Management Services and Economics Practice Flashcards

Detailed vocabulary flashcards based on the management services and economics lecture notes, covering accounting, budgeting, finance, and economic principles of economics.

Management Accounting (MA)

A branch of accounting that serves internal users (managers), has no accounting standards, and relates to the future.

Line Position

A role within an organization that is directly involved in revenue-generating activities.

Staff Position

A role within an organization that supports the line position, such as the IT department, payroll, or legal department.

High-Low Method

A cost segregation technique where the basis is cost drivers rather than cost to determine the cost function.

Coefficient of Correlation ($r$)

A measure of the degree of relationship between two variables, ranging from $-1$ (negative) to $+1$ (positive).

Coefficient of Determination ($r^2$)

A measure of the strength of the cost function or the goodness of fit; the closer to one, the better the reliability.

Product Cost

Costs incurred to manufacture a product, also known as manufacturing or inventoriable costs ($DM$, $DL$, and $OH$).

Period Cost

Non-manufacturing costs that are expensed as incurred, such as selling and administrative expenses.

Contribution Margin

Sales minus variable costs; it focuses on the behavior of costs and is critical in $CVP$ analysis.

Break-even point (BEP)

The level of activity where total sales equal total costs ($VC + FC$), resulting in zero profit.

Margin of Safety (MOS)

The extent to which sales can decrease before the company incurs a loss.

Degree of Operating Leverage (DOL)

A measure of how a percentage change in sales affects profit, calculated as $\text{CM} \div \text{Profit}$.

Sensitivity Analysis

A "what if" technique that examines the impact of changes in variables like selling price, variable cost, or fixed cost on profit.

Absorption Costing

Also known as Full Costing; it includes all manufacturing costs ($DM$, $DL$, and both variable and fixed overhead) in the cost of a unit.

Variable Costing

Also called Direct Costing; it includes only variable manufacturing costs ($DM$, $DL$, and variable overhead) in the cost of a unit and treats fixed overhead as a period cost.

Standard Cost

A predetermined unit cost used as a benchmark for measuring performance and management planning.

Management by Exception

A management principle where top management's review is focused primarily on significant differences between actual results and planned objectives.

Zero-based budgeting

A planning process in which each manager must justify a department's entire budget from a base of zero every period.

Relevant Cost

Future incremental or differential costs that differ among alternatives.

Opportunity Cost

The potential benefit that may be obtained by following an alternative course of action.

Sunk Cost

A cost that has already been incurred and cannot be changed by any present or future decision, such as the book value of old equipment.

Goal Congruence

The state where units of an organization have incentives to perform for the common interest of the whole firm.

Residual Income (RI)

The difference between operating income and the minimum peso return required on operating assets, calculated as $\text{Operating Income} - (\text{Ave. Operating Asset} \times \text{Minimum Rate of Return})$.

Balanced Scorecard

A holistic performance measurement system that includes four perspectives: Financial, Customer, Internal Process, and Learning and Growth.

Net Present Value (NPV)

A capital budgeting technique that calculates the difference between the present value of cash inflows ($PVCI$) and the present value of cash outflows ($PVCO$).

Internal Rate of Return (IRR)

The interest rate that makes the net present value of a project equal to zero ($PVCI = PVCO$).

WACC

The Weighted Average Cost of Capital, used as a discount rate or hurdle rate for evaluating investments.

Current Ratio

A liquidity ratio that measures the adequacy of working capital, calculated as $\text{Current Assets} \div \text{Current Liabilities}$.

Economic Order Quantity (EOQ)

The order quantity that minimizes the sum of total ordering costs and carrying costs, calculated as $\sqrt{\frac{2 \times D \times TC}{CC}}$.

Critical Path

The longest path in a network model that represents the minimum time required to complete a project.

Law of Demand

An economic principle stating that as the price of a good increases, the quantity demanded decreases ($\uparrow \text{Price}, \downarrow \text{Demand}$).

Scarcity

The fundamental economic problem where available resources are never enough to satisfy human wants, making choices necessary.

Fiscal Policy

The use of government spending and taxes to influence the economy and maximize $GDP$.

Monetary Policy

The management of the money supply controlled by the Bangko Sentral ng Pilipinas ($BSP$).