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Cost Measurement
1.

abnormal spoilage: expensed in current period

2.

absolute conformance: perfectly or ideally meets standards

26.

focus, 2) continuous improvement, 3) workforce involvement, 4)

top management support, 5) objective measures, 6) timely
recognition, 7) ongoing training

(robust quality)
3.

absorption approach of CVP analysis: no separation of fixed

& variable costs

4.

27.

5.

activity-based costing: activity cost object, any work performed

6.

authoritative standards: set by management only

7.

balanced scorecard: information on multiple dimensions of

28.

direct costs: direct raw materials, direct labor

29.

DL efficiency variance: = standard rate * (actual hours standard hours allowed)

30.

benchmarking: adopt best practices in industry to establish

31.

BEP in sales dollars: = unit price * BE units = total fixed costs /

32.

break even point: production where sales = total costs =

33.

34.

favorable variance: actual cost < standard cost

35.

FIFO cost per EU: = current costs / EU

of joint costs)

36.

FIFO costs: costs incurred during the period are applied to EU

calculating economic value added: 1) required return =

37.

FIFO EUs: = beginning units completed + units started &

11.

breakeven point in units: = total fixed costs / CM per unit

12.

by-product: incidentally from main product (has no allocation

14.

completed + units partially complete at end

investment * cost of capital, 2) income after taxes - required

return = EVA

38.

fixed costs: does't change if cost driver changes, varies per unit

cause & effect (Fishbone) diagram: problems contributing

39.

flexible budgets: 1) calculate budgeted per unit price (variable

to defects: machinery, method, materials, manpower

15.

cost from master budget), 2) apply actual volume to budgeted per

unit price & variable costs, 3) compare to actual volume at actual
price & costs for variance analysis

coefficient of correlation (r): strength of linear relationship,

ranges from -1 to +1

16.

17.

18.

coefficient of determination (R2): how much the

40.

forecasting analysis: probability/risk analysis

independent variable affects the dependent variables, ranges

from 0 to 1

41.

gap analysis: studying difference between industry best

conformance costs: prevention (prevent production of

practices and organization's current practices

42.

goalpost conformance: compliance within an acceptable

defective units) & appraisal (discover & remove defective units

before shipping)

range (zero defects)

43.

high-low fixed costs: = total costs - variable costs

contribution approach of CVP analysis: variable/direct

44.

high-low method: variable cost per unit = (highest total cost -

costing for internal decision-making only

19.

equivalent units: amount need to complete one unit of

production (usually 1 - %complete)

variable + fixed costs

13.

DM usage variance: = standard price * (actual Q used standard Q allowed)

CM ratio
10.

DM price variance: = actual Q purchased * ( actual price standard price)

standards
9.

DL rate variance: = actual hours worked * (actual rate standard rate)

performance with "critical success factors"

8.

currently attainable standards: costs with employees

appropriately trained but no extra effort

absorption approach to net incom: revenue - COGS = gross

margin - operating expenses (SGA) = net income

critical factors of total quality management: 1) customer

contribution approach to net income: revenue - variable

lowest total cost) / (highest volume - lowest volume)

45.

costs = contribution margin - fixed costs = net income

high-low variable costs: = variable cost per unit * low volume

(or high volume)

20.

contribution margin ratio: = CM / unit price

46.

ideal standards: costs when perfect efficiency & effectiveness

21.

control charts: results by batch/interval plotted on acceptable

47.

job order costing: DM + DL + MOH (IM + IL) -> WIP -> FG -

range, trending towards improved quality conformance or

deteriorating
22.

controllable margin: = CM - controllable fixed costs =

contribution by SBU

23.

controllable variance: variance can be prevented

24.

conversion costs: = DL + MOH

25.

cost determination: need selling price to determine allowable

production costs

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> COGS
48.

joint product: two or more products from a common input

49.

Kaizen improvement: continuous, cost reductions in

manufacturing stage

50.

linear regression: relationship between 2 variables

51.

manufacturing: inventory, COGM, COGS

52.

margin of safety: excess of sales over BE sales

53.

margin of safety %: = margin of safety $ / total sales

54.

margin of safety in $: = total sales $ - BE sales $

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Cost Measurement
55.

marginal cost: sum of costs required for a one-unit increase =

81.

sales quantity variance: = (actual units sold - budgeted units)

variable costs + avoidable fixed costs

56.

market share variance: = (actual market share - budgeted

57.

market size variance: = (actual market size - expected market

58.

mechanics of master budgets: driven by sales budget ->

x budgeted mix ratio x budget unit CM for product

82.

sales volume variance: = (actual units sold - budgeted units) *

83.

selling price variance: = (actual price/unit - budgeted

84.

semi-variable (mixed) costs: has both fixed & variable

85.

sensitivity analysis: experimenting with different parameters

86.

separable costs: incurred after split-off point

87.

simple linear regression: one independent variable (y = A +

88.

split-off point: where joint products recognized as individuals

89.

standard cost per unit: targets for production

normal spoilage: included in standard cost (increases per unit

90.

standard costing systems: used for all manufacturing costs

costs

91.

standard costs: aggregate, firm expects to incur

63.

overhead application rate: = budgeted MOH costs / budgeted

92.

standard direct costs: = standard price * standard quantity

cost driver

93.

standard overhead costs: = predetermined application rate *

64.

overhead variance models: 1) net overheard variance (one-

market share) x actual industry units x budgeted unit CM

standard CM per unit

size) x budgeted market share x budgeted unit CM

production budget -> selling and & admin budget -> personnel
budget -> pro forma income statement -> pro forma balance
sheet -> pro forma cash budgets
59.

methods of allocating joint costs: 1) unit-volume ratio, 2)

60.

MOH applied: = overhead application rate * actual cost driver

61.

nonconformance costs: internal failure (cure defect

NRV at split off point, 3) ultimate sales value at point of sale

discovered before shipping) & external failure (cure defect

discovered after customer receives item)
62.

65.

price/unit) * actual units sold

aspects, graphically as step pattern
and logging range of results

Bx)

standard quantity

way), 2) two-way variance, 3) three-way variance

94.

target cost: = market price - required profit

Pareto diagrams: quality control issues from most to least

95.

three-way overhead variance: spending variance + efficiency

frequent
66.

67.

variance + volume variance

partial productivity ratios: = quantity of output / quantity of

96.

total productivity ratios: = quantity of output / costs of inputs

single input used

97.

transfer price: price charged by one division to another in

participative standards: set by management & individuals

held responsible

68.

period costs: selling, general & admin, interest expense

69.

positive EVA: performance is meeting standards

70.

prime costs: = DL + DM

71.

process costing: averages costs, used mostly for homogeneous

same business/entity
98.

transfer pricing methods: 1) market price, 2) cost, 3)

negotiated prices, 4) dual pricing

99.

two-way overhead variance: budget (controllable) variance +

volume (uncontrollable) variance

100.

items
72.

process improvement: activity-based management: use of

101.

74.

product costs: direct materials, direct labor, manufacturing

overhead

102.

unfavorable variance: actual cost > standard cost

production report for process costing: units accounted for

103.

unit contribution: unit sales price less unit variable costs

= units charged to dept & costs accounted for = costs charged to

dept
75.

profit after BEP: units after BEP sold * CM per unit

76.

quality audits: studying Strengths and Weaknesses

77.

relevant range: range where assumptions of cost drivers are

104.

required sales for target profit: = (fixed costs + target profit)

105.

required sales for target profit before taxes: = variable

costs + fixed costs + (target profit after tax / (1 - tax rate))

80.

sales mix variance: =(actual product mix ratio - budgeted

ratio) x actual units sold x budgeted unit CM for products

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variable costs: changes proportionately with cost driver,

constant per unit

106.

weighted average cost per EU: = beginning costs + current

costs / EU

107.

weighted average costs: costs of beginning inventory +

current costs are applied to EU

/ CM ratio
79.

units started & completed: = units transferred out less

beginning inventory units

valid
78.

types of responsibility segments (strategic business

units): 1) cost SBU: control, 2) revenue SBU: generate, 3) profit
SBU: target profit, 4) investment SUB: return on assets

ABC & ABM towards TQM

73.

types of cost drivers: theoretical (executional/ST,

structural/LT) & operational (volume-based, activity-based)

108.

weighted average EUs: = units completed + EU of WIP at end

of period

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Market Structure
1.

Describe a market structure that includes a few

11.

providers.: Oligopoly market. In an oligopoly market there are

few providers of goods or services. In a monopoly there is only
one provider; in perfect competition or monopolistic competition
there are many providers.
2.

Describe the justification for natural monopolies.: A

monopoly exists where there is a single provider of a commodity
for which there are no close substitutes and where entry into the
market is difficult. Natural monopolies exist where there is
increasing return to scale of operations and is justified by a
single entity being able to satisfy demand at a lower cost than
two or more firms. Public utilities have been traditional examples
of natural monopolies.

3.

4.

Describe the nature of the market structure in the U.S.

economy.: The U.S. economy is a mix of market structures with
different commodities/industries operating in different market
structures.

5.

Describe the point of short-run profit maximization for

a firm in an oligopoly industry.: Short-run profit is
maximized where marginal revenue is equal to rising marginal
cost (provided price > average total cost).

6.

Describe the point of short-run profit maximization for

a firm in monopolistic competition.: Short-run profit is
maximized where marginal revenue is equal to rising marginal
cost (provided price > average total cost).

7.

Describe the point of short-run profit maximization for

a firm in perfect competition.: Short-run profit is
maximized where marginal revenue is equal to rising marginal
cost; total revenue will exceed total costs by the greatest amount
at that point.

8.

12.

13.

14.

15.

In which form of market structure is a "price war" most

likely to occur?: Oligopoly, because each firm in the industry is
aware of the actions of other firms in the industry.

16.

List examples of reasons why monopolies exist.: 1)

Control of raw materials or processes;
2) Government granted franchise (i.e., exclusive right);
3) Increasing return to scale (i.e., natural monopolies).

17.

List the characteristics of a perfect monopoly.: 1) A single

seller
2) A commodity for which there are no close substitutes;
3) Restricted entry into the market.

18.

List the characteristics of an oligopoly.: 1) A few sellers

2) Firms sell either a homogeneous product (standardized
oligopoly) or a differentiated product (differentiated oligopoly);
3) Restricted entry into the market.

19.

List the characteristics of monopolistic competition.: 1)

A large number of sellers;
2) Firms sell a differentiated product or service (similar but not
identical), for which there are close substitutes;
3) Firms can enter or leave the market easily.

20.

List the characteristics of Perfect Competition: 1) A large

number of independent buyers and sellers, each of which is too
small to separately affect the price of a commodity;
2) All firms sell homogeneous products or services;
3) Firms can enter or leave the market easily;
4) Resources are completely mobile;
5) Buyers and sellers have perfect information;
6) Government does not set prices.

How are long-run profits determined for a firm in an

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In what ways do firms in an Oligopoly market compete?:

Firms in an oligopoly market compete based on quality, service,
distinctiveness, etc., but not on price, which might incite a "price
war."

Collusion.: 1) Overt Collusion = Firms conspire to set output,

price or profit; illegal in the U.S.;
2) Tacit Collusion = Firms follow price charged by the price
leader in the market; not illegal in the U.S.
Oligopoly Industry?: A firm in an oligopoly industry will
make profits in the long-run if average total cost is less than
market price, and can continue to do so because entry into the
market is restricted.

In the long-run, how may a monopoly firm increase its

profits?: A monopoly firm may increase its profits in two ways:
1) Reduce cost by changing the size if its operations;
2) Increase demand through advertising, promotion, etc.

Distinguish between Overt Collusion and Tacit

10.

How are long-run profits determined for a firm in

perfect competition?: There are no long-run profits possible
in a perfectly competitive market. If profits are made in the shortrun, more firms will enter the market and increase supply, thus
decreasing market price until all firms just breakeven.

Describe the point of short-run profit maximization for

a firm in perfect monopoly.: Short-run profit is maximized
where marginal revenue is equal to rising marginal cost. The
price charged at that quantity will depend on the level of the
demand curve.

9.

Monopolistic Competition?: There are no long-run profits

possible in a monopolistic competition. If profits are made in the
short-run, more firms will enter the market and lower the
demand for each firm until each just breaks even.

Describe the least likely market structure in the U.S.

economy.: Perfect Competition. A market or industry with all of
the criteria of perfect competition is virtually nonexistent in the
U.S. economy. Monopoly, monopolistic competition and
oligopoly markets are common.

How are long-run profits determined for a firm in

21.

Under Monopolistic Competition, what determines

whether a firm makes a profit or not?: The relationship
between the price (P) that can be charged and the firm's average
total cost (ATC). If ATC < P, the firm will make a profit.
Otherwise, it will either breakeven (ATC = P) or have a loss (ATC
> P).

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Market Structure

22.

What are the four market structures normally considered in economic analysis?: 1) Perfect competition;
2) Perfect monopoly;
3) Monopolistic competition;
4) Oligopoly.

23.

What is a "Price taker" Firm?: The assumption that a firm in a perfectly competitive market must accept ("take") the price set by the
market and can sell any quantity of its commodity at that price. Thus, the demand curve faced by a single firm in perfect competition is a
straight horizontal line at the market price.

24.

What is the shape of the demand curve for a Firm in Monopolistic Competition?: Downward sloping and highly elastic

25.

What is the shape of the demand curve for a firm in Perfect Competition?: The demand curve faced by a single firm in a perfectly

26.

What is the shape of the demand curve for a Firm in Perfect Monopoly?: Downward sloping (and, since the firm is the only firm

(because there are close substitutes for the good or service offered).
competitive market is a straight horizontal line originating at the price set by the market (of all firms).
in the industry, it is also the industry demand curve).

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Information Technology
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.
20.

accounting
information
system

input (source document) -> journalize ->

ledger -> trial balance -> financial
statements

databases

relational technology

decentralized
processing

power, applications, & work spread over

many locations where remote computer
performs portion of processing

ad hoc report

can be created on demand using specific

queries

application
service
providers

provide access to programs on rental basis

decision support
systems

combine management's subjective

judgments and objective analytical data

demand reports

available on demand

backdoor

means to access that bypasses normal

security

25.

denial-of-service
attack

flood of information preventing users

from accessing target computer

backup files
genealogy

recent: son, prior: father, oldest:

grandfather

26.

e-business

more general, any IT used to perform

business processes

batch
processing

groups of transactions processed

periodically

27.

e-commerce

buying and selling electronically

electronic access
controls

user IDs and PWs, security levels restrict

access to programs & applications

brute-force
attack

try every possible key/password until found

electronic data
interchange

computer to computer exchange of

electronic transaction documents

business 2
business perks

speed, timing, personalization, security,

reliability,

30.

electronic funds
transfer

third-party vendor/intermediary transfers

electronic payments

business
information
system

computer system to record and summarize

business transactions

31.

enterprise
resource
planning systems

ERP = integrates and automates many

business processes with data centrally
located and accessible by various
departments

categories of
risk

errors, intentional acts, disasters

centralized
processing

maintain data & process at central location

32.

exception
reports

specific condition

cold site

a separate facility that does not have any

computer equipment, but is a place where
employees can move after a disaster

33.

executive
information
systems

senior executives have access to internal

and external information, assist in
monitoring business conditions

communication
protocols

common set of rules allowing network to

communicate

34.

extranets

allow outside clients to access company's

network

components of
BIS

hardware, software, network, people, data

& information

35.

file librarian

store/protect programs & tapes

36.

firewalls

prevent unauthorized users from access

computer
operator

schedule processing jobs, running &

monitoring scheduled production jobs

four main system

risks

strategic risk (risk of choosing

inappropriate technology), operating risk
(risk of doing right things the wrong
way), financial risk (having financial
resources lost, wasted, or stolen),
information risk (risk of loss of data
integrity, incompleteness, or hackers)

control clerk

logged/scheduled input & output,

maintained error & correction logs

CRM general
rules

20% of customers generate 80% of sales

and 5-10 times more costly to bring new
customer than to repeat business from
existing customer

functional
system made of

hardware technician -> network admin > software developers

functions
performed on
data

collect, process, store, transform,

distribute

gateways/routers

translate one set of protocols to another

hardware
components

central processing unit (primary

storage), secondary storage (hard
drives), peripherals (input & output
devices)

21.
22.

23.

24.

28.

29.

37.

38.

customer
relationship
management

sales automation & customer service with

the objective of increasing customer
satisfaction in order to increase
revenue/profits

data sizes

bit -> byte -> field -> record -> file

40.

database
management
system

tool, separate program

41.

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39.

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Information Technology
42.

43.

44.

hot site

remote site that contains all equipment,

supplies, and telecommunications a
business needs and is ready immediately in
the event of a disaster

push
reporting

more automated, sent to PC

RAM v. ROM

temporary v. permanent primary storage

security
admins

assign initial passwords & maintain them,

maintain operating security systems &
security software

server

accessible through software

steps of
disaster
recovery

1) assess the risks, 2) identify mission-critical

applications & data, 3) develop a plan, 4)
determine responsibilities, 5) test data
recovery plan

supply
management
systems

sales: what, when, where, and how much

from customer to original supplier

system
admins

database admin, network admin, web admin

system
analyst

design internally developed application

system sataisfy end users' requirements

system
programmer

installing, troubleshooting, monitoring, &

maintaining OS

transaction
tagging

follow transactions through client's system

for audit purposes

transmission
media

cables

trojan horse

appears to be useful

types of
controls

general controls, application controls,

physical controls, segregation of duties

types of
databases

operational, analytical, data warehouses,

distributed, end-user

types of
disaster
recovery

outside disaster recovery service, internal

disaster recovery, multiple data center
backups

types of
firewalls

packet filtering, circuit filtering gateways,

application filtering

value added
networks

privately owned 7 managed

virus

requires host program

wide area
networks

national & international communications

79.

workstation

used by end-users

80.

worm

can run independently

60.

61.

internetbased
networks

internet protocols & public communications

62.

intranets

geographically separate LANs within

company

63.

system analyst v. computer programmers,

computer operator v. computer programmers,
security admin v. computer operators &
programmers

65.

create empty database, database queries,

database maintenance (tuning), application
development

66.

management
information
systems

provide managerial and end users with

reports, assist in decision making

67.

millions of
instructions
per second
(MIPS)

measure of processing power

68.

modems

allows communicate with others, device that

converts between digital and analog
representation of data

network
interface card

an interface fitted inside a personal computer

or network terminal which allows it to
communicate with other machines over a
network

network OS

peer to peer or client/server system

network
topologies

bus, ring, star, tree

53.

node

device connected to network

54.

normalization

separating data into logical tables

objectoriented
databases

comments, drawings, images

online real
time
processing
(OLRT)

update master files as data is entered,

random access storage only

periodic
scheduled
report

predefined format

phishing

phony messages to get sensitive information

(spam)

physical
access
controls

restricted access to computer rooms

45.

46.

47.

48.

49.

50.

51.
52.

55.

IT segregation
of duties

64.

major uses of
DBMS

69.

70.

71.
72.

73.

74.

75.

76.

77.
56.

57.

58.

59.

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78.