Managerial Accounting Final Exam – Flashcards
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Balanced Scorecard
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an integrated set of performance measures that are derived from and support the organization's strategy
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Common fixed cost
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a fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments
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Cost center
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a business segment whose manager has control over costs but has no control over revenue or investments in operating assets
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Decentralized organization
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an organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the organization
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Economic Value Added (EVA)
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a concept similar to residual income in which a variety of adjustments may be made to GAAP financial statements for performance evaluation purposes
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Investment Center
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a business segment whose manager has control over cost, revenue, and investments in operating assets
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Margin
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net operating income divided by sales
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Net Operating Income
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Income before interest and income taxes have been deducted
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Operating Assets
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cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes
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Profit Center
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A business segment whose manager has control over cost and revenue but has no control over investments in operating assets
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Residual income
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the net operating income that an investment center earns above the minimum required return on its operating assets
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Responsibility center
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any business segment whose manager has control over costs, revenues, or investments in operating assets
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Return on Investment (ROI)
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Net operating income divided by average operating assets. It also equals margin multiplied by turnover
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Segment
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any part or activity of an organization about which managers seek cost, revenue, or profit data
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Segment margin
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a segment's contribution margin less its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs
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Traceable fixed cost
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a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated
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Turnover
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sales divided by average operating assets
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Market price
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the price charged for an item on the open market
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Negotiated transfer price
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a transfer price agreed on between buying and selling divisions
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Range of acceptable transfer prices
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The range of transfer prices within which the profits of both the selling division and the buying division would increase as a result of a transfer
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Suboptimization
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An overall level of profits that is less than a segment or a company is capable of earning
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Transfer price
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the price charged when one division or segment provides goods or services to another division or segment of an organization
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Avoidable cost
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a cost that can be eliminated (in whole or in part) by choosing one alternative over another in a decision; this term is synonymous with relevant cost and differential cost
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Bottleneck
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a machine or some other part of a process that limits the total output of the entire system
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Constraint
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A limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand
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Differential Cost
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any cost that differs between alternatives in a decision-making situation. this term is synonymous with avoidable cost and relevant cost
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Joint costs
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costs that are incurred up to the split off point in a process that produces joint products
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Joint products
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two or more products that are produced from a common input
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Make or buy decision
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a decision concerning whether an item should be produced internally or purchased from an outside supplier
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Relaxing (or elevating) the constraint
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an action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck
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Relevant cost
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a cost that differs between alternatives in a decision. this term is synonymous with avoidable cost and differential cost
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Sell or process further decision
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A decision as to whether a joint product should be sold at the split-off point or sold after further processing
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Special order
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A one-time order that is not considered part of the company's normal ongoing business
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Split-off point
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That point in the manufacturing process where some or all of the joint products can be recognized as individual products
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Sunk cost
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any cost that has already been incurred and that cannot be changed by any decision made now or in the future
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vertical integration
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the involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service
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Capital budgeting
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the process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product
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Cost of capital
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the average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds
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Internal Rate of Return
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The discount rate at which the net present value of an investment project is zero; the rate of return promised by a project over its useful life
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Net present value
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The difference between the present value of an investment project's cash inflows and the present value of its cash outflows
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Out-of-pocket costs
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Actual cash outlays for salaries, advertising, repairs, and similar costs
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Payback period
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The length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates
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Postaudit
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The follow-up after a project has been approved and implemented to determine whether expected results were actually realized
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Preference decision
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A decision in which the alternatives must be ranked
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Project profitability index
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the ratio of the net present value of a project's cash flows to the investment required
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Screening decision
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A decision as to whether a proposed investment project is acceptable
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Simple rate of return
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The rate of return computed by dividing a project's annual incremental accounting net operating income by the initial investment required
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Working capital
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current assets less current liabilities
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Present Value
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The value now of an amount that will be received in some future period
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Compound Interest
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The process of paying interest on interest in an investment
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Discounting
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The process of finding the present value of a future cash flow
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Discount Rate
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The rate of return that is used to find the present value of a future cash flow
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Annuity
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A series of identical cash flows
