 | Term | Definition |
| |
Book Value |
The original cost minus accumulated depreciation of an asset |
| |
Business Function Costs |
The sum of all costs (variable and fixed) in a particular business function of the value chain |
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Constraint |
A mathematical inequality or equality that must be satisfied by the variables in a mathematical model |
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Decision Model |
Formal method for making a choice, often involving both quantitative and qualitative analysis |
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Differential Cost |
Difference in total cost between two alternatives |
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Differential Revenue |
Difference in total revenue between two alternatives |
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Full Costs of the Product |
The sum of all variable and fixed costs in all business functions of the value chain (R&D, design, production, marketing, distribution, and customer service) |
| |
Incremental Cost |
Additional total cost incurred for an activity |
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Incremental Revenue |
Additional total revenue from an activity |
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Insourcing |
Process of producing goods or providing services within the organization rather than purchasing those goods or services from outside vendors |
| |
Linear Programming |
Optimization technique used to maximize an objective function (for example, contribution margin of a mix of products), when there are multiple constraints |
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Make-or-Buy Decisions |
Decision about whether a producer of goods or services will insource (produce goods or services within the firm) or outsource (purchase them from outside vendors) |
| |
Objective Function |
Expresses the objective to be maximized (for example, operating income) or minimized (for example, operating costs) in a decision model (for example, a linear programming model) |
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One-Time-Only Special Order |
Orders that have no long-run implications |
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Opportunity Cost |
The contribution to operating income that is forgone or rejected by not using a limited resource in its next-best alternative use |
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Outsourcing |
Process of purchasing goods and services from outside vendors rather than producing the same goods or providing the same services within the organization |
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Product-Mix Decisions |
Decisions about which products to sell and in what qualities |
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Qualitative Factors |
Outcomes that are difficult to measure accurately in numerical terms |
| |
Quantitative Factors |
Outcomes that are measured in numerical terms |
| |
Relevant Costs |
Expected future costs that differ among alternative courses of action being considered |
| |
Relevant Revenues |
Expected future revenues that differ among alternative courses of action being considered |
| |
Sunk Costs |
Pasts cost that are unavoidable because they cannot be changed no matter what action is being taken |
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