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Flashcards in Final Test Deck (21):
1

Return on Investment

Net Operating Income/ Average Operating Assets

2

Net Operating Income

Income before interest and taxes, EBIT, income from operating activities

3

Operating Assets

Cash, Accounts Receivable, Inventory, Plant and Equipment used for operations purposes

4

Margin

Net Operating Income/Sales

5

Turnover

Sales/Avg Operating Assets

6

Residual Income

Net Operating Income-(Average Operating Assets*Min Rate of Return)

7

Delivery Cycle Time

Wait Time + Throughput Time

8

Throughout Time

Time required to turn raw materials into a completed product: Process Time + Inspection Time + Move Time + Queue Time

9

Manufacturing Cycle Efficency

Process Time(value added time)/ Throughout Time

10

Avoidable Cost, Opportunity Cost

Relevant Cost, costs that can be avoided or should be taken into account when choosing one alternative over another

11

Sunk Cost, Allocations

Irrelevant costs, should be ignored because they are already incurred and unavoidable

12

Add/Drop a Product Line

Compare the lost contribution margin to the avoidable fixed costs: Advertising, Salaries, Insurance

13

Make or Buy

Look at relevant and irrelevant costs. Make it if the relevant costs are less than buying the product. If deciding to buy, take into account opportunity cost.

14

Special Orders

Look at incremental costs and incremental revenues. Incremental costs are special modifications and new equipment needed.

15

Utilization of Constrained Rescources

Look at contribution margin per unit of constrained resource.

16

Process Further

Look at incremental revenue from processing it further and compare it to the incremental cost of processing it further.

17

Payback Method

Investment Required/ Annual Net Cash Inflow

18

Net Present Value

PV Cash Inflows-PV Cash Outflows

19

Internal Rate of Return

Investment Required/ Annual Net Cash Inflow give you the annuity factor that you find in your table. Use that to find the rate of return.

20

Simple Rate of Return

Annual Incremental Net Operating Income/ Initial Investment

21

Project Profitability Index

Net Present Value of Project/ Investment Required