Question
Match each term below with the correct definition from the dropdown list:
Answer
4.1
(293 Votes)
Lexi
Expert · Tutor for 3 years
Answer
1. Investment Appraisal - A method for measuring whether the returns generated by the business exceed the required returns of investors.2. Activity-Based Costing (ABC) - A costing technique that relates overheads to specific production or provision of a service.3. Customer Profitability Analysis (CPA) - An analysis of the business profitability through the assessment of its individual customers or types of customers.
Explanation
## Step 1: Firstly identify all the terms dealing with finance, costing techniques, and businesses. Then observe their definitions closely in order to map the correct definition with its corresponding term.## Step 2: The first description given is talking about the process of comparing the returns created by a business with the returns investors were anticipating. This looks like an Investment Appraisal, a business method that assesses if an investment will be profitable or not by calculating the present value of cash inflow and outflows.### The formula for this is: \(NPV (net present value) = R_t / (1 + i)^t\), where
is the net cash inflow-outflows during a period t,
is the discount rate, and
is the number of time periods.## Step 3: The second definition given dealing with overheads related to the production and services points towards a costing technique known as Activity-Based Costing (ABC). ABC enables a business to lay pieces of overhead costs thereafter production, such that each product or service gets a share of these Costs driven by their own personal consumption of activities.### The formula for ABC costing:
## Step 4:The final description talks about the analysis of profitability based on individual customers or customer segments, which is the definition of Customer Profitability Analysis (CPA). CPA is a method of recognizing which customers are producing the most profit for an organization.