Revenue and Customer Profitability Analysis

These flashcards encompass key vocabulary and concepts related to revenue and customer profitability analysis, process costing, spoilage, rework, and inventory cost management.

Revenue Allocation

Assigning revenues to distinct types of sales when it’s not feasible to trace revenue directly.

Bundled Products

A combination of two or more products or services sold together for a single price.

Activity-Based Costing (ABC)

A costing method that assigns costs to products based on the resources they consume.

Contribution Margin Variance Analysis

A method to analyze the differences between actual and budgeted contribution margins.

Stand-Alone Revenue-Allocation Method

A method that uses product-specific information to allocate bundled revenues.

Incremental Revenue-Allocation Method

Allocates revenues based on the ranking of individual products in a bundle.

Customer Profitability Analysis

An analysis that highlights the profitability of individual customers.

80-20 Rule

The principle stating that 80% of total profit often comes from 20% of customers.

Static-Budget CM Variance

The difference between actual and budgeted contribution margins.

Flexible-Budget CM Variance

The difference between actual results and the flexible-budget amount.

Market-Share CM Variance

Measures the company’s performance relative to its peers.

Customer-Sustaining Costs

Costs to support individual customers.

Distribution-Channel Costs

Costs related to a specific distribution channel.

Terminal Disposal of Investment

After-tax cash flow from equipment disposal.

Net Present Value (NPV) Method

Calculates the monetary gain/loss by discounting all future cash flows to the present.

Internal Rate of Return (IRR) Method

The discount rate where NPV = 0.

Economic Order Quantity (EOQ)

Determines the optimal quantity of inventory to order to minimize total costs.

Just-In-Time (JIT) Procurement

Strategy where goods are delivered just before they are needed.

Standard Costing

Uses predetermined average costs per input or per unit of output.

Time Value of Money

The concept that money available now is worth more than the same amount in the future.

Operating Income

Income derived from the normal operations of a business.

Payback Period

Measures the time to recoup the initial investment.

Accrual Accounting Rate of Return (AARR)

A measure that looks at the average annual operating income relative to the net initial investment.

Reorder Point

Inventory level that triggers a new order.

Normal Spoilage

Spoilage inherent in a production process, even under efficient conditions.

Abnormal Spoilage

Spoilage that would not occur under efficient operating conditions.

Rework

Unacceptable units that are repaired and sold as finished goods.

Scrap

Residual material from manufacturing with minimal sales value.

Inspection Point

The stage in production where products are examined for acceptability.

Lean Production

A demand-pull system where components are produced only when needed.

Financial Reporting

The process of providing financial information to company stakeholders.

Cost of Goods Manufactured

The total cost of producing goods that have been completed during a specific accounting period.

Contribution Margin (CM)

Selling price less variable costs.

Sales-Volume CM Variance

Difference between actual quantity sold and budgeted quantity times budgeted CM per unit.

Sales-Mix CM Variance

Difference between budgeted CM for actual sales mix and budgeted sales mix.

Market-Size CM Variance

Reflects changes in overall market demand.

Customer Output Unit-Level Costs

Costs to sell each unit to a customer.

Customer Batch-Level Costs

Costs related to a group of units sold to a customer.

Facility/Corporate-Sustaining Costs

Costs that cannot be traced to individual customers.

Cost Pools

Categories of costs based on shared use of resources.

Cost Driver

A factor that causes costs to change.

Transaction Costs

Costs incurred during the buying or selling of goods.

Activity Cost Driver

A measure of the frequency and intensity of activities that drive costs.

Customer Profitability Profile

A profile that assesses customer value based on profitability.

Customer Retention Likelihood

The probability of a customer continuing to do business with a company.

Sensitivity Analysis

Evaluates how changes in cash flows or RRR affect project viability.

Operating Activities

Business activities that involve the sale of goods and services.

Investment Decision

The process of deciding where to allocate resources for the best return.

Financial Leverage

Using debt to acquire additional assets.

Capital Cost Allowance (CCA)

Depreciation allowed for tax purposes.

Discount Rate

The rate of return used to discount future cash flows.

Working Capital

Capital used in the day-to-day operations of a business.

Non-DCF Methods

Methods of investment analysis that do not take the time value of money into account.

Cash Inflow

Money coming into a business from various sources.

Cash Outflow

Money going out of a business for various expenses.

Control Metrics

Measurable values that demonstrate how effectively a company is achieving its key business objectives.

Target Rate

The minimum acceptable return on investment.

Scrap Accounting

Treating scrap either as a gain or loss depending on the method used.

Customer Margins

Profit margins attributed to customer segments.

Long-Term Investment

Investments intended to be held for a longer time period than just a year.

Financial Statement Analysis

The process of evaluating the profitability and viability of a business.

Cost of Capital

The return expected by those who provide capital for a business.

Breakeven Analysis

Determining the point at which revenues equal expenses.

Investment Appraisal

The evaluation of the profitability and financial feasibility of an investment.

Cost Allocation

The process of identifying, aggregating, and assigning costs to cost objects.

Market Performance Analysis

Assessing how a company’s offerings perform in the marketplace.

Product Mix Strategy

The strategy concerning the range of products a company offers.

Customer Acquisition Costs

Costs associated with convincing a customer to buy a product.

Depreciation Expenses

The allocation of the cost of a tangible asset over its useful life.

Tax Rate Impact

How taxes affect the financial metrics of an investment.

Inventory Cost Management

Strategies and practices for controlling inventory costs.

Sales Forecasting

Predicting future sales based on historical data and market analysis.

Expense Management

Process of planning and controlling the budget of a business.

Production Efficiency

Measuring how well production utilizes resources.

Strategic Investment

Long-term investment decisions critical to achieving business objectives.

Labor Costs

Wages paid to employees for their labor.

Financial Health Indicators

Metrics assessing the financial status of an organization.

Growth Potential

The possibility of a company expanding its business operations.

Cash Flow Management

Managing a company's cash inflows and outflows.

Cash Reserves

The amount of cash a company has on hand or in finances.

Purchasing Decision

Choosing suppliers and products to buy.

Compliance Costs

Expenses associated with adhering to laws and regulations.

Risk Assessment

Analysis of potential risks that could impact a project or investment.

Investment Risk

The probability that the actual return on an investment will be different than expected.

Profitability Ratios

Financial metrics used to assess a business's ability to generate profit.

Reporting Requirements

Legal or professional standards a business must adhere to when reporting finances.

Revenue Generation

Activities that create income for a business.

Financial Regulations

Laws and rules that govern financial practices.

Management Accounting

The process of preparing management reports and accounts.

Purchasing Planning

The strategy for how and when products should be bought.

Quality Control

Ensuring that a company's products meet certain standards.

Supply Chain Analysis

Examining the flow of goods and services from initial suppliers to final customers.

Customer Behavior Analysis

The study of how consumers make decisions regarding purchases.

Net Cash Flow

The difference between cash inflows and cash outflows.

Capital Investment

Funds invested in a business to generate returns.

Business Valuation

The process of determining the economic value of a business.

Financial Modeling

Creating representations of a company’s financial performance.

Profit Margins

The difference between revenue and costs of goods sold.

Activity-Based Costing Systems

A costing method that identifies activities in an organization and assigns the cost of each activity.

Sales Incentives

Rewards given to motivate sales staff.