CPA Australia SMA key terms

The use of accounting information about a firm's own costs, competitors, customers and markets to support long-term strategic decisions, rather than only internal reporting and periodic financial control.

Breaking the business into the sequence of activities that create and deliver a product or service, so managers can see where cost is incurred and where customer value is added across the whole chain.

A costing method that assigns overhead to products or services according to the activities they consume, using cost drivers rather than a single volume-based rate such as direct labour hours.

Using activity cost information to improve operations, typically by reducing or eliminating activities that add cost but not customer value, and by improving the efficiency of necessary activities.

Any factor that causes a change in the total cost of an activity, such as number of setups, machine hours or customer orders; it is the basis for assigning activity costs to cost objects.

Anything for which a separate measurement of cost is wanted, such as a product, service, customer, department, project or distribution channel.

A cost that can be traced economically and specifically to a chosen cost object, such as the raw materials used in making a particular product.

A cost that cannot be traced economically to a specific cost object and must therefore be allocated, such as factory rent shared across several product lines.

The process of assigning indirect costs to cost objects or departments using a systematic basis, such as floor area for rent or machine hours for maintenance.

Sales revenue minus all variable costs. It measures how much each unit or product line contributes towards covering fixed costs and then generating profit.

The level of sales, in units or dollars, at which total revenue equals total cost so that profit is zero; fixed costs divided by contribution margin per unit or contribution margin ratio.

The amount by which actual or budgeted sales exceed break-even sales, expressed in units, dollars or as a percentage; it indicates how far sales can fall before a loss occurs.

A future cash cost that differs between the alternatives being considered. Costs that are sunk, already committed, or identical across options are excluded from the decision.

A cost already incurred and not recoverable by any future decision, such as past research spending or the book value of existing equipment, so it is irrelevant to choosing between alternatives.

The benefit forgone by choosing one alternative over the next best use of the same scarce resource; it is a relevant cost even though no cash outflow appears in the accounts.

A limiting factor such as machine hours, skilled labour or raw material that restricts output. Decisions should maximise contribution per unit of the scarce resource, not contribution per unit of product.

A choice between producing a component or service internally and purchasing it externally, based on comparing relevant avoidable costs with the supplier's price plus any qualitative factors.

Accepting a one-off order at a price below normal selling price, typically justified when incremental revenue exceeds incremental costs and spare capacity exists without harming existing sales.

Contracting an activity previously performed internally to an external provider, usually to reduce cost or access specialist capability, while accepting loss of control and dependency risk.

The consolidated set of interrelated budgets for a period, comprising operating budgets such as sales, production and expenses, plus the cash budget and budgeted financial statements.

The budgets covering day-to-day trading activity for the period, including sales, production, purchases, labour and overhead, ending with the budgeted income statement.

A forecast of cash receipts and payments over a period, showing expected opening and closing cash balances and highlighting when shortfalls or surpluses will arise.

A budgeting approach where each activity must be justified from a nil base each period rather than by adjusting last period's figures, which challenges existing spending but is time-consuming.

Preparing next period's budget by adjusting the prior period's figures for expected changes, which is quick and stable but can perpetuate past inefficiencies.

Deliberate overstatement of planned costs or understatement of planned revenue by budget holders to make targets easier to achieve, reducing the reliability of the planning and control process.

Involving operational managers in setting their own budgets, which can improve commitment and information quality but increases the risk of budget slack and takes more time.

A budget restated for the actual level of activity achieved, used as the fair benchmark for comparing actual costs and identifying genuine variances rather than volume effects.

Comparing actual results with budgeted or standard figures, breaking the difference into components such as price and quantity, to explain performance and guide corrective action.

A system that sets predetermined costs for materials, labour and overhead per unit, then compares actual costs with those standards to value inventory and control costs.

A unit of an organisation whose manager is accountable for specified financial outcomes, classified as a cost, revenue, profit or investment centre according to the scope of that accountability.

A cost that a manager can influence significantly within a given period through their own decisions, and which is therefore appropriate to hold that manager accountable for.

A performance measure calculated as divisional profit divided by divisional invested capital, showing profit generated per dollar of assets employed but potentially encouraging rejection of acceptable projects.

Divisional profit minus a charge for invested capital at a required rate, showing value created above the minimum return and avoiding some dysfunctional incentives of return on investment.

A value-based measure of after-tax operating profit less a capital charge on invested capital, with accounting adjustments intended to approximate true economic profit.

A performance framework combining financial, customer, internal process, and learning and growth perspectives, linking measures to strategy through cause-and-effect relationships.

A small set of measures chosen because they signal progress towards important objectives, ideally specific, measurable and linked to what the organisation is trying to achieve.

A one-page diagram showing how objectives across balanced scorecard perspectives connect in cause-and-effect chains, from capability building through processes and customers to financial outcomes.

The internal price charged when one division supplies goods or services to another, which affects divisional profit, performance evaluation and the incentives of both managers.

A position that allows a firm to earn superior returns, achieved through lower cost than rivals or through differentiation that customers value enough to pay a premium for.

The blended required return on a firm's debt and equity, weighted by their market values, used as the discount rate for investment appraisal and as the capital charge in value measures.

The sum of a project's future cash flows discounted at the required rate of return, less the initial investment; a positive result indicates the project adds value.

The time taken for cumulative cash inflows to recover the initial investment, useful as a simple liquidity and risk indicator but ignoring cash flows after payback and the time value of money.

Testing how a decision or forecast changes when one input is varied, revealing which assumptions matter most and how much a variable can move before the conclusion reverses.

Disclosure of environmental, social and governance performance alongside financial results, allowing stakeholders to assess impacts, risks and progress against stated targets.

Reporting and evaluating performance across three dimensions: economic profit, environmental quality and social equity, rather than financial results alone.

A concise corporate report explaining how an organisation's strategy, governance and use of resources create value over time across multiple capitals, including financial, human and natural capital.

A cost or benefit of an organisation's activities borne by, or accruing to, parties outside the transaction, such as pollution costs to a community, which are not captured in conventional accounting.

Identifying, measuring and allocating costs and benefits related to environmental impacts, such as waste, energy and emissions, so these are visible in management decisions.