CMA Foundation Paper 4 (FBEM) flashcards

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

Law of Demand

Other things equal, quantity demanded of a good falls as its price rises and rises as price falls, giving a downward-sloping demand curve.

Price Elasticity of Demand

Percentage change in quantity demanded divided by percentage change in price. Absolute value above one is elastic, below one inelastic, equal to one unitary.

Opportunity Cost

The value of the next best alternative forgone when a resource is committed to one use, central to the production possibility frontier.

Equilibrium Price

The price at which quantity demanded equals quantity supplied, clearing the market. A ceiling below it causes shortage; a floor above it causes surplus.

Marginal Utility

The addition to total utility from consuming one more unit. It generally diminishes as consumption increases, explaining the downward demand curve.

Functions of Management

Planning, organising, staffing, directing, coordinating and controlling: the sequence through which managers deploy resources to achieve organisational objectives.

Span of Control

The number of subordinates directly reporting to one manager. A narrow span creates a tall hierarchy; a wide span creates a flat structure.

Maslow's Hierarchy

Needs ranked physiological, safety, social, esteem and self-actualisation. Lower-level needs must be reasonably satisfied before higher ones motivate behaviour.

Herzberg Two-Factor Theory

Hygiene factors such as pay and conditions prevent dissatisfaction; motivators such as achievement and recognition create genuine satisfaction and motivation.

Delegation

Assignment of authority and responsibility for a task to a subordinate. Authority can be delegated, but accountability remains with the delegating manager.

Management by Exception

A control principle under which managers investigate only variances that exceed preset limits, conserving attention for significant deviations from plan.

Accounting Equation

Assets equal liabilities plus capital. Every transaction affects at least two elements so the equation always remains in balance under double entry.

Trial Balance

A statement listing debit and credit balances. Equal totals confirm arithmetic accuracy but do not detect errors of principle, omission or compensating errors.

Accrual Concept

Revenue is recognised when earned and expenses when incurred, irrespective of cash receipt or payment, so profit reflects the period's activity.

Straight-Line Depreciation

Annual charge equals original cost less estimated scrap value, divided by useful life in years. The charge is constant over the asset's life.

Capital Expenditure

Spending that acquires, extends or improves a long-term asset and is shown in the balance sheet, rather than charged to profit and loss.

Suspense Account

A temporary account opened to carry the difference in a trial balance, cleared once errors are located and rectified by journal entries.

Prime Cost

The sum of direct material, direct labour and direct expenses. It excludes factory overheads, which are added later to obtain works cost.

Break-Even Point

Output at which total revenue equals total cost, so profit is nil. In units it equals fixed cost divided by contribution per unit.

Contribution

Selling price per unit minus variable cost per unit. It first covers fixed costs and any excess becomes profit.

Margin of Safety

Actual or budgeted sales minus break-even sales. It measures how far sales can fall before the business incurs a loss.

P/V Ratio

Contribution divided by sales, expressed as a percentage. Profit equals the P/V ratio multiplied by the margin of safety.

Over-Absorption

A situation where overhead absorbed into production exceeds overhead actually incurred, usually because output exceeded the budgeted level.

Compound Interest

Interest computed on principal plus accumulated interest. Amount equals P multiplied by (1 + r) raised to the power n.

Coefficient of Variation

Standard deviation divided by the mean, expressed as a percentage. It compares relative dispersion between series with different units or means.

Correlation Coefficient

A measure between minus one and plus one of the strength and direction of linear association. Zero means no linear relation, not independence.

Combinations

The number of ways of selecting r items from n without regard to order, equal to n factorial divided by r factorial times (n minus r) factorial.

Fisher's Ideal Index

The geometric mean of the Laspeyres and Paasche index numbers. It satisfies both time-reversal and factor-reversal tests.

Communication Process

Sender encodes a message, transmits it through a channel, receiver decodes it and gives feedback, with noise able to distort any stage.

Grapevine Communication

Informal, unofficial communication flowing through personal networks. It spreads quickly but is prone to distortion and lacks accountability.

Seven Cs of Communication

Clear, concise, concrete, correct, coherent, complete and courteous: criteria for drafting effective business messages.

RAM and ROM

RAM is volatile working memory losing contents on power-off; ROM is non-volatile firmware memory retaining contents permanently. Both are primary storage.

LAN versus WAN

A LAN connects devices within a limited area such as an office; a WAN links geographically dispersed networks over long-distance public or private links.