22 terms

ACC 513 Exam 1

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Cost Estimation
The process of estimating the relation between costs and the cost drivers that cause them
Simple Linear Costs
Only one activity drives the variable costs and fixed costs do not vary with activity
Step Costs (Semi-Fixed Costs)
Change with activity of the cost driver but not in direct proportion
Semi Variable Costs
Have fixed and variable elements
Non Linear Costs
Based on a relationship between the amount of experience in performing a task and the amount of time it takes to perform the task
Steps in Decision Making to Achieve Organizational Objectives
1. Set goals and objectives
2. Gather information
3. Evaluate alternatives, considering costs and benefits of each, and choose the best alternative
4. Implement the chosen alternative
5. Obtain feedback to reevaluate the chosen alternative
Target costing
A cost management strategy used in highly competitive markets
Target Cost Equation
Target cost = target price - target profit
Market Based Pricing Approach
Price charged is based on what customers want and how competitors react
Cost Based Pricing Approach
Price charged is based on what it costs to produce, coupled with the ability to recoup the costs and still achieve a required rate of return
Five Steps in Developing Target Prices and Target Costs
1. Develop a product that satisfies the needs of potential customers
2. Choose a target price
3. Derive a target cost per unit
4. Perform cost analysis
5. Perform value engineering to achieve target cost
Value Engineering
A systematic evaluation of all aspects of the value chain, with the objective of reducing costs while improving quality and satisfying customer needs
Value-added costs
A cost that, if eliminated, would reduce the actual or perceived value or utility (usefulness) customers obtain from using the product or service
Non-value-added costs
A cost that, if eliminated, would NOT reduce the actual or perceived value or utility customers obtain from using the product or service. It is a cost the customer is unwilling to pay for
Cost Incurrence
Describes when a resource is consumed (or benefit foregone) to meet a specific objective
Locked-in costs (designed-in costs)
Costs that have not yet been incurred but, based on decisions that have already been made, will be incurred in the future
Target Rate of Return Formula
Target annual operating return / Invested capital
Price Discrimination
The practice of charging different customers different prices for the same product or service
Peak-load pricing
The practice of charging a higher price for the same product or service when the demand for it approaches the physical limit of capacity to produce that product or service
Predatory Pricing
Deliberately lowering prices below costs in an effort to drive competitors out of the market and restrict supply, and then raising prices
Dumping
A non-U.S. firm sells a product in the United States at a price below the market value in the country where it is produced, and this lower price materially injures or threaten to materially injure an industry in the United States
Collusive Pricing
Occurs when companies in an industry conspire in their pricing and production decisions to achieve a price above the competitive price and so restrain trade