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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?
Once the cash budget has been arranged and suitable net cash flows established the finance manager must ensure that there does not exists an important deviation in between actual a
Transition probabilities These are the probabilities of moving from one state to another in the next time period. Usually they are written in the form of a probability matrix.
Stock-out costs These are the opportunity costs of running out of stock. They comprise: 1) The costs of lost customer sales, and therefore lost contribution to fixed costs.
Activity Based Management (ABM) Also referred to as activity based cost management (ABCM). This is used to describe the cost management application of ABC. To implement A
Explain what is meant by traditional costing system. Support with example.
INVENTORY CONTROL The activities of a business during a financial year combine investment projects in progress with new projects commencing and others terminate within the year
Explain the External factors of pricing decisions 1) Demand: the market demand for a product or service obviously has big impact on pricing. Since demand is affected by fact
What is Standard costing Standard cost is a predetermined cost. It is a determination in advance of production of what should be the cost. When standard costs are used for the
how much is this service?
What are the Features of zero base budgeting 1) Manager of a decision unit has to completely justify why there should be at all any budget allotment for his derision unit. This
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