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Managerial Acctng
Exam 3: Ch. 22, and Ch. 23
| Term | Definition |
|---|---|
| decentralized organizations | organization divided into smaller units for managerial decision-making purposes |
| responsibility accounting | system that provides information that management can use to evaluate the performance of a department’s manager |
| cost center | department that incurs costs but generates no revenues; common example is the accounting or legal department |
| profit center | business unit that incurs costs and generates revenues |
| investment center | center of which a manager is responsible for revenues, costs, and asset investments |
| controllable costs | costs that a manager has the power to control or at least strongly influence |
| uncontrollable costs | costs that a manager does not have the power to determine or strongly influence |
| responsibility accounting performance report | report that compares actual costs and expenses for a department with budgeted amounts |
| departmental income statements | income statements prepared for each operating department within a decentralized organization |
| direct expenses | expenses traced to a specific department (object) that are incurred for the sole benefit of that department |
| indirect expenses | expenses incurred for the joint benefit of more than one department (or cost object) |
| allocated cost | total cost to allocate * percentage of allocation base used |
| departmental income | Departmental sales - department direct expense - allocated indirect expenses - allocated service department expenses |
| departmental contribution to overhead | amount by which a department’s revenues exceed its direct expenses |
| investment centers | center of which a manager is responsible for revenues, costs, and asset investments |
| return on investment (ROI) | ratio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on assets or return on total assets |
| residual income | the net income an investment center earns above a target return on average invested assets. Income - target income |
| return on investment | profit margin * investment turnover |
| profit margin | ratio of a company’s net income to its net sales; the percent of income in each dollar of revenue; also called net profit margin |
| investment turnover | the efficiency with which a company generates sales from its available assets; computed as sales divided by average invested assets. |
| balanced scoreboard | a system of performance measurement that collects information on several key performance indicators within each of four perspectives: customer, internal processes, innovation and learning, and financial |
| transfer price | the price used to record transfers of goods or services across divisions within the same company |
| market-based transfer price | a transfer pricing system based on the market price of the goods or services being transferred across divisions within the same company |
| cost-based transfer pricing | a transfer pricing system based on the cost of goods or services being transferred across divisions within the same company |
| negotiated transfer price | a system where division managers negotiate to determine the price to use to record transfers of goods or services across divisions within the same company. |
| cash conversion cycle | the average time it takes to convert cash outflows into cash inflows from customers |
| cash conversion cycle (formula) | days' sale in accounts receivable + Days' sales in inventory - days' payable outstanding |
| days' sales in accounts receivable | accounts receivable, net/net sales * 365 |
| days' sales in inventory | inventory/cost of goods sold * 365 |
| days payable outstanding (days' sales in accounts payable) | accounts payable/cost of goods sold *365 |
| joint costs | cost incurred to produce or purchase two or more products at the same time |
| incremental revenues | additional revenue generated by taking one course of action over another |
| incremental costs | additional cost incurred only if a company pursues a specific course of action |
| incremental income | incremental revenues minus incremental costs |
| sunk cost | arises from a past decision and cannot be avoided or changed; it irrelevant to current and future decisions |
| out-of-pocket cost | requires a future outlay of cash and is relevant for decisions |
| opportunity cost | the potential benefit lost by taking an action instead of an alternative action |
| avoidable cost | a cost that can be eliminated by choosing one action versus another; an avoidable cost is always relevant |
| outsourcing | manager decision to buy a product or service from another entity; part of a make or buy decision; also called make or buy |
| avoidable costs | expense (or cost) that is relevant for decision making; expense that is not incurred if a department, product, or service is eliminated |
| unavoidable costs | expense (or cost) that is not relevant for business decisions; an expense that would continue even if a department, product, or service were eliminated |
| price-takers | entity with no control to set prices |
| price-setters | entity with more control to set prices due to its unique prices and brands. |
| markup | amount added to cost per unit in computing a selling price |
| total cost method | a pricing method in which all of the costs of a good or service are included in determining the selling price |
| total costs | product costs + selling, general, and administrative costs |
| total cost per unit | total costs/total units expected to be produced and sold |
| markup per unit | total cost per unit * markup percentage |
| selling price per unit | total cost per unit + markup per unit |
| target cost | expected selling price - target profit |
| variable cost method | determines price by adding a markup to variable cost |
| markup percentage | target profit + total fixed costs/total variable cost |
| markup per unit | variable cost per unit * markup percentage |
| selling price per unit | variable cost per unit + markup per unit |
| value-based pricing | system where sellers find the maximum price buyers will pay for the goods and services they value |
| auction-based pricing | prices are set by potential buyers’ bids |
| dynamic pricing (surge pricing) | system where prices vary depending on changing market conditions or demand |
| time and materials pricing | method used in pricing services; price is based on direct labor, direct materials, and overhead costs, plus a desired profit margin |
| time charge | dollar amount per hour of direct labor that includes a charge for non-materials-related overhead costs plus a target profit |
| materials markup (%) | a percentage of materials cost that includes materials-related overhead costs and a profit margin. Used in time and materials pricing |
Created by:
ryanriggs18
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