CMA Foundation Paper 4 (FBEM) key terms

The value of the next best alternative given up when a choice is made. It measures what must be sacrificed to obtain something, and underpins decisions about scarce resources.

The principle that, all else held equal, quantity demanded of a good falls as its price rises and rises as its price falls. It explains the downward slope of a demand curve.

A measure of how strongly quantity demanded responds to a change in price or income. Demand is elastic when the response is proportionally large and inelastic when it is small.

The price at which quantity demanded equals quantity supplied, so there is neither shortage nor surplus. Market forces push price toward this level when it is disturbed.

The extra cost incurred by producing one additional unit of output. Comparing it with marginal revenue guides decisions on whether to expand or reduce production.

The total market value of final goods and services produced within a country's borders in a period. It is a standard headline measure of national economic activity.

A sustained rise in the general price level, which reduces the purchasing power of money. It is commonly tracked through consumer price indices.

Government use of taxation and public spending to influence demand, output, and employment. It is a demand-management tool distinct from central bank action.

Central bank actions to control money supply, credit, and interest rates in pursuit of price stability and growth. It works mainly through the cost and availability of borrowing.

The managerial function of setting objectives and deciding in advance the actions and resources needed to achieve them. It gives direction and a basis for later control.

The managerial function of grouping activities, assigning duties, and allocating authority and resources so work is coordinated. It produces the structure within which people operate.

The managerial function of measuring actual performance against standards, identifying deviations, and taking corrective action. It closes the loop opened by planning.

The number of subordinates who report directly to one manager. A wide span means a flatter structure; a narrow span means closer supervision and more layers.

The process by which a manager assigns a task, the authority to perform it, and accountability for results to a subordinate. Authority moves downward but final responsibility remains with the manager.

A control approach in which managers focus attention only on significant deviations from plan, leaving routine matters to subordinates. It conserves managerial time and attention.

The accounting convention that every transaction has two equal and opposite effects, recorded as debits and credits. It keeps the accounting equation in balance at all times.

Income and expenses are recognised in the period they are earned or incurred, regardless of when cash moves. It matches revenue with the costs that generated it.

A statement listing all ledger balances at a date, with debit and credit columns totalling equally. It tests arithmetic accuracy but does not prove the absence of errors.

A temporary account used to carry a difference in the trial balance until the underlying error is found and corrected. It is cleared once the cause is located.

The systematic allocation of the cost of a fixed asset over its useful life. It reflects consumption of economic benefit, not a cash payment in the period.

A depreciation approach charging an equal amount each year, found by dividing depreciable cost by useful life. It suits assets whose benefit is used evenly over time.

A cost that can be traced wholly and conveniently to a specific product, job, or department. Direct materials and direct labour are the classic examples.

Indirect costs that cannot be traced directly to a unit of output and must be apportioned or absorbed. Examples include factory rent, supervision, and machine power.

The total of direct material, direct labour, and direct expenses incurred on a product. It represents the directly traceable core of product cost.

A method that includes both variable costs and a share of fixed production overhead in product cost. It is used for external financial reporting under standard accounting rules.

A method in which only variable production costs are treated as product cost, while fixed costs are charged against contribution. It supports short-run decisions and break-even analysis.

Sales revenue minus variable costs. It measures the amount available to cover fixed costs and then generate profit, and is central to cost-volume-profit analysis.

The level of sales at which total revenue equals total cost and profit is zero. It is found by dividing fixed costs by contribution per unit.

A system that sets predetermined costs for materials, labour, and overhead, then compares them with actual costs to reveal variances. Variances point managers to areas needing attention.

Interest calculated only on the original principal for the whole period, ignoring interest already earned. The formula is principal times rate times time.

Interest calculated on principal plus interest already accumulated, so the base grows each period. It produces faster growth than simple interest over multiple periods.

The current worth of a future sum or stream of cash flows, discounted at a chosen rate. It allows amounts arising at different dates to be compared fairly.

A measure of central tendency found by adding all observations and dividing by their number. It uses every value but is sensitive to extreme outliers.

The middle value of a data set arranged in order, or the average of the two middle values. It is less affected by extreme values than the mean.

A measure of how far values typically spread from the mean, equal to the square root of variance. A larger value indicates greater dispersion around the average.

The sequence of sender, encoding, message, channel, decoding, receiver, and feedback, often disturbed by noise. Feedback confirms whether the intended meaning was received.

Messages that travel through officially recognised channels such as reports, circulars, and line authority. It creates a record and supports accountability within the organisation.

A structured written document presenting facts, analysis, and recommendations on a specific issue for a defined reader. It typically follows a formal layout with headings and conclusions.

An application organising data in rows and columns of cells that can hold values, text, or formulas. It recalculates automatically and is widely used for accounts and analysis.

Software that stores, organises, retrieves, and controls access to structured data in related tables. It reduces duplication and supports queries and reports.