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Describe Several of the Major Differences Between a Functional-Based Cost

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Essay

Describe several of the major differences between a functional-based cost management system and an activity-based cost management system.


Definitions:

Business Risk

The exposure to factors that can lead to a reduction in the value of an investment or in the revenues of a business.

Systematic Risk

A risk that influences a large number of assets. Also called market risk.

Optimal Capital Structure

The best mix of debt and equity financing that minimizes the company's cost of capital and maximizes its value.

Weighted Average Cost of Capital

A calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

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