
On being given a word by the interviewer the first word that comes into the mind of the person being tested is noted |
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Feed forward control |
Comparing budgeted results against a forecast. Control action is triggered by differences between the two |
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Beyond budgeting |
A body of practices intended to replace budgeting as a management model. The need to move from a business model based on centralised organisational hierarchies to one based on devolved networks |
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High low analysis |
A method of analysing a semi-variable cost into its fixed and variable elements based on an analysis of historic information about costs at different activity levels. |
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Triad testing |
Where people are asked which out of a given three items they prefer. If the three are brands of a given type of product (or similar types), replies may show a great deal about which features of a product most influence the buying decision |
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Random sample |
Each person in the target population has an equal chance of being selected. |
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Quota sampling |
Where samples are designed to be representative with respect to pre selected criteria. |
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Panelling |
Sample is kept for subsequent investigations so trends are easier to spot. |
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Sensitivity analysis |
takes each uncertain factor in turn and calculates the change that would be necessary in that factor before the original decision is reversed. |
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Expected value |
Weighted average of all possible outcomes. Calculates average return that will be made if a decision is repeated. =sum of (probability of each outcome) |
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Pay off tables (profit table ) |
Useful way to represent and analyse a scenario where there is a range of possible outcomes and a variety of possible responses. It illustrates all possible profits/ losses |
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Top down (imposes style) budgeting |
A budget allowance which is set without permitting the ultimate budget holder to have the opportunity to participate in the budgeting process |
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Learning curve |
graphical representation of how an increase in learning (measured on the vertical axis) comes from greater experience (the horizontal axis); or how the more someone (or something) performs a task, the better they get at it. |
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Margin |
Contribution per unit (marginal costing) or profit per unit (absorption costing) |
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Capital employed |
Total assets-current liabilities Or Total equity + long term debt |
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Operating profit |
Profit before finance charges and tax |
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Transfer price |
The price at which goods or services are transferred from one division to another within the same organisation |
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Value for money |
Economy -input measure. Are resources used the cheapest possible for quality required Efficiency - input to output. Is max output being produced with input Effectiveness - are objectives being met |
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Epos system |
Electronic point of sale system are the combination of software and hardware that enable you to take cash and card payments, record sales, analyse business performance etc |
