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