internally.
Method of least squares A statistical method to find a line that best fits a set of data. It is used to break out the fixed and variable components of a mixed cost.
Minimum transfer price The transfer price that will make the selling division no worse off if an output is sold internally.
Mixed cost Costs that have both a fixed and a variable component. Modified accelerated cost recovery system (MACRS) An allowable method for computing depreciation for tax purposes.
Monetary incentives The use of economic rewards to motivate managers. Multinational corporation (MNC) A corporation for which a significant amount of business is done in more than one country.
Multiple-period quality trend report A graph that plots quality costs (as a percentage of sales) against time. Multiple regression The use of least squares analysis to determine the parameters in a linear equation involving two or more explanatory variables.
Mutually exclusive projects Projects that, if accepted, preclude the acceptance of competing projects.
Myopic behavior Managerial actions that improve budgetary performance in the short run at the expense of the long-run welfare of the organization. ? 855
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thus, optimization usually means maximizing profits.
Objective measures Measures that can be readily quantified and verified. Observable quality costs Quality costs
that are available from an organization’s accounting records.
Operating assets Assets used to generate operating income, consisting
usually of cash, inventories, receivables, and property, plant, and equipment.
Operating budgets Budgets associated with the income-producing activities of an organization.
Operating expenses The money an organization spends in turning inventories into throughput.
Operating income Revenues minus expenses from the firm’s normal operations. Income taxes are excluded.
Operating leverage The use of fixed costs to extract higher percentage changes in profits as sales activity
changes. Leverage is achieved by increasing fixed costs while lowering variable costs.
Operation costing A hybrid costing method that assigns materials cost to a product using a job-order approach and assigns conversion costs using a process approach.
Operational productivity measure A measure that is expressed in physical terms.
Operations process A process that produces and delivers existing products and services to customers.
Opportunity cost The benefit sacrificed or foregone when one
alternative is chosen over another. Opportunity cost approach A transfer pricing system that identifies the minimum price that a selling division would be willing to accept and the maximum price that a buying division would be willing to pay.
Optimal solution The feasible solution that produces the best value for
the objective function (the largest value if seeking to maximize the objective function; the minimum otherwise).
the practical capacity of the activity driver associated with the pool. Postaudit A follow-up analysis of an investment decision, comparing actual benefits and costs with expected benefits and costs.
Postpurchase costs The costs of using, maintaining, and disposing of the product.
Postsales service process A process that provides critical and responsive service to customers after the product or service has been delivered.
Practical activity capacity The activity output produced when the activity is performed efficiently.
Practical capacity The efficient level of activity performance.
Predatory pricing The practice of setting prices below cost for the purpose of injuring competitors and eliminating competition.
Predetermined overhead rate An overhead rate computed using estimated data.
Present value The current value of a future cash flow. It represents the amount that must be invested now if the future cash flow is to be received assuming compounding at a given rate of interest.
Prevention costs Costs incurred to prevent defects in products or services being produced.
Price discrimination The charging of different prices to different customers for essentially the same product.
Price gouging A subjective term referring to the practice of setting an “excessively” high price.
Price-recovery component The difference between the total profit change and the profit-linked productivity change.
Price standards The price that should be paid per unit of input.
Price (rate) variance The difference between standard price and actual price multiplied by the actual quantity of inputs used.
Primary activity Activity that is consumed by products or customers.
Ordering costs The costs of placing and receiving an order.
Outsourcing The payment by a company for a business function that was formerly done in house.
Overapplied overhead The amount by which applied overhead exceeds actual overhead.
Overhead All production costs other than direct materials and direct labor. Overhead budget A budget that reveals the planned expenditures for all indirect manufacturing items.
Overhead variance The difference between actual overhead and applied overhead. P
Parallel processing A processing pattern in which two or more sequential processes are required to produce a finished good.
Partial productivity measurement A ratio that measures productive efficiency for one input.
Participative budgeting An approach to budgeting that allows managers who will be held accountable for budgetary performance to participate in the budget’s development. Payback period The time required for a project to return its investment.
Performance The measure of how consistent