President/CEO to Her Controller

question 134

Essay

President/CEO to her Controller:
"On the golf course yesterday I overheard John Jeffers, the CEO for Octal, say that the problem with many manufacturing companies today is their antiquated manufacturing cost accounting systems. It appears to me that our cost accounting system has served us well as our company has grown and should continue to serve us well as we move into JIT production with our new flexible manufacturing system."

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Definitions:

Stand-Alone Principle

A method of evaluating investment projects as if they were the only project the company is undertaking, assessing their viability on their individual merits.

Depreciation Tax Shield

The reduction in income tax that results from the allowance for depreciation, which can be considered a non-cash expense that decreases taxable income.

Equivalent Annual Cost

Equivalent annual cost is a financial analysis tool used to compare the cost effectiveness of different projects or investments with differing lifespans by calculating their equivalent cost per year.

EAC

Equivalent Annual Cost, a financial analysis tool used to compare the cost effectiveness of different investments or projects over their lifecycles.