ACCA PM flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Cost driver

A factor or activity that causes a change in the total cost of an activity; used as the allocation base in activity-based costing to attach overheads to products more accurately.

Target cost

The allowable cost of a product calculated as the competitive market selling price minus the required profit margin; the design team must close any cost gap.

Cost gap

The difference between the estimated cost of a product under current design and its target cost; it must be eliminated through value engineering before production begins.

Throughput accounting ratio

Throughput per unit of bottleneck resource divided by total factory cost per unit of bottleneck resource; a value above 1.0 indicates the product is profitable on the constraint.

Life-cycle costing

Accumulating all costs of a product from research and design through to abandonment and disposal, so that pre-production costs are matched against total lifetime revenues.

Value engineering

A systematic review of product design to reduce cost while preserving or improving the function valued by customers; used to close a target costing cost gap.

Non-conformance costs

Internal and external failure costs arising because poor quality has occurred, such as scrap, rework, warranty claims and customer complaint handling.

Environmental cost driver

A measure of the environmental impact of an activity, such as volume of emissions or waste, used to assign environment-related costs more accurately to output.

Relevant cost

A future, incremental cash flow that differs between alternatives; sunk costs, committed costs and apportioned fixed overheads are excluded from decision making.

Opportunity cost

The contribution or benefit forgone by using a scarce resource in one way rather than its next best alternative use; it is a relevant cost in decisions.

Break-even point

The level of activity at which total contribution equals total fixed costs, giving neither profit nor loss; calculated as fixed costs divided by contribution per unit.

Margin of safety

The amount by which budgeted or actual sales exceed break-even sales, expressed in units, revenue or as a percentage of budgeted sales.

Limiting factor ranking

When a resource is scarce, products are ranked by contribution per unit of that resource and the resource is allocated in ranking order to maximise total contribution.

Expected value

The weighted average of all possible outcomes using their probabilities; it represents a long-run average and ignores the decision-maker's attitude to risk.

Sunk cost

A cost already incurred that cannot be changed by any future decision; it is excluded from relevant costing because it is not a future incremental cash flow.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price; demand is elastic when the absolute value of the ratio exceeds one.

High-low method

A technique separating fixed and variable costs by comparing the highest and lowest activity levels: variable cost per unit equals the change in cost divided by the change in activity.

Learning curve formula

y = ax^b, where y is cumulative average time per unit, a is time for the first unit, x is cumulative units, and b equals log(learning rate) divided by log 2.

Flexible budget

A budget prepared for the actual level of activity achieved; comparing it with actual results produces operational variances free from the effect of volume differences.

Planning variance

The difference between the original fixed budget and the revised flexible budget, measuring the effect of changes in standards or forecasts rather than operational performance.

Material usage variance

The difference between the standard quantity for actual output and the actual quantity used, multiplied by standard price; it isolates inefficient use of materials.

Labour efficiency variance

The difference between standard hours for actual output and actual hours worked, multiplied by the standard rate; it measures the productivity of labour against standard.

Zero-based budgeting

A budgeting approach where every activity and cost must be justified from a zero base each period, rather than rolling forward prior-year figures with incremental adjustments.

Fixed overhead volume variance

The difference between fixed overhead absorbed and budgeted fixed overhead, caused by actual activity differing from budget; it splits into capacity and efficiency variances.

Return on investment

Controllable divisional profit divided by controllable divisional investment, usually expressed as a percentage; it measures profit generated per unit of capital employed.

Residual income

Controllable profit minus a notional interest charge on controllable investment; unlike ROI it encourages managers to accept projects earning above the required rate.

Balanced scorecard

A performance framework measuring financial, customer, internal business process, and learning and growth perspectives to link long-term strategy with day-to-day performance measures.

Performance prism

A stakeholder-focused framework with five facets: stakeholder satisfaction, strategies, processes, capabilities, and stakeholder contribution, used to design comprehensive performance measurement.

Value for money

A public-sector assessment using the three Es: economy in acquiring inputs, efficiency in converting inputs to outputs, and effectiveness in achieving intended objectives.

Minimum transfer price

The supplying division's marginal cost of the transferred unit plus the opportunity cost per unit of transferring internally rather than selling in the external market.

Goal congruence

The alignment of divisional managers' own interests with the overall objectives of the organisation, so that decisions benefiting a division also benefit the whole group.

Fitzgerald and Moon model

A performance measurement framework using dimensions (financial and non-financial), standards (ownership and achievability) and rewards to assess service organisations.