5. Management Accounting

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management accounting

Management accounting focuses on providing information for internal decision-making

cost accounting

Cost accounting helps a company determine the total cost of production

fixed costs

Fixed costs remain the same regardless of the level of production

variable costs

Variable costs increase as production levels rise

direct costs

Direct costs are expenses that can be directly attributed to a specific product

indirect costs

Indirect costs are expenses that are not directly linked to a specific product

break-even point

The break-even point is the level of sales at which total revenue equals total costs

contribution margin

The contribution margin is the amount from sales that contributes to covering fixed costs

cost allocation

Cost allocation is the process of assigning indirect costs to different departments

cost behavior

Cost behavior refers to how costs change with variations in production levels

budgeting

Budgeting helps a company plan its financial activities and control expenditures

variance analysis

Variance analysis compares budgeted costs with actual costs to determine discrepancies

standard costing

Standard costing is used to estimate the expected cost of a product based on predetermined standards

activity-based costing

Activity-based costing allocates overhead costs based on the activities that drive them

profit margin

The profit margin indicates how much profit is made from sales after all costs are subtracted

cash flow analysis

Cash flow analysis helps a company assess its liquidity and ability to meet obligations

capital budgeting

Capital budgeting involves evaluating investment opportunities and deciding on long-term investments

investment appraisal

Investment appraisal is the process of evaluating the potential profitability of an investment

return on investment (ROI)

Return on investment is a common financial metric used to measure the profitability of an investment

cost-volume-profit analysis

Cost-volume-profit analysis helps businesses understand the relationship between cost, volume, and profit

break-even analysis

Break-even analysis helps businesses determine how much they need to sell to cover their costs

operating budget

The operating budget outlines the expected income and expenses for daily operations

financial forecasting

Financial forecasting predicts future financial performance based on historical data

sensitivity analysis

Sensitivity analysis examines how different variables affect the outcome of financial models

cost control

Cost control helps a company manage expenses and improve profitability

overhead costs

Overhead costs include expenses that are not directly tied to the production of goods or services

direct labor

Direct labor costs include wages paid to workers directly involved in production

prime cost

Prime cost is the sum of direct materials and direct labor used in production

variable costing

Variable costing includes only variable costs in the calculation of product costs

absorption costing

Absorption costing assigns all manufacturing costs, including fixed costs, to products

operating leverage

Operating leverage refers to the impact of fixed costs on a company's profitability

contribution margin ratio

The contribution margin ratio shows the proportion of sales that contributes to fixed costs

forecasting

Forecasting involves predicting future financial outcomes based on past performance

cost structure

Understanding the cost structure helps companies identify areas to reduce costs

target costing

Target costing focuses on designing a product at a cost that will allow it to be profitable in the marketplace

cost control system

A cost control system monitors and adjusts costs to ensure they stay within budget

inventory costing

Inventory costing methods help determine the value of goods sold and remaining inventory

cost management

Cost management involves planning and controlling expenditures to ensure financial efficiency

job order costing

Job order costing tracks costs for specific jobs or orders rather than for general production

process costing

Process costing is used for industries where products are produced in continuous processes

financial performance

Financial performance measures how well a company utilizes its assets to generate income

cost of goods sold (COGS)

The cost of goods sold (COGS) represents the direct costs of producing the goods that are sold

contribution analysis

Contribution analysis helps determine the profitability of specific products or services

managerial decision-making

Managerial decision-making relies on financial data to make informed business choices

budget variance

Budget variance analysis compares actual expenses to the budgeted amount to identify discrepancies

cost-benefit analysis

Cost-benefit analysis compares the total expected cost of an action to the total expected benefit

cost-plus pricing

Cost-plus pricing adds a markup to the cost of producing a product to determine its selling price

cost center

A cost center is a part of an organization responsible for costs but not for generating revenue

profit center

A profit center is a department or unit within an organization that is responsible for generating revenue

activity cost

Activity cost refers to the cost incurred by specific activities within a company

cost-effective

The company is looking for cost-effective solutions to reduce overhead expenses

target profit

The company sets a target profit to measure its success in achieving financial goals

cost driver

A cost driver is a factor that causes costs to increase or decrease in a business

cost pool

A cost pool groups together costs that share a common characteristic

cost allocation base

The cost allocation base is used to distribute overhead costs among different departments

product costing

Product costing determines the total cost of producing a specific product

operational efficiency

Operational efficiency is essential for reducing waste and improving profitability

profitability index

The profitability index is used to assess the attractiveness of an investment project

economic order quantity (EOQ)

The economic order quantity model helps companies determine the optimal order quantity

overhead allocation

Overhead allocation involves distributing fixed and variable costs to departments

direct cost allocation

Direct cost allocation assigns specific costs directly to the products that incur them

indirect cost allocation

Indirect cost allocation assigns costs that are not directly related to production

standard cost system

The standard cost system sets predetermined cost estimates for various products or services

fixed cost allocation

Fixed cost allocation assigns fixed expenses, such as rent and salaries, across different units

cost-volume-profit (CVP) analysis

Cost-volume-profit analysis helps businesses assess how changes in costs and volume affect profits

differential cost

Differential cost is the difference in cost between two alternatives

opportunity cost

Opportunity cost is the benefit that is lost when one choice is made over another

cost allocation method

There are different cost allocation methods, such as activity-based costing or traditional costing

value-added cost

Value-added costs contribute to increasing the value of a product or service

non-value-added cost

Non-value-added costs do not directly contribute to the final product or service

margin of safety

The margin of safety is the difference between actual sales and break-even sales

capital expenditure (capex)

Capital expenditure refers to money spent on acquiring or maintaining fixed assets

operating expenditure (opex)

Operating expenditure is the ongoing cost for running a business, such as wages and utilities

direct labor cost

Direct labor cost includes wages paid to workers directly involved in manufacturing

cost-plus pricing strategy

The cost-plus pricing strategy adds a fixed markup to the cost of goods or services

inventory turnover ratio

The inventory turnover ratio measures how quickly a company sells its inventory

cash budget

A cash budget predicts the cash inflows and outflows of a business over a specific period

cost-benefit ratio

The cost-benefit ratio compares the costs of an action with the expected benefits to assess its viability

fixed overhead costs

Fixed overhead costs do not change with the level of production and must be managed carefully

economic cost

Economic cost includes both explicit costs and the opportunity costs of a decision

return on assets (ROA)

Return on assets measures how efficiently a company uses its assets to generate profits

return on equity (ROE)

Return on equity is a measure of the profitability relative to shareholders' equity

operating income

Operating income is the profit generated from a company's core business operations

net present value (NPV)

The net present value (NPV) calculates the difference between the present value of cash inflows and outflows

internal rate of return (IRR)

The internal rate of return (IRR) is the discount rate at which the net present value of an investment is zero

break-even volume

Break-even volume is the quantity of sales needed to cover fixed and variable costs

profit center accounting

Profit center accounting tracks the profitability of different business units

management by exception

Management by exception focuses on areas where performance deviates from the norm

profit planning

Profit planning involves forecasting future profits based on expected revenues and costs

segment reporting

Segment reporting involves presenting financial information by business division or geographic area

strategic management accounting

Strategic management accounting uses information to develop long-term business strategies

rolling budget

A rolling budget continuously updates financial projections on a regular basis

financial ratios

Financial ratios help assess a company's financial health and performance