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Steps of choosing an accounting based performance measure
Consider the overall goal of the organization as a whole. It is important to choose a measure of accomplishment that represents top management goals. Such measures include operating income, net income, Return on investment (ROI), sales, etc. Determine whether the measure should be maximized or minimized.
1) Select definitions for such items as income and investments (i.e. should income be based on variable or absorption costing? Must central overheads be allocated? should investments consist of total assets, net assets or net worth?)
2) How should items such as income and investments be measured (i.e. should we use historical costs, replacement costs, realizable or current values?)
3) Determine the standards that should be applied (i.e. should all divisions be required to earn the same rate of return on all investments?)
4) What timing of feedback is needed? Should it be monthly or quarterly?
Explain Out of pocket cost A cost which will have to be paid to outsides as against cross such as depreciation, which do not require any cash payment this cost is relevant in t
Ordering Costs These are incurred in getting purchased items into the company’s inventory or stores, and usually consist of clerical costs of: • Making the purchase demand.
What are the Resons to use Variance analysis Variance analysis should be a continuous process for following reasons: 1) Labor rates, salary levels etc, changes due to union
how to journalize entry. purchased $150,000 of raw materials on account, terms of 2/20; n/30
State Factors determining Working Capital requirement.
Steps in Strategic Cost Analysis 1) Recognize the suitable value chain and allocate costs and assets to it. 2) Identify the cost drivers of each value activity and how they int
Material storage Sophisticated mathematical models to control economic buying, and systems control the flow of material may all be for naught if the obvious-efficient storekeep
Optimum Solution From the stand point of implementing the LP solution, the mathematical classification of the variables as basic and non-basic is of no importance and should be
Exact management of receivables acquires a suitable collection policy that outlines the collection procedures. Collection policy consider as the procedure adopted through a firm to
Classification and computation of variances The computation and analysis of variances is the main aim of standard costing. The variance is the difference among the standard pe
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