Management Accounting & Strategy Flashcards

Which budgeting approach requires managers to justify all expenditures from a zero base each period rather than using prior-year figures?

Answer: Zero-based budgeting

Zero-based budgeting (ZBB) requires justifying every line item anew each period, eliminating the automatic carry-forward of prior spending.

A company's degree of operating leverage (DOL) is 4. If sales increase by 10%, operating income will increase by:

Answer: 40%

DOL multiplies the percentage change in sales to determine the percentage change in operating income: 4 × 10% = 40%.

Porter's Five Forces model identifies which factor as a force that can reduce industry profitability by enabling buyers to demand lower prices?

Answer: Bargaining power of buyers

Bargaining power of buyers is high when buyers are concentrated, purchase large volumes, or can easily switch suppliers, pressuring prices down.

A responsibility center where a manager is evaluated on both revenues generated and costs incurred is called a:

Answer: Profit center

A profit center manager controls both revenues and costs but not the capital invested in the center.

Which inventory management technique aims to minimize holding costs by receiving goods just as they are needed in production?

Answer: Just-in-time (JIT)

JIT inventory minimizes holding costs by coordinating deliveries to arrive precisely when needed, reducing on-hand inventory levels.

The value chain concept in strategic management refers to:

Answer: The sequence of activities that create and deliver value to customers

Porter's value chain describes the sequential primary and support activities a firm performs to create value that exceeds the cost of those activities.

A company evaluating a special order should accept it if the order's selling price exceeds:

Answer: Incremental (variable) cost per unit

For a special order with unused capacity, the minimum acceptable price covers incremental costs; any price above that contributes to profit.