Managerial Accounting Exam 4 (Ch. 11 and 12)

Economic Value Added (EVA)

An adaptation of residual income that has been adopted by many companies Objective is to maximize the total amount of residual income or ______, not to maximize ROI

Margin

Net Operating Income / Sales

Manufacturing Cycle Efficiency (MCE)

Process (value-added) time a a percentage of throughput time Value-Added Time (Process Time) / Throughput (Manufacturing Cycle) Time

Split-Off Point

The point in the manufacturing process at which the joint products can be recognized as separate products

Opportunity Cost

The potential benefit that is given up when one alternative is selected over another

Move TIme

The time required to move materials or partially completed products from workstation to workstation

Joint Products

Two or more products that are produced from a common input

Avoidable Cost

A cost that can be eliminated by choosing one alternative over another Relevant

Sunk cost

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do Ignore these costs and future costs and benefits that do not differ between alternatives

Sell or Process Further Decisions

A decision as to whether a joint product should be sold at the split-off point or sold after further processing

Make or Buy Decision

A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a __________ Quite often these decisions involve whether to buy a particular part or to make it internally Involve decisions concerning whether to outsource development tasks, after-sales service, or other activities

Differential Cost

A difference in cost between any two alternatives Relevant to decision making, whereas costs and revenues that do not differ between alternatives are irrelevant to decision making Referred to as relevant costs

Differential Revenue

A difference in revenue between any two alternatives Relevant to decision making, whereas costs and revenues that do not differ between alternatives are irrelevant to decision making Referred to as relevant benefits

Decentralized Organization

An organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the organization All large organizations are decentralized to some extent Need responsibility accounting systems that link the lower-level managers' decision-making authority with accountability for the outcomes of those decisions

Residual Income

Another approach to measuring an investment center's performance Net Operating Income that an investment center earns above the minimum required return on its operating assets Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)

Constraint

Anything that prevents you from getting more of what you want A limitation under which the company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand

Balanced Scorecard

Financial measures, such as ROI and residual income, and operating measures may be included on the _______ Consists of an integrated set of performance measures that are derived from and support a company's strategy Performance measures used in balanced scorecards tend to fall into four groups: financial, customer, internal business process, and learning and growth

Operating Assets

Include cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes Most companies use the net book value of depreciable assets to calculate average _________

Net Operating Income

Income before interest and taxes and is sometimes referred to as EBIT (earnings before interest and taxes) Used in the numerator of the ROI formula

Special Order

Managers must often evaluate whether a _______ should be accepted, and if the order is accepted, the price that should be charged A one-time order that is not considered part of the company's normal ongoing business

Return on Investment (ROI)

Net operating income / average operating assets The higher a business segment's ________, the greater the profit earned per dollar invested in the segment's operating assets Margin x Turnover

Turnover

Sales / Average Operating Assets

Queue Time

The amount of time a product spends waiting to be worked on, to be moved, to be inspected, or to be shipped

Delivery Cycle Time

The amount of time from when a customer order is received the when the completed order is shipped Wait Time + Throughput Time

Throughput (Manufacturing Cycle) Time

The amount of time required to return raw materials into completed products Made up of process time, inspection time, move time, and queue time Process Time + Inspection Time + Move Time + Queue Time

Inspection Time

The amount of time spent ensuring that the product is not defective

Process Time

The amount of time work is actually done on the product Only process that adds value to the product

Bottleneck

The constraint, or ______, in the system is determined by the step that limits total output because it has the smallest capacity A machine or some other part of a process that limits the total output of the entire system

Profit Center

The manager of a _________ has control over both costs and revenue, but not over the use of investment funds

Cost Center

The manager of a _________ has control over costs, but not over revenue or the use of investment funds Service departments such as accounting, finance, general administration, legal, and personnel are usually classified as ________ Managers are expected to minimize costs while providing the level of products and services demanded by other parts of the organization

Investment Center

The manager of an ________ has control over cost, revenue, and investments in operating assets Responsible for earning an adequate return on investment Two methods for evaluating this aspect of the _________ performance: return on investment (ROI) and residual income

Responsibility Center

Used for any part of an organization whose manager has control over and is accountable for cost, profit, or investments Three types: cost centers, profit centers, and investment centers

Joint Cost

Used to describe the costs incurred up to the split-off point Common costs that are incurred to simultaneously produce a variety of end products

Vertically Integrated

When a company is involved in more than one activity in the entire value chain, it is _________

Relaxing (Or Elevating) the Constraint

When a manager increases the capacity of the bottleneck, it is called __________