Flashcards in CMA Part CD Deck (22):

1

## Linear programming

### problem-solving approach used in situations where managers need to make decisions about how to maximize profits or minimize costs, based upon certain constraints

2

## Initial investment

### the purchase price, installation cost, and increase in working capital

3

## payback method

### capital budgeting method that provides a rough measure of project risk, does not distinguish between types of cash inflows and represents the break-even point for an investment

4

## profitability index

### (PI, or benefit-cost ratio) compares the present value of future cash flows with the initial investment on a relative basis. It is a ratio of the present value of future net cash flows to the initial cash outflow

5

## project?s payback

### (PB) is the length of time it takes for the cash flows generated by the initial investment (I) to equal the initial investment. Assuming the cash flows occur uniformly throughout the year

6

## payback method

### merely looks at the length of time it takes to recover the initial investment. It does not consider the life of the project, the time value of money, or the project profitability

7

## Capital investment projects

### include many possibilities; including proposals for the acquisition of equipment, the expansion of existing product offerings, and additional research and development facilities. Refinancing is not a capital budgeting decision. It is a financing decision

8

## Certainty Equivalent (CE)

### amount of cash an investor requires at a given point in time to make that investor indifferent between that certain amount and the amount expected (assuming risk) at the same point in time

9

## Internal Rate of Return (IRR)

### is the discount rate used in the calculation of net present value (NPV) that causes the NPV to equal zero. NPV Present value (PV) of the project?s annual cash flows (calculated at the appropriate discount rate less the project?s net incremental investment)

10

## CVP

### Cost/Volume/Profit Analysis

11

## Cost

### resource expended to achieve a specific objective

12

## Cost Driver

### factor that affects cost

13

## Cost Object

### anything for which cost data is accumulated

14

## Fixed cost

### cost that remains fixed within a relevant range-fixed costs vary per unit

15

## Variable cost

### cost that varies in direct proportion to changes in activities; variable cost are flat at a unit cost

16

## Contribution Margin

### Rev - All variable expenses

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## CM Ratio

### CM/Revenue

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## Tot Cost

### fixed + variable costs

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## Operating Income

### Operating Rev-Tot Op costs

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## Net Operating Income

### Operating Income - Operating income taxes or (1-relevant tax rate)*(operating income)

21

## Sales Mix

### sometimes referred to as rev mix, relative proportions of products sold and applies to both products and services. Doesn?t reflect what a product sells for

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