A
Absorption costing income statement - Assigns all manufacturing costs to the product.
Accounting rate of return - Measures the return on a project in terms of income as opposed to using cash flow.
Activity-based costing (ABC) - A more detailed approach to determining the cost of goods and services due to increases in technology.
Activity analysis - The process of identifying, describing, and evaluating the activities that an organization performs.
Activity attributes - Financial and non-financial information items that describe individual items.
Activity dictionary - Lists the activities in an organization along with some critical activity attributes.
Activity elimination - Once activities that fail to add value are identified, measures must be taken to rid the organization of these activities.
Activity inputs - Resources consumed by the activity in producing its output.
activity output measure - The number of times the activity is performed.
Activity outputs - The result or product of an activity.
Activity reduction - Decreases the time and resources required by an activity. This approach focuses on improving efficiency.
Activity selection - Involves choosing among different sets of activities that are caused by competing strategies. The lowest-cost design strategy should be chosen.
Activity sharing - Increases the efficiency by using economies of scale. This lowers the per-unit cost of the cost driver and the amount of cost traceable to the products that consume the activity.
Administrative costs - Costs associated with research, development and general administration of the organization that cannot reasonably be assigned to either selling or production costs.
B
Balanced scorecard - A strategic management system that defines a strategic-based responsibility accounting system.
Break-even point - The point where total revenue is equal to total profit (the point of zero profit).
Budgets - Financial plans for the future.
C
Capital Budgeting - The decision making process for capital decisions.
Capital investment decisions - Long range decisions involving opportunities to invest in new assets or projects.
Carrying costs - The costs of carrying inventory.
Committed fixed costs - Fixed costs that cannot be easily changed.
Common fixed expenses - The fixed costs that are not traceable to the segments and would remain even if one of the segments was eliminated.
consumption ratio - The proportion of each activity consumed by a product.
Continuous budget - A moving 12-month budget.
Contribution margin - The difference between sales and variable expense.
Contribution margin income statement - The income statement that is formatted based on the separation of costs into fixed and variable components.
Contribution Margin Ratio - Contribution Margin / Sales
Control - Looking backward determining what actually happened and comparing it with the previously planned outcomes.
Conversion cost - The sum of direct labor cost and overhead cost.
Cost - The amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.
Cost behavior - The way costs change as the related activity changes.
Cost leadership - Provides the same or better value to the customer at a lower cost than competitors.
Cost object - Something that the company would want to know the cost of.
Cost of goods manufactured - The total product cost of goods completed during the current period.
Cost of goods sold - The total cost of units sold during a period.
Cost of goods sold budget reveals the expected cost of the goods to be sold.
Cost structure - A company's mix of fixed costs relative to variable costs
Cost-volume-profit analysis (CVP) - A tool used to estimate how changes in cost, sales volume, and price affect a company's profit.
Cost-volume-profit graph - A graph that visually portrays the relationships among cost, volume and profits.
Customer value - The difference between what a customer receives and what the customer gives up when buying a product or service.
D
Decentralization - The practice of delegating decision-making authority to the lower levels of management in a company.
Degree of operating leverage (DOL) - The ratio of contribution margin to operating income.
Dependent variable - The variable whose value depends on the value of another variable.
Differentiation - Strives to increase customer value by providing something to customers not provided by competitors.
Direct costs - Costs that can be easily and accurately traced to a cost object.
Direct fixed expenses - The fixed costs that can be traded to each segment and would be avoided if the segment did not exist.
Direct labor - Labor that can be directly traced to the goods or services being produced.
Direct materials - Materials that are part of the final product, and can be directly traced to the goods and services being produced.
Direct labor budget - Shows the total direct labor hours needed and the associated cost for the number of units in the production budget.
Direct materials purchases budget - Tells the amount and cost of raw materials to be purchased in each time period.
Discretionary fixed costs - Fixed costs that can be changed relatively easily at management discretion.
Driver - A factor that causes or leads to a change in a cost or activity.
Driver analysis - The effort expended to identify those factors that are the root causes of activity costs.
E
Economic Value Added - A specific way of calculating residual income.
Equivalent units of production - The total number of complete units that cold have been produced given the total manufacturing effort used during the period.
Ending finished goods inventory budget - Supplies information needed for the balance sheet.
Expenses - Expired costs.
F
Factory burden - See Manufacturing Overhead.
Financial budgets - Detail the inflows and outflows of cash and the overall financial position.
Fixed cost - Cost where the total does not increase nor decrease as output changes.
Flexible Budget - Comparing actual costs with the actual level of activity.
Functional-based systems - Costing systems that are based on volume measures, such as direct labor hours and machine hours. This refers to job-order costing and process costing.
G
H
High-low method - A method of separating mixed costs into fixed and variable components by using just the high and low data points.
I
Incremental costs - See Relevant costs.
Independent variable - The variable whose value measures output and explains changes in the cost.
Indirect costs - Costs that cannot be easily traced to a cost object, and are not easily observed.
Indirect labor - Labor where the workers do not actually make the product, however, their contribution is necessary to production.
Indirect manufacturing costs - See Manufacturing Overhead.
Internal rate of return - The interest rate that sets the project's NPV to zero.
J
Job-order cost sheet - A subsidiary to the work-in-process account and is the primary document for accumulating all costs related to a particular job.
Job-Order Costing - Cost system where costs are accumulated by job.
Joint products - Include both common processes and costs up to split-off point.
Just in time (JIT) - When goods are pushed through the system by present demand rather than being pushed through on a fixed schedule based on anticipated demand.
K
Keep-or-Drop decisions - Decisions to keep or drop a segment such as a product line.
L
Labor efficiency variance - Measures the difference between the labor hours that were actually used and the labor hours that should have been used.
Labor rate variance - Computes the difference between what was paid to direct laborers and what should have been paid.
Lean accounting - Accounting that organizes costs according to the value chain, and collects both financial and non-financial information.
M
Make-or-buy decisions - Decisions involving a choice between internal and external production.
Managerial Accounting - The provision of accounting information for a company's internal users.
Manufacturing overhead - The product costs other than direct materials or direct labor.
Margin - Operating income divided by sales. Margin tells how many cents of operating income result from each dollar of sales. It expresses the portion of sales that is available for interest, taxes, and profit.
Margin of safety - This is the units sold or the revenue earned above the break-even volume.
Markup - A percentage of base cost. It includes costs not in the base cost and desired profit.
Master budget - A comprehensive financial plan for the organization as a whole.
Materials price variance - Measures the difference between what should have been paid for raw materials and what was actually paid.
Materials requisition form - A source document used to assign the cost of direct materials to a job.
Materials usage variance - Measures the difference between the direct materials actually used and the direct materials that should have been used for the actual output.
Method of least squares - A statistical way to find the best-fitting line through a set of data points.
N
Net present value - The difference between the present value of the cash inflows and outflows associated with a project.
Non-unit level activities - Activities that are not performed each time a unit of product is produced.
Non-unit-level activity drivers - Factors that measure the consumption of non-unit-level activities by products and other cost objects.
Non-Value Added Activities - All activities other than those that are absolutely essential to remain in business
Normal costing - A costing system that determines unit cost by adding the actual direct materials and direct labor to an estimated overhead.
O
Operating leverage - The use of fixed costs to extract higher percentage changes in profits as sales activity changes.
Operational budgets - Describe the income-generating activities of a firm.
Opportunity cost - The benefit given up or sacrificed when one alternative is chosen over another.
Ordering costs - The costs of placing and receiving an order.
Overhead budget - Shows the expected cost of all production costs other than direct materials and direct labor.
P
Parallel processing - Process costing in which partially completed units can be worked on simultaneously in different processes and then brought together in a final process for completion.
Payback period - The time required for a firm to recover its original investment.
Period costs - Costs of running a company that are not carried in inventory.
Planning - Looking ahead to see what actions should be taken to realize particular goals.
Postaudit - The follow-up analysis of a project once it is implemented.
Price - Revenue per unit.
Price decision - The amount that should be paid for the quantity of input to be used.
Price rate variance - The difference between the actual and standard unit price of an input multiplied by the number of inputs used.
Price standard - See Price Decision.
Prime cost - The sum of direct materials cost plus direct labor cost.
Process Costing - Cost system that accumulate production costs by process or by department for a given period of time.
Process-value analysis - An important part of activity-based management that focuses on cost reduction instead of cost assignment.
Product costs - Direct and indirect costs associated with the manufacture of goods or the provision of services.
Production budget - Describes how many units must be produced in order to meet sales needs and satisfy ending inventory requirements.
Production report - The document that summarizes the manufacturing activity of a process department for a given period of time.
Profit-volume graph - A graph that visually portrays the relationship between profits (operating income) and units sold.
Q
Quantity decision - The amount of input that should be used per unit of output.
Quantity standard - See Quantity Decision.
R
Relevant costs - Future costs that differ across alternatives.
Residual income - The difference between operating income and the minimum dollar return required on a company's operating assets.
Resource drivers - Factors that measure the consumption of resources by activity.
Responsibility Center - A segment of business whose manager is accountable for specified sets of activities.
Regression line - The best-fitting line in the Method of Least Squares.
Relevant range - The range of output over which the assumed cost relationship is valid.
Return on investment (ROI) - The profit earned per dollar of investment.
S
Sales budget - The projection approved by the budget committee that describes expected sales in units and dollars.
Sales revenue - The price multiplied by the units sold.
Scattergraph method - A way to see the cost relationship by plotting the data points on a graph.
Segment - A subunit of a company (divisions, departments, product lines, customer classes).
Selling and administrative expenses budget - Outlines planned expenditures for non manufacturing activities.
Selling costs - Costs necessary to market, distribute and service a product or service. These are sometimes referred to as order-getting and order-filling costs.
Sequential processing - Process costing which requires that units pass through one process before they can be worked on in later processes.
Services - Tasks or activities performed for a customer, or by a customer using an organization's products or facilities.
Short-run decisions - Small-scale actions that serve a larger purpose.
Special order decisions - Decisions that focus on whether a specially priced order should be accepted or rejected.
Split-off point - The point at which separate products become distinguishable.
Static Budget - Comparing the actual costs with budgeted costs for the budgeted level of activity.
Step costs - Costs that display a constant level of cost for a range of output, then jump to a higher level of cost at some point, where it remains for a similar range of output.
Stockout costs - Costs that occur when demand is not known.
T
Tangible products - Products that are goods produced by converting raw materials through the use of labor and manufacturing resources.
Target costing and pricing - Determining price based on what customers are willing to pay.
Target Income sales - (Total fixed Costs + Target Income) / Contribution Margin Ratio
Target Income units - (Total Fixed Costs + Target Income) / Contribution Margin
Total budget variance - The difference between the actual cost of the input and its planned cost.
Total overhead variance - The difference between applied and actual overhead.
Total quality management - The idea of producing services and products with zero defects.
Transfer pricing - The price charged for a component by the selling division to the buying division of the same company.
Turnover - Sales divided by average operating assets. It tells how many dollars of sales result from every dollar invested in operating assets.
U
Unit standard - Quantity standard times price standard.
Unit-level activities - Activities that are performed each time a unit is produced.
Unit-level drivers - Activity drivers that measure the consumption of unit-level activities.
Usage efficiency variance - The difference between the actual and standard quantity of inputs multiplied by the standard unit price of the input.
V
value chain - The set of activities required to design, develop, produce, market and deliver products and services, as well as provide support services to customers.
Value-Added Activities - Activities that are necessary to remain in business.
Variable cost - Cost that increases in total as output increases, and decreases in total output decreases.
Variable cost ratio - Variable Cost / Sales
Variable costing income statement - Assigns only variable manufacturing costs to the product.
W
WIP - See Work in process.
Work in process - The cost of the partially completed goods that are still on the factory floor at the end of a time period.
X
Y
Z