week 1 (ch 1-3)

Strategic managemenT

The process of setting a course to achieve the business’s objectives, taking account of the commercial and economic environment within which the business operates

Mission statement

A concise declaration of the overriding purpose of the business

Vision statement

A concise declaration of what the business seeks to achieve

Financial accounting

The measuring and reporting of accounting information for external users (those users other than the managers of the business)

Position analysis

A step in the strategic planning process in which the business assesses its present position in the light of the commercial and economic environment in which it operates.

SWOT analysis

A framework in which many businesses set a position analysis. Here the business lists its strengths, weaknesses, opportunities and threats

Management accounting

The measuring and reporting of accounting information for the man- agers of a business.

Management accounting information system

The system used within a business to identify, record, analyse and report accounting informatIon

Key performance indicators (KPIs)

Financial and/or non-financial measures that reflect the critical success factors of a business

Benefit

An outcome, resulting from a course of action, that helps a business to achieve its objectives

Cost

Amount of resources, usually measured in monetary terms, sacrificed to achieve a particular objective.

Cost–benefit analysis

Systematically weighing the cost of pursuing some objective against the benefits that it is likely to generate in order to help decide whether to proceed.

Opportunity cost

The cost incurred when pursuing one course of action prevents an opportunity to derive some benefit from another course of action.

Historic cost

The outlay incurred in order to acquire a resource

Relevant cost

A cost that is relevant to a particular decision.

Irrelevant cost

A cost that is not relevant to a particular decision.

Past cost

A cost that has been incurred in the past

Outlay cost

A cost that involves the spending of money or some other transfer of assets

Sunk cost

A cost that has been incurred in the past; it is the same as a past cost.

Committed cost

A cost incurred that has not yet been paid, but which must be paid as a result of some existing contract or obligation.

Sunk cost fallacy

The refusal to abandon an attachment to an irrecoverable investment.

Fixed cost

A cost that stays the same when changes occur to the volume of activity.

Variable cost

A cost that varies according to the volume of activity.

Stepped fixed cost

A fixed cost that does not remain fixed over all levels of output but which changes in steps as threshold levels of output are reached.

Total cost

The sum of the variable and fixed costs of pursuing some activity.

Semi-fixed (semi-variable) cost

A cost that has an element of both fixed and variable cost.

High–low method

An approach to distinguishing between the fixed and variable elements of a cost by looking at just two sets of past data

Break-even (BE) analysis

The activity of deducing the break-even point of some activity by analysing the relationship between cost, volume and revenue

Break-even (BE) chart

A graphical representation of the cost and sales revenue of some activity, at various levels, which enables the break-even point to be identified.

Break-even point (BEP)

A level of activity where revenue will exactly equal total cost, so there is neither profit nor loss.

Contribution per unit

Sales revenue per unit less variable cost per unit.

Contribution margin ratio

The contribution from an activity expressed as a percentage of the sales revenue

Margin of safety

The extent to which the planned level of output or sales lies above the break- even point.

Operating gearing

The relationship between the total fixed and the total variable costs for some activity. Also known as operational gearing

Profit–volume (PV) chart

A graphical representation of the contributions (revenue less variable cost) of some activity, at various levels, which enables the break-even point, and the profit at various activity levels, to be identified

Economies of scale

Cost savings per unit that result from undertaking a large volume of activities; they arise from division and specialisation of labour and discounts from bulk buying

Relevant range

The range of output within which a particular business is expected to operate

Business cycle

The expansion and contraction of business activity occurring within an economy over time

Marginal analysis

Focusing on variable costs and revenues, and ignoring fixed cost, in order to arrive at a decision

Marginal cost

A cost that varies according to the volume of activity

Outsourcing

Subcontracting activities to (or sourcing goods or services from) other organisa- tions.