AP3 Ch 24 & 25

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AP3 Ch 24 & 25
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2010-11-20 13:47:00
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Ch 24 & 25
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  1. balanced scorecard
    A performance evaluation approach that incorporates multiple performance dimensions by combining financial and nonfinancial measures.
  2. controllable expenses
    Costs that can be influenced by the decisions of a manager.
  3. controllable revenues
    Revenues earned by the profit center.
  4. cost center
    A decentralized unit in which the department or division manager has responsibility for the control of costs incurred and the authority to make decisions that affect these costs.
  5. cost price approach
    An approach to transfer pricing that uses cost as the basis for setting the transfer price.
  6. DuPont formula
    An expanded expression of return on investment determined by multiplying the profit margin by the investment turnover.
  7. investment center
    A decentralized unit in which the manager has the responsibility and authority to make decisions that affect not only costs and revenues but also the fixed assets available to the center.
  8. investment turnover
    A component of the rate of return on investment, computed as the ratio of sales to invested assets.
  9. market price approach
    An approach to transfer pricing that uses the price at which the product or service transferred could be sold to outside buyers as the transfer price.
  10. negotiated price approach
    An approach to transfer pricing that allows managers of decentralized units to agree (negotiate) among themselves as to the transfer price.
  11. profit center
    A decentralized unit in which the manager has the responsibility and the authority to make decisions that affect both costs and revenues (and thus profits).
  12. profit margin
    A component of the rate of return on investment, computed as the ratio of income from operations to sales.
  13. rate of return on investment (ROI)
    A measure of managerial efficiency in the use of investments in assets, computed as income from operations divided by invested assets.
  14. residual income
    The excess of divisional income from operations over a “minimum” acceptable income from operations.
  15. responsibility accounting
    The process of measuring and reporting operating data by areas of responsibility.
  16. service department charges
    The costs of services provided by an internal service department and transferred to a responsibility center.
  17. transfer price
    The price charged one decentralized unit by another for the goods or services provided.
  18. activity-based costing (ABC)
    A cost allocation method that identifies activities causing the incurrence of costs and allocates these costs to products (or other cost objects), based on activity drivers (bases).
  19. differential analysis
    The area of accounting concerned with the effect of alternative courses of action on revenues and costs.
  20. differential cost
    The amount of increase or decrease in cost expected from a particular course of action compared with an alternative.
  21. differential income (or loss)
    The difference between the differential revenue and the differential costs.
  22. differential revenue
    The amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
  23. markup
    An amount that is added to a “cost” amount to determine product price.
  24. opportunity cost
    The amount of income forgone from an alternative to a proposed use of cash or its equivalent.
  25. product cost concept
    A concept used in applying the cost-plus approach to product pricing in which only the costs of manufacturing the product, termed the product cost, are included in the cost amount to which the markup is added.
  26. production bottleneck
    A condition that occurs when product demand exceeds production capacity.
  27. sunk cost
    A cost that is not affected by subsequent decisions.
  28. target costing
    The target cost is determined by subtracting a desired profit from a market method determined price. The resulting target cost is used to motivate cost improvements in design and manufacture.
  29. theory of constraints (TOC)
    A manufacturing strategy that attempts to remove the influence of bottlenecks (constraints) on a process.
  30. total cost concept
    A concept used in applying the cost-plus approach to product pricing in which all the costs of manufacturing the product plus the selling and administrative expenses are included in the cost amount to which the markup is added.
  31. variable cost concept
    A concept used in applying the cost-plus approach to product pricing in which only the variable costs are included in the cost amount to which the markup is added.

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