ACCT 2302 Module 4 Terminology

full-cost accounting

accounting that recognizes all costs related to the provision of a product or service; this includes all economic, environmental and social costs

outsourcing

act of using another company to provide goods or services that your company requires

business sustainability

actions taken to sustain the business so that it survives and thrives well into the future

corporate social responsibility (CSR)

actions that firms take to assume responsibility for their impact on the environment and social well-being

residual income (RI)

amount of income a given division (or project) is expected to earn in excess of a firm's minimum return goal

non-time value methods

analysis that does not consider the comparison value of a dollar today to a dollar in the future

avoidable cost

cost that can be eliminated (in whole or in part) by choosing one alternative over another

sunk cost

cost that cannot be avoided because it has already occurred

unavoidable cost

cost that does not go away in the short-run by choosing one alternative over another

irrelevant cost

cost that has no effect on the decision being made because it is the same under either alternative

relevant cost

cost that influences the decision being made

weighted average cost of capital

cost that the company expects to pay on average to finance assets and growth using either debt or equity

opportunity costs

costs associated with not choosing the other alternative

allocated costs

costs that are generated by non-revenue generating portions of the business, such as corporate headquarters, that are assigned based on some formula to the revenue generating portions of the business

joint costs

costs that have been shared by products up to the split-off point

operating expenses

daily operational costs not associated with the direct selling of products or services

uncontrollable factor

decision or outcome over which a manager does not have control

operating income

income before considering interest and taxes

after-tax income

income reduced by tax expenses

goal congruence

integration of multiple goals, either within an organization or across multiple components or entities; congruence is achieved by aligning goals to achieve an anticipated mission

alternatives

options available for investment

investment center

organizational segment in which a manager is accountable for profits (revenues minus expenses) and the invested capital used by the segment

profit center

organizational segment in which a manager is responsible for and evaluted on both revenues and costs

stockholder

owner of stock, or shares, in a business

cost center

part of an organization in which management is evaluated based on the ability to contain costs; the manager primarily has control only over costs

revenue center

part of an organization in which management is evaluated based on the ability to generate revenues; the manager's primary control is only revenues

stakeholder

person or group with an interest or concern in some aspect of the organization

bottleneck

point at which a constraint slows production

split-off point

point at which some products are removed from production and sold while others receive additional processing

segment

portion of the business that management believes has sufficient similarities in product lines, geographic locations, or customers to warrant reporting that portion of the company as a distinct part of the entire company

preference decision

process of comparing potential projects that meet screening decision criteria, and will rank order of importance, feasibility, and desirability to differentiate among alternatives

screening decision

process of removing alternatives from the decision-making process that would be less desirable to pursue given their inability to meet basic standards

discounting

process that determines the present value of a single payment or stream of payments to be received

operating asset

product asset plus intangible asset and current asset

relevant range

quantitative range of units that can be produced based on the company's current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units

equity issues

related to the fairness of pay and job promotions, regardless of gender, sexual orientation, race or religion

Brundtland Commission Report

report issued after the 1987 World Commission on Environment and Development that laid the groundwork for the concept of sustainable development

sustainability report

report that presents the economic, environmental or social impacts that a corporation or organization was responsible for

Paris Climate Agreement

2015 agreement between 196 nations to strive to limit the increase of global temperatures to 1.5 degrees Celsius

non-renewable resources

resources that, once used, are depleted, and not able to be used again

accounting rate of return (ARR)

return on investment considering changes to net income

irrelevant revenue

revenue that has no effect on the decision being made

relevant revenue

revenue that influences the decision being made

constraint

scarce resource that limits output or productive capacity of an organization

unit contribution margin

selling price per unit minus variable cost per unit

annuity

series of equal payments made over time

life-cycle accounting

similar to full-cost accounting, this assesses all costs related to the production of a product from the extraction of raw materials used to the final disposal of the product at the end of its life

environmental sustainability

situation in which rates of resource use can be continued indefinitely without permanently depleting those resources

stakeholder

someone affected by decisions made by a company; may include an investor, creditor, employee, manager, regulator, customer, supplier, and layperson

fixed asset

tangible long-term asset

capital asset

tangible or intangible asset that has a life longer than one year

balanced scorecard

tool used to evaluate performance using qualitative and nonqualitative measures

differential analysis

type of analysis that considers only the differences between variables that are important to the analysis

unit contribution margin per production restraint

unit contribution margin divided by the production restrain

future value (FV)

value of an investment after a certain period of time

time value of money

assertion that the value of a dollar today is worth more than the value of a dollar in the future

discounted cash flow model

assigns a value to a business opportunity using time-value measurement tools

strategic plan

broad vision of how a company will be in the future

payback method (PM)

calculation of the length of time it takes a company to recoup their initial investment

internal rate of return method (IRR)

calculation to determine profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero

cash flow

cash receipts and cash disbursements as a result of business activity

climate change

change in climate patterns due to the increased levels of carbon dioxide in the atmosphere which is attributed mainly to the usage of fossil fuels

capital investment

company's contribution of funds toward long-term assets for further growth; also called capital budgeting

normal capacity

company's maximum production level, without adding additional production resources, or within the company's relevant range

P/E ratio

company's stock price divided by the company's earnings per share and indicates the amount investors are willing to pay for one dollar of earnings

quantitative factor

component of a decision-making process that can be measured numerically

qualitative factor

component of a decision-making process that cannot be measured numerically

controllable factor

component of the organization for which the manager is responsible and that the manager can control

short-term decision analysis

determining the appropriate elements of information necessary for making a decision that will impact the company in the short term, usually 12 months or fewer, and using that information in a proper analysis in order to reach an informed decision among alternatives

sustainable development

development that meets the needs of the present without compromising the ability of future generations to meet their own needs

differential cost

difference between costs for alternatives

differential revenue

difference between revenues for alternatives

net present value method (NPV)

discounts future cash flows to their present value at the expected rate of return, and compares that to the initial investment

compounding

earning interest on previous interest earned, along with the interest earned on the original investment

renewable energy

energy that is not depleted once used, for example, tidal energy, wind energy or solar power

annuities due

equal installments paid at the beginning of each payment period within the series

ordinary annuities

equal installments paid at the end of each payment period within the series

performance measurement system

evaluates management in a way that will link the goals of the corporation with those of the manager

triple bottom line (TBL)

expansion of traditional reporting that is focused on economic performance, to include social and environmental performance

social contract

expectation that companies will hold to an unwritten contract with society as a whole

productive asset

fixed asset plus inventory

invested capital

fixed assets, productive assets, or operating assets

present value (PV)

future value of an investment expressed in today's value

materiality

how significant an event or issue is to warrant its inclusion or discussion

metric

means to measure something such as a goal or target

carbon output

measure of carbon dioxide emissions into the atmosphere

asset turnover

measure of how efficiently a company is using its capital assets to generate revenues

sales margin

measure of how much profit is generated by each sales dollar

economic value added (EVA)

measure of shareholder wealth that is being created by a project, segment, or division

carbon footprint

measure of the amount of CO2 generated by an individual, group or organization

return on investment (ROI)

measure of the percentage of income generated by profits that were invested in capital assets

sustainability

meeting the needs of the present generation without compromising the ability of future generations to meet their own needs by being aware of current economic, social, and environmental impacts

responsibility accounting

method of encouraging goal congruence by setting and communicating the financial performance measures by which managers will be evaluated

performance measure

metric used to evaluate a specific attribute of a manager's role

hurdle rate

minimum required rate of return on an investment to consider an alternative for further evaluation

minimum required rate of return

minimum return, usually in a percentage form, that a project or investment must produce in order for the company to be willing to undertake it

cash outflow

money paid or increased cost expenditures from capital investment

cash inflow

money received or cost savings from a capital investment

special order

one-time order that does not typically affect current sales

lump sum

one-time payment or repayment of funds at a particular point in time