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financial accounting

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concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators

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managerial accounting

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concerned with providing information to managers for use within the organization

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segment

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part or activity of an organization about which managers would like cost, revenue, or profit data. ex: product geographic territories, divisions, plants, and departments

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planning

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involves establishing goals and specifying how to achieve them

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controlling

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gathering, evaluating, and responding to feedback to ensure that the plan is being properly executed or modified as circumstances change

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decision making

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involves selecting a course of action from competing alternatives

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budget

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a detailed plan for the future that is usually expressed in quantitative terms

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performance report

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compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance; can be used to help evaluate and reward employees

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strategy

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a "game plan" that enables a company to attract customers by distinguishing itself from competitors; focal point should be its target customers

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customer value propositions

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the essence of strategy, a reason for customers to choose a company over a competitor

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3 categories of customer value propositions

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customer intimacy, operational excellence, and product leadership

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customer intimacy strategy

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"we can customize our products and services to meet your individual needs better than our competitors" ex: Ritz-Carlton, Nordstrom

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operational excellence

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"we deliver products and services faster, more conveniently, and at a lower price than our competitors" ex: Walmart, Southwest Airlines, Google

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product leadership

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"we offer higher quality products than our competitors" ex: Apple, BMW, Cisco Systems

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enterprise risk management

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a process used by a company to identify those risks and develop responses to them that enable it to be reasonably assured of meeting its goal

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business process

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a series of steps that are followed in order to carry out some task in a business

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value chain

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consists of the major business functions that add value to a company's products and services

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lean production

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a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders; number of units produced tends to equal the number of units sold, resulting in minimal inventory

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constraint

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anything that prevents you from getting more of what you want

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Theory of Constraints (TOC)

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baed on the insight that effectively managing the constraint is a key to success; fix the weakest link first

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corporate social responsibility

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a concept whereby organizations consider the needs of all stakeholders when making decisions; extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations; ex: P, Microsoft, Starbucks, Johnson & Johnson

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manufacturing companies

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involved in acquiring raw materials, producing finished goods, marketing, distributing, billing, etc. ex: Texas Instruments, Ford, DuPont

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raw materials

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materials that go into the final product, may include both direct and indirect materials

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direct materials

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materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product

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indirect materials

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relatively insignificant materials that aren't worth the effort to trace the costs, included as a part of manufacturing overhead; ex: solder and glue

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direct labor

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labor costs that can be easily (i.e. physically and conveniently) traced to individual units of product; "touch labor" ex: assembly line workers

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indirect labor

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labor costs that cannot be physically traced to particular products, or that can be traced only at great cost and inconvenience; treated as part of manufacturing overhead; ex: janitors, supervisors, materials handlers, and night security guards

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manufacturing overhead

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includes all manufacturing costs (indirect materials, indirect labor, maintenance and repairs on production equipment, heat and light, property taxes, depreciation, and insurance on manufacturing facilities) except direct materials and direct labor; only includes things associated with operating the factory

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non-manufacturing costs

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2 categories: selling costs and administrative costs

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selling costs

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include all costs that are incurred to secure customer orders and get the finished product to the customer; "order-getting" and "order-filling" ex: advertising, shipping, sales commissions, sales travel, sales salaries, and costs of finished goods warehouses

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administrative costs

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includes all costs associated with the general management of an organization rather than with manufacturing or selling; ex: executive compensation, general accounting, secretarial, public relations

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product costs

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all costs that are involved in acquiring or making a product; in the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead

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matching principle

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based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized; treated as expenses in the period in which the related products are sold

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inventoriable costs

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another name for product costs, because they are initially assigned to inventories

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period costs

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all costs that are not product costs; all selling and administrative expenses; ex: sales commissions, advertising, executive salaries; expensed on the income statement in the period in which they are incurred using the usual rules of accrual accounting

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prime cost

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the sum of direct materials cost and direct labor cost

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conversion cost

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the sum of direct labor cost and manufacturing overhead cost (these costs are incurred to convert materials into the finished product)

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cost behavior

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refers to how a cost reacts to changes in the level of activity

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cost structure

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the relative proportion of each type of cost (variable, fixed, or mixed) in an organization

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variable cost

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varies, in total, in direct proportion to changes in the level of activity; ex: cost of goods sold for a merchandising company, direct materials, direct labor

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activity base

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a measure of whatever causes the incurrence of a variable cost; "cost driver" ex: direct labor hours, machine-hours, units produced, and units sold

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fixed cost

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a cost that remains constant, in total, regardless of changes in the level of activity; ex: straight-line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising

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committed fixed costs

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represent organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes; ex: real estate taxes, insurance expenses, salaries of top management

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discretionary fixed costs

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"managed fixed costs"; usually arise from annual decisions by management to spend on certain fixed cost items; ex: advertising, research, public relations, management development programs, and internships

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relevant range

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the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid

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step-variable costs

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cost behavior patterns such as salaried employees, can be adjusted quickly as conditions change

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mixed cost

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contains both variable and fixed cost elements; ex: fees paid to the state; Y=a+bX

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account analysis

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an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves

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engineering approach to cost analysis

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involved a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, etc

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linear cost behavior

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whenever a straight line is a reasonable approximation for the relation between cost and activity

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high-low method

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based on the rise-over-run formula for the slope of a straight; variable cost=(change in cost)/(change in activity)

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least-squares regression method

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uses all of the data to separate a mixed cost into its fixed and variable components; a regression line of y=a+bx is fitted to the data; vertical deviations are called the regression errors

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merchandising companies

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companies that do manufacture the products that they sell to consumers; ex: Walmart

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