strategic cost management exam 2

activity based management (ABM)

Extends ABC from product costing to a comprehensive management tool that focuses on reducing costs and improving processes and decision-making via evaluating the value-add of activities

target profit - target ros

what is the formula for targeting a cost under abm?

target cost - feasible cost

what is the formula for a cost reduction target under abm?

true

T or F: you should exclude necessary activities from abm improvement planning because they are unchangeable and therefore irrelevant

cost to supply - cost to use

what is the formula for unused capacity cost?

relevant costing

a process that compares, to the extent possible and practical, the incremental revenues and incremental costs of alternative decisions -> excludes sunk or unavoidable costs

when avoidable cost savings > lost contribution margin

in what case/measure would you drop a product?

traced contribution margin / traced revenue

what is the formula for cm ratio?

master budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

delphi method

form of qualitative forecasting that involves consensus of a group of experts using a multi-stage process to converge on a forecast.

econometric technique

a forecasting method which uses regression and economic indicators to form a sales budget

activity based budget (abb)

allocates resources specifically for each activity

- for new products, expansion, or to introduce new company goals and targets

participative budgeting

A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate.

zero based budgeting

a budgeting approach in which each department starts from zero every year and must justify every item in the budget, rather than simply adjusting the previous year's budget amounts

economic order quantity (eoq)

the optimal order size to minimize the sum of ordering, carrying, and stockout costs

just in time inventory (jit)

Inventory system in which companies manufacture or purchase goods just in time for use, requiring no holding costs at all