Management Accounting & Strategy Flashcards

Which of the following best describes a 'sunk cost'?

Answer: A cost that has already been incurred and cannot be recovered

Sunk costs have already been spent and are unrecoverable, so they should be excluded from future decision analysis.

In transfer pricing, the minimum transfer price a selling division should accept is generally:

Answer: The variable cost plus any lost contribution margin on external sales

The selling division's minimum acceptable price covers its variable cost plus any opportunity cost from foregone external sales.

Which capital budgeting technique explicitly accounts for the time value of money?

Answer: Net present value (NPV)

NPV discounts future cash flows at the required rate of return, directly incorporating the time value of money.

Under a differentiation strategy, a company primarily creates competitive advantage by:

Answer: Offering products or services perceived as unique and worth a premium

Differentiation strategy builds competitive advantage by delivering unique value that customers are willing to pay a premium for.

A company's operating leverage ratio is 4. If sales increase by 10%, what is the expected percentage increase in operating income?

Answer: 40%

Percentage change in operating income = Operating leverage × Percentage change in sales = 4 × 10% = 40%.

Which of the following is a non-financial performance measure commonly used in management accounting?

Answer: Customer defect rate

Customer defect rate is a non-financial quality metric that provides operational insight beyond what financial statements reveal.

Which budgeting approach starts from zero each period and requires all expenditures to be re-justified?

Answer: Zero-based budgeting (ZBB)

Zero-based budgeting requires every cost to be justified from scratch each cycle, eliminating the assumption that prior-year spending is automatically approved.