Intermediate Financial Management (China) - independent subject foundations flashcards
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30 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Absorption costing
- Costing method that assigns both variable and fixed production overheads to units produced, usually through predetermined overhead absorption rates, so inventory includes a share of fixed cost.
- Marginal costing
- Costing method charging only variable costs to units, treating fixed costs as period costs, and using contribution to judge profitability and short-term decisions.
- Contribution per unit
- Selling price less variable cost per unit, the amount each unit contributes towards covering fixed costs and then generating profit; used in break-even and limiting-factor decisions.
- Break-even point
- Level of sales at which total contribution equals fixed costs, so the business makes neither profit nor loss, expressed in units or in revenue.
- Relevant cost
- A future cash flow that differs between the alternatives under consideration, including opportunity costs but excluding already unavoidable sunk expenditure.
- Contribution
- Sales revenue less variable costs within the stated decision model; it first covers fixed costs before producing an operating profit.
- Limiting factor
- A scarce resource that restricts feasible activity, requiring comparison of contribution per unit of that resource when the assumptions justify it.
- Flexible budget
- A budget recalculated for a specified activity level using the applicable cost behavior assumptions, allowing more meaningful performance comparisons.
- Activity-based costing
- An approach assigning resource costs to activities and then to products using drivers reflecting their consumption of those activities.
- Target cost
- The allowable cost derived from a market-based price less the desired profit, used to investigate design and process alternatives.
- Residual income
- A profit measure less a specified capital charge, requiring consistent definitions of profit, invested capital and the relevant required return.
- Budget slack
- Deliberate understatement of expected revenues or overstatement of resource needs to make a negotiated performance target easier to achieve.
- Material usage variance
- The cost effect of actual material consumption differing from the standard quantity allowed for actual output, using the stated standard price.
- Working capital
- Resources and obligations associated with the short operating cycle; any calculation must specify whether it uses net current assets or operating items.
- Net present value
- Present value of incremental project cash flows less the initial outlay, calculated using consistent timing and an appropriate discount rate.
- Internal rate of return
- A discount rate that makes the specified net present value zero; nonconventional cash flows may produce multiple solutions or none.
- Payback period
- Time required for specified cumulative cash inflows to recover the initial investment; ordinary payback does not itself incorporate discounting.
- Capital rationing
- A constraint on investment funding that requires choosing feasible projects or divisible project portions under the assumptions supplied.
- Opportunity cost
- The benefit forgone by choosing one use of a resource rather than its next best feasible alternative.
- Sensitivity analysis
- A method of changing an input and examining its effect on a result, without automatically assigning probabilities to that input change.
- WACC
- A weighted cost of debt and equity financing under specified assumptions, using consistent values and treatment of any available tax shield.
- Capital budgeting
- Evaluation of long-term investment alternatives through incremental cash flows, financing consistency, uncertainty and relevant strategic considerations.
- Provision for doubtful debts
- Estimated amount of receivables expected to be irrecoverable, charged to profit or loss and deducted from trade receivables in the statement of financial position.
- Bad debt written off
- A receivable removed as irrecoverable under the applicable model. The entry may use an existing allowance or an expense, so do not automatically charge an amount a second time.
- Drawings
- Cash, goods or other assets taken from the business by the owner for personal use, deducted from capital rather than treated as an expense of the business.
- Debenture
- A debt instrument issued by an entity, creating borrowing rather than ordinary equity. Maturity, security, interest terms and measurement depend on the instrument and applicable accounting model.
- Share premium
- In a supplied par-value share model, the amount received above nominal share value, credited separately within equity. It is not customer sales revenue; legal distribution restrictions require local verification.
- Bonus issue
- Free shares issued to existing shareholders by capitalising reserves such as share premium or retained earnings, increasing share capital without raising new cash.
- Manufacturing account
- Account calculating cost of goods produced: direct materials consumed, direct labour, direct expenses and production overheads, adjusted for work in progress, with the result transferred to the trading account.
- Work in progress
- Partly completed units or unfinished production at the period end, valued at cost and deducted from total manufacturing cost so only finished output is transferred to the trading account.