Man Acc Exam 3

Short Term Decisions

Decisions that generally cover a short time period (a year or less) using relevant information regarding cost behavior.

Relevant Information

Information that must have an impact on the decision being made, can be quantitative or qualitative.

Contribution Margin

The difference between total sales revenue and total variable costs, used to assess the profitability of products.

Irrelevant Costs

Costs that do not affect a decision, including sunk costs and costs that are the same between different alternatives.

Sunk Costs

Costs that cannot be recovered or changed regardless of future actions taken.

Incremental Analysis

An analysis that looks at how operating income will change under each alternative, relevant for short term decisions.

Special Order Decision

A decision regarding whether to accept a one-time order at a reduced sales price, considering positive contribution margin.

Dropping Product Line

The decision to discontinue a product when its contribution margin per unit is negative.

Product Mix Decisions

Choosing the alternative with the maximum contribution margin per critical factor when resources are limited.

Make or Buy Decision

Determining whether to produce a product in-house or to purchase it from an outside supplier.

Net Realizable Value (NAV)

The estimated selling price of a product minus any expected costs to complete, used in decisions regarding selling or processing further.

Regular Pricing Decisions

Decisions regarding the setting of prices for regular products, considering market conditions and desired profits.

Cost Plus Pricing

A pricing strategy where the selling price is determined by adding a fixed percentage to the total cost of the product.

Capital Investments

Investments a company makes in long-term assets.

Capital Budgeting Process

The process that focuses on analyzing the cash flows from an investment, aiming for cash inflows to exceed cash outflows.

Payback Period

The length of time it takes to recover an initial investment.

Accounting Rate of Return (ARR)

A ratio used to evaluate the profitability of an investment, calculated as average annual net income divided by initial investment.

Internal Rate of Return (IRR)

The expected rate of return on an investment, indicating the discount rate that makes the net present value zero.

Net Present Value (NPV)

The difference between the present value of cash inflows and outflows over an investment's life, indicating its profitability.

Time Value of Money

The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.

Present Value

The current worth of a future sum of money given a specified rate of return.

Future Value

The value of a current asset at a future date based on an assumed rate of growth.

Annuity

A series of equal cash payments made at regular intervals.

Profitability Index

A measure of the return on investment calculated by dividing the present value of future cash flows by the initial investment.

Sensitivity Analysis

A technique that determines how different values of an independent variable impact a particular dependent variable under a given set of assumptions.

Budgeting

The process of creating a plan to spend money, helping an organization forecast its financial outcomes.

Operating Budget

A budget for the normal operations of a business, including projected revenues and expenses.

Capital Expenditures Budget

A budget for planned purchases of long-term assets.

Financial Budget

A budget that analyzes cash flows and the impacts on the balance sheet.

Cash Budget

A budget that outlines expected cash inflows and outflows to ensure adequate liquidity.

Participatory Budgeting

A budgeting process that involves employees in the preparation, leading to greater accuracy and buy-in.

Top-Down Approach

A budgeting approach where management sets the budget and communicates it to subordinates.

Zero-Based Budgeting

A budgeting method that starts from a