Chapter 4 Flashcards
Fundamentals of Cost Analysis for Decision Making (21 cards)
Process of estimating revenues and costs of alternative actions available to decision makers and of comparing these estimates to the status quo.
differential analysis
Period of time over which capacity will be unchanged, usually one year.
short run
With two or more alternatives, costs that differ among or between alternatives.
differential costs
Cost incurred in the past that cannot be changed by present or future decisions.
sunk cost
Sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs).
full cost
Order that will not affect other sales and is usually a short-run occurrence.
special order
department provides cost reports to the marketing department, which then adds appropriate markups to determine benchmark or target prices for all products the firm normally sells.
Cost-plus - the accounting
Time from initial research and development to the time that support to the customer ends. (cradle to-grave costing)
product life cycle
Price based on customers’ perceived value for the product and the price that competitors charge.
target price
Equals the target price minus desired profit margin.
target cost
Practice of setting price below cost with the intent to drive competitors out of business
Predatory pricing
Exporting a product to another country at a price below domestic price.
Dumping
Agreement among business competitors to set prices at a particular level.
Price-fixing
Practice of selling identical goods to different customers at different prices.
Price discrimination
Practice of setting prices highest when the quantity demanded for the product approaches capacity.
Peak-load pricing
Decision concerning whether to make needed goods internally or purchase them from outside sources.
Make-or-buy decision
Activities, resources, or policies that limit or bound the attainment of an objective.
Constraints
Contribution margin per unit of a particular input with limited availability.
Contribution margin per unit of scarce resource
Focuses on revenue and cost management when faced with bottlenecks.
The theory of constraints
Operation where the work required limits production.
Bottlenecks
Sales dollars minus direct materials costs and variables such as energy and piecework labor.
Throughput contribution