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118 Cards in this Set

  • Front
  • Back
Cost Management
It goes beyond historical measurement and reporting. It assesses the impacts of
current or proposed decisions. It is a philosophy, an attitude, and a set of techniques to create more customer value and achieve lower cost.
Strategy
An organization’s overall plan or policy to achieve its goals.
Competitive Advantage
Results from achieving a value chain
that enables an organization to provide more value (perhaps at a lower cost) than its competitors.
Variances
The differences between a plan's actual and expected quantities.
Extended Value Chain
Encompasses the ways companies obtain their resources and distribute their products and services, possibly using the services of other organizations.
Internal Control
Process designed to provide reasonable assurance that an organization will achieve its objectives.
Benefit-Cost Analysis
Measures the effects of a plan by comparing its expected benefits and costs (quantitative and qualitative).
Operational Performance Analysis
Measures whether the performance of current operations is consistent with expectations.
Performance Measure
An indicator that allows an organization to determine the level of performance according to a critical attribute and to compare performance to expectations.
Strategic Decision Making
Determines "where" and "how" by choosing and implementing actions that will affect an organization's future abilities to achieve its goals.
Qualitative Information
Descriptive and based on characteristics or perceptions, such as relative desirability, rather than quantities.
Quantitative Information
Expressed in dollars or other quantities relating to size, frequency, etc.
Strategic Performance Analysis
Measures whether a strategic decision has met expectations. Can consider years of performance.
Cost-Management System
The set of cost-management techniques that function together to support the organization's goals and activities.
Process
A related set of tasks, manual or automated, that transforms inputs into identifiable outputs.
Value Chain
The relation of an organization's processes that links ideas, resources, suppliers, and customers.
Types of Unit-Level Costs
Includes direct material, direct labor, utilities to run equipment, other overhead directly related to the production process.
Product Cost
Cost assigned to goods that were either purchased or manufactured for resale; it is used to value the inventory of manufactured goods or merchandise until the goods are sold.
Period Cost
Any cost that is not a product cost.
Unit-Level Costs
Variable costs that are incurred for every unit of product manufactured or service produced. Directly traceable to the decision to produce the level of output.
Cost Driver
Some characteristic of the activity that causes costs to be incurred.
Batch-Level Costs
Costs that are incurred for run of product manufactured or service produced.
Types of Batch-Level Costs
Includes setup costs, material-handling costs related to delivering raw material to the production line, etc.
Direct Materials
Raw materials, components, and other parts that can be traced to a specific product.
Direct Labor
Payments and benefits for those employees who convert direct materials into finished product.
Activity
Any discrete task that an organization undertakes to make or deliver a good or service.
Product-Level Costs
Costs that are incurred for each line of product or service.
Types of Product-Level Costs
Includes design costs for product lines and marketing costs for each product line.
Facility-Level (General-Operations-Level) Costs
Costs that are incurred to maintain the organization’s overall facility and infrastructure.
Types of Facility-Level Costs
Includes production manager’s salary, plant depreciation, and insurance on the facility and equipment.
Committed Costs
Cost for which management has taken actions that result in some level of commitment to incur the cost. Long-term obligations, difficult to change in the short term.
Types of Committed Costs
Includes rental and/or lease financing of buildings and equipment.
Opportunity Costs
The potential benefit that is given up when one alternative is selected over another.
Sunk Costs
Past payments for resources that cannot be changed by any current or future decision. Should not be considered in decisions.
Direct Costs
Costs that can be traced easily and conveniently to a product or department. Ex: Cost of paint in the paint department of an automobile assembly plant.
Indirect Costs
Costs that need to be allocated, before they can be assigned to a product or department. Ex: Cost of national advertising for an airline is indirect to a given flight or route.
Absorption (Full) Costing
A system of accounting for costs in which both fixed and variable production costs are included in product costs. Cost of goods sold decreases because production exceeds sales, leaving a portion of fixed manufacturing costs in inventory.
Variable (Direct) Costing
A system of cost accounting that assigns only the variable cost of production to products.
Throughput Costing
Assigns only the unit-level spending for direct costs as the cost of products or services.
Prime Costs
Direct costs, namely the costs of direct material and direct labor.
Conversion Costs
The costs incurred to convert direct material into the final product, namely, costs for direct labor and manufacturing overhead.
Idle Time
Time that an employee does not spend productively because of events such as equipment breakdowns or new setups of production runs.
Overtime Premium
The extra hourly compensation paid to an employee who works beyond the time normally allowed by regulation or labor contracts.
Selling (Service) Departments
These do not work directly on a product but are necessary to operate the production process.
Manufacturing Overhead
Includes all other costs of transforming materials into a finished product, which one cannot feasibly observe being used to make specific products but are necessary for the production process.
Contribution Margin
The amount of sales revenue remaining, after covering all variable costs, to contribute toward covering fixed cost and profit.
Selling Costs
Include costs such as sales commissions, sales personnel salaries, and the sales departments' building occupancy costs.
Administrative Costs
The cost incurred to manage the organization and provide staff support, including executive and clerical salaries; costs for legal, computing, and accounting services; and building space for administrative personnel.
Cost
The sacrifice made, usually measured by the resources given up, to achieve a particular purpose.
Cost-Accounting Systems
Manufacturing organizations to measure their use of resources in the production stages (raw-material inventory, work-in-process inventory, and finished-goods inventory).
Raw Material
Material that has not yet been entered into production.
Work-in-Process
Refers to partially completed products.
Finished Goods
Products ready for sale often found in the shipping area.
Indirect-Material
All materials that either are not part of the finished product but are necessary to manufacture it or are part of the finished product but are insignificant in cost.
Insignificant in Cost
The cost of collecting information about the use of these materials exceeds the value of the information collected.
Indirect-Labor
Consists of the wages of production employees who do not work directly on the product yet are required for the manufacturing facility's operation.
Expense
The cost incurred when an asset is used up or sold for the purpose of generating revenue.
Costs of Goods Sold
The product costs recognized as an expense in the period of the sale.
Inventoriable Cost
Another term for product cost.
Fixed Costs
Remain unchanged in total as the volume of activity changes.
Variable Costs
Change in total in proportion to a change in the activity volume.
Customer-Level Costs
Incurred for specific customers.
Relevant Range
The range of activity within which the organization expects to operate and over which assumed cost patterns are reasonably accurate.
Cost Object
Any end to which a cost is assigned, such as a product unit or a department.
Relevant Cost
A cost that differs between alternatives being considered. Used to describe costs specific to management's decisions. The concept eliminates unnecessary data that could complicate the decision-making process.
Job-Order Costing
Treats each individual job as a unit of output and assigns costs to it as it uses resources.
Product-Costing System
Accumulates the costs of a production process and assigns them to the products or services that constitute the organization's output.
Operation Costing
A hybrid of job-order and process costing used when companies produce large batches of similar products in which significantly different types of materials are used.
Process Costing
Treats all units processed during a time period as the output to be costed and does not separate and record costs for each unit produced.
Job-Cost Record (or file, card, or sheet)
Records the costs of all production-related resources used on the job to date.
Material Requisition Form
The source document for the entry transferring the cost of a raw material from Raw-Material Inventory to the Work-in-Process Inventory account and to the job-cost record for the production job.
Predetermined Overhead Rate
The budgeted manufacturing overhead divided by the budgeted level of the cost driver.
Normal Costing System
Assigns to production jobs the actual cost of direct material, actual cost of direct labor, and applied manufacturing overhead.
Overhead Variance
The difference between actual overhead for the period and applied overhead for the period.
Actual Overhead
The amount of manufacturing overhead actually incurred during an accounting period. Unlikely to equal the amount of applied overhead under normal costing.
Applied Manufacturing Overhead
Calculated by multiplying the predetermined overhead rate by the actual amount of the cost driver. The amount of manufacturing overhead assigned to WIP inventory as a product cost.
Throughput (Cycle) Time
The average time required to convert raw materials into finished goods ready to be shipped to customers.
Proration
Assigns proportionate amounts of overhead variance to WIP Inventory, Finished Goods Inventory, and COGS.
Standard Costing
Uses a predetermined rate for both direct and indirect costs to assign manufacturing costs to products.
Underapplied Overhead
When actual overhead exceeds applied overhead.
Overapplied Overhead
When applied overhead exceeds actual overhead.
Actual Costing
Assigns only the actual costs of both direct and indirect resources (DM, DL, & MOH) to the products.
Gantt Chart
Depicts the stages required to complete a project and the sequence in which the stages are to be performed.
ABC Full Costing
Assigns as many costs as possible to products.
ABC Unit-Level Costing
Assigns only the costs of unit-level resources to products. Only costs that are clearly and certainly driven by specific units to these units.
Activity-Based Costing (ABC)
A costing method that identifies the activities performed within the organization as it delivers its goods and services.
Activity Dictionary
A list of activities performed by an organization to produce its products.
Batch-Level Resources and Activities
Resources acquired and activities performed for a group or batch of similar products or services.
Cost Allocation
The process of assigning indirect costs to products or organizational units (e.g. departments).
Cost Driver
A characteristic of an activity or event that causes that activity or event to cause costs.
Cost-Driver Base
The base used to trace or assign costs to activities.
Cost Pool
A common way to collect costs that are related to a specific activity in the ABC system.
Unit-Level Resources and Activities
Resources acquired and activities performed for individual units of product.
Cost-Driver Rate
The estimated cost of resource consumption per unit of the cost driver for each activity.
Customer Costing
Analyzes the costs of activities to serve specific customers.
Customer-Level Resources and Activities
Resources acquired and activities performed to serve specific customers.
Customer Profitability Analysis
Identifies the costs and benefits of serving specific customers or customer types to improve an organization's overall profitability.
Facility-Level Resources and Activities
Resources acquired and activities performed to provide general capacity to produce goods or services.
Product-Level Resources and Activities
Resources acquired and activities performed to produce and sell a specific product or service.
Activity-Based Management (ABM)
Used by management to evaluate the costs and values of process activities to identify opportunities for improved efficiency.
Target Cost
The highest cost of a good or service that meets both customer needs and company profit goals.
Value-Added Activities
Enhance the value of products and services in the eyes of the customer while meeting the company's own goals.
Non-Value Added Activities
Activities that do not contribute to customer-perceived value.
Bar-Coding System
Creates a unique code for each order and allows the company to mark and track all orders electronically.
Resources Supplied
Refers to the capacity that the organization makes available for use; their cost is measured by totaling the cost of all resources provided, whether used or not.
Resources Used
The resources actually used by the production processes.
Unused Capacity
The difference between the resources supplied and the resources used.
Pilot Project
A limited-scope project intended to be a small-scale model of a larger, possibly system-wide, project.
Abnormal Spoilage
The result of unusual operating problems and is recorded as a loss of the period.
Equivalent Units
A concept expressing partially complete units as a smaller number of fully complete units.
Lost Units
Goods that evaporate or otherwise disappear during a production process.
First-in, First-out (FIFO) Costing
Costs are accounted for by layer. Cost per equivalent unit for this period is computed separately from the Cost per EU for last period.
Normal Spoilage
Occurs as a part of the regular operations of an efficient process.
Operation
A standardized method of making a product that is repeatedly performed.
Spoilage
Represents goods that are damaged, do not meet specifications, or are otherwise not suitable for further processing or sale as good output.
Weighted-Average Costing
All units and costs are considered together to determine average cost per equivalent unit, regardless of whether the costs were incurred last period or currently. Most commonly used method.
Production Cost Report
Summarizes the production and cost results for a period.
Prior Department Costs (Transferred-in Costs)
The costs of units transferred out of one department and into another.