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Accounting ch 25 & 26
Terms in this set (27)
The benefit given up by not choosing an alternative course of action.
A company that has control over the prices of its products and services because its products and services are unique and there is little competition.
A company that has little control over the prices of its products and services because its products and services are not unique or competition is intense.
A factor that restricts production or sale of a product.
Cost plus pricing
A method to manage costs and profits by determining the price. Full product cost + Desired profit = Cost-plus price.
A cost of a production process that yields multiple products.
A cost that is relevant to a particular decision because it is a future cost and differs among alternatives.
A method that looks at how operating income would differ under each decision alternative; leaves out irrelevant information.
A method to manage costs and profits by determining the target full product cost. Revenue at market price - Desired profit = Target full product cost.
Expected future data that differs among alternatives.
A cost that does not affect the decision because it is not in the future or does not differ among alternatives.
A cost that was incurred in the past and cannot be changed regardless of which future action is taken.
Target Full Product Cost
The full cost to develop, produce, and deliver the product or service.
Interest calculated on the principal and on all previously earned income.
The comparison of the actual results of capital investments to the projected results.
Net Present Value (NPV)
A capital investment analysis method that measures the net difference between the present value of the investment's net cash inflows and the investment's cost (cash outflows).
Interest calculated only on the principal amount.
An operational asset used for a long period of time.
Accounting Rate of Return (ARR)
A capital investment analysis method that measures the profitability of an investment. Average annual operating income / Average amount invested.
The process of ranking and choosing among alternative capital investments based on the availability of funds.
Management's minimum desired rate of return on a capital investment.
The acquisition of a capital asset.
A stream of equal cash payments made at equal time intervals.
The process of planning to invest in long-term assets in a way that returns the most profitability to the company.
Computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars. Present value of net cash inflows / Initial investment.
A capital investment analysis method that measures the length of time it takes to recover, in net cash inflows, the cost of the initial investment.
Internal Rate of return (IRR)
The rate of return, based on discounted cash flows, of a capital investment. The interest rate that makes the NPV of the investment equal to zero.
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