CHAPTER 19
TERMS TO LEARN
Appraisal Costs
– Costs incurred to detect which of the
individual units of products do not conform
to specifications
Average waiting time
– Average amount of time that an order
waits in line before the machine is set up
and the order is processed
Bottleneck
– Occurs in an operation when the work to
be performed approaches or exceeds the
capacity available to do it
Cause-and-effect diagram
– Identifies potential causes of defects
using a diagram that resembles the bone
structure of a fish. (Fish-bone diagram)
Conformance quality
– Performance of a product or service
relative to its design and product
specifications
Control chart
– A graph of a series of successive
observations of a particular step,
procedure, or operation taken at regular
intervals of time.
Costs of quality
– Costs incurred to prevent the production
of a low-quality product or the costs arising
as a result of such products.
Customer-response time
– How long it takes from the time a
customer places an order for a product or
service to the time the product or service is
delivered to the customer
Design quality
– Refers to how closely the characteristics
of a product or service meet the needs
and wants of customers
External failure costs
– Costs incurred on defective products
after they have been shipped to customers
Internal failure costs
– Costs incurred on defective products
before they have been shipped to
customers
Manufacturing cycle efficiency (MCE)
– Measure to evaluate response time
improvement efforts
Manufacturing cycle time (Manufacturing
Lead Time)
– How long it takes from the time an order
is received by manufacturing to the time a
finished good is produced -
– Sum of waiting time and manufacturing
time for an order
On-time performance
– Delivery of a product or service by the
time it is scheduled to be delivered
Pareto diagram
– Chart that indicates how frequently each
type of defect occurs, ordered from the
most frequent to the least frequent
Prevention costs
– Costs incurred to prevent the production
of products that do not conform to
specifications
Quality
– Total features and characteristics of a
product or service made or performed
according to specifications to satisfy
customers at the time of purchase and
during use
Time driver
– Any factor that causes a change in the
speed of an activity when the factor
changes
– Two time drivers;
 Uncertainty about when
customers will order products
or services
 Bottlenecks due to limited
capacity
CHAPTER 20
TERMS TO LEARN
Backflush costing
– Costing system that omits recording some
of the journal entries relating to the stages
from the purchase of direct materials to
the sale of finished goods
Carrying costs
– Costs that arise while goods are being
held in the inventory
Economic Order Quantity (EOQ)
– A decision model that, under a given set
of assumptions, calculates the optimal
quantity of inventory to order
Enterprise resource planning (ERP) system
– An integrated set of software modules
covering a company’s accounting,
distribution, manufacturing, purchasing,
human resources and other functions
Inventory management
–Planning, coordinating, and controlling
activities related to the flow of inventory
into, through, and out of the organization
Just-in-time (JIT) production
– A “demand-pull” manufacturing system
that manufactures each component in a
production line as soon as, and only when,
needed by the next step in the production
line
Just-in-time (JIT) purchasing
– The purchase of materials (or goods) so
that they are delivered just as needed for
production (or sales)
Lean accounting
– A costing method that focuses on value
streams, as distinguished from individual
products or departments, thereby
eliminating waste in the accounting
process
Lean production
- Another term for JIT Production
Manufacturing cells
– Work areas with different types of
equipment grouped together to make
related products
Materials requirements planning (MRP)
system
– A “push-through” system that
manufactures finished goods for inventory
on the basis of demand forecasts
Ordering costs
– Costs of preparing and issuing purchase
orders, receiving and inspecting the items
included in the orders, and matching
invoices received, purchase orders and
delivery records to make payments
Purchase-order lead-time
– The time between placing an order and
its delivery
Purchasing costs
– Cost of goods acquired from suppliers,
including freight costs.
Reorder point
– Quantity level of inventory on hand that
triggers a new purchase order
Safety stock
– Inventory held at all times regardless of
the quantity of inventory ordered using the
EOQ model
Sequential tracking
– A costing system in which the recording
of the journal entries occurs in the same
order as actual purchases and progress in
production
Shrinkage costs
– Result from theft by outsiders,
embezzlement by employers,
misclassifications, and clerical errors
Stockout costs
– Costs that arise when a company runs
out of a particular item for which there is a
customer demand.
Trigger point
– A stage in the cycle, from the purchase
of direct materials and incurring of
conversion costs to the sale of finished
goods, at which journal entries are made in
the accounting system
Value streams
– All the value-added activities needed to
design, manufacture, and deliver a given
product or product line to customers
CHAPTER 21 – Measures the time it will take to recoup,
TERMS TO LEARN in the form of expected future cash flows,
the net initial investment in a project
Accrual Accounting Rate-of-Return (AARR) Real Rate of Return
Method – Rate of return demanded to cover
– Divides the average annual (accrued investment risk if there is no inflation
accounting) income of a project by a Required Rate of Return
measure of the investment in it – Minimum acceptable annual rate of
Capital Budgeting return on investment
– Process of making long-run pricing Time Value of Money
decisions for investments in projects – A dollar (or any other monetary unit)
Cost of Capital received today is worth more than a dollar
– Another term for RRR received at any future time
Discount Rate
– Another term for RRR
Discounted Cash Flow (DCF) Method
– Measure all expected future cash inflows
and outflows of a project discounted back
to the present point in time
Discounted Payback Method
– Calculates the amount of time required
for the discounted expected future cash
flows to recoup the net initial investment in
a project
Hurdle Rate
– Another term for RRR
Inflation
– Decline in the general purchasing power
of monetary unit
Internal Rate of Return (IRR) Method
– Calculates the discount rate at which an
investment’s present value of all expected
cash inflows equals the present value of its
expected cash outflows
Net Present Value (NPV) Method
– Calculates the expected monetary gain
or loss from a project by discounting all
expected future cash inflows and outflows
back to the present point in time using the
required rate of return
Nominal Rate of Return
– The rate of return demanded to cover
investment risk and the decline in general
purchasing power of the monetary unit as
a result of expected inflation
Opportunity Cost of Capital
– Another term for RRR
Payback Method
CHAPTER 22 – Occurs when a decision’s benefit to one
TERMS TO LEARN subunit is more than offset by the costs to
the organization as whole
Autonomy Transfer Price
– Degree of freedom to make decisions – The price one subunit (department or
Decentralization division) chargers for a product/service
– An organizational structure that gives supplied to another subunit of the same
managers at lower levels the freedom to organization
make decisions
Dual Pricing
– Uses two separate transfer-pricing
methods to price each transfer from one
subunit to another
Dysfunctional Decision Making
– Another term for Suboptimal Decision
Making
Effort
– Extent to which managers strive or
endeavor in order to achieve a goal
Goal Congruence
– Exists when individuals and groups work
toward achieving the organization’s goals.
Managers working in their own best interest
take actions that align with the overall
goals of top management
Incongruent Decision Making
– Another term for Suboptimal Decision
Making
Intermediate Product
– Product or service transferred between
subunits of an organization
Management Control System
– A means of gathering and using
information to aid and coordinate
planning and control activities throughout
an organization and to guide the behavior
of its managers and employees
Motivation
– The desire to attain a selected goal (goal
congruent aspect) combined with the
resulting pursuit of that goal (effort aspect)
Perfectly Competitive Product
– Exists when there is a homogenous
product with buying prices equal to selling
prices and no individual buyers or sellers
can affect those prices by their own
actions
Suboptimal Decision Making
CHAPTER 23 Residual Income
TERMS TO LEARN – An accounting measure of income minus
a dollar amount for required return on an
Belief system accounting measure of investment.
– Articulate the missions, purpose, and core RI=Income – (RRR*investment)
values of a company. They describe the
accepted norms and patterns of Return on Investment
behaviour expected of all managers and – An accounting measure of income
other employees when interacting with divided by an accounting measure of
one another, shareholders, customers, and investment
communities. ROI = Income/Investment
Boundary System
– Describe standards of behaviour and
codes of conduct expected of all
employees, especially actions that are off
limits.
Current Cost
– The cost of purchasing an asset today
identical to the one currently held or the
cost of purchasing an asset that provides
services like the one currently held if an
identical asset cannot be purchased.
Diagnostic Control System
– Measures that help diagnose whether a
company is performing to expectations.
Economic Value Added
– is a variation of Residual Income used by
many companies.
Imputed Cost
– A cost recognized in particular situations
but not recorded in financial accounting
systems because it is an opportunity cost.
Interactive Control System
– Are formal information systems managers
use to focus the company’s attention and
learning on key strategic issues.
Investments
– Refers to the resources or assets used to
generate income.
Moral Hazard
– Describes a situation in which an
employee prefers to exert less effort
compared with the effort the owner desires
because the owner cannot accurately
monitor and enforce the employee’s
effort.