Chapter 2: Managerial Accounting And Cost Concepts

Front 1

Account Analysis

Back 1

A method for analyzing cost behavior in which an account is classified as either valuable or fixed based on the analyst's prior knowledge of how the cost in the account behaves (pg.35)

Front 2

Activity Base

Back 2

A measure of whatever causes the incurrence of a variable cost. Example: the total cost of a X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is the activity base that explains the total cost of X-ray film (pg.29)

Front 3

Administrative Costs

Back 3

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling (pg. 26)

Front 4

Committed fixed costs

Back 4

Investments in facilities, equipment, and basic organizational structure that cannot be significantly reduced even for short periods of time without making fundamental changes (pg.31)

Front 5

Common Cost

Back 5

A cost that is incurred to support a number of cost objectives but that cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot's wage is caused by any one passenger taking the flight (pg.44)

Front 6

Contribution approach

Back 6

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes (pg.43)

Front 7

Contribution margin

Back 7

The amount remaining from sales revenues after all variable expenses have been deducted (pg.43)

Front 8

Conversion cost

Back 8

Direct labor cost plus manufacturing overhead cost (pg. 27)

Front 9

Cost Behavior

Back 9

The way in which a cost reacts to changes in the level of activity (pg. 29)

Front 10

Cost structure

Back 10

The relative proportion of fixed, variable, and mixed costs in an organization (pg.29)

Front 11

Dependent variable

Back 11

A variable that responds to some casual factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y=a +bX (pg. 35)

Front 12

Differential revenue

Back 12

The difference in revenue between two alternatives (pg. 44)

Front 13

Direct Cost

Back 13

A cost that can be easily and conveniently traced to a specified cost object (pg. 44)

Front 14

Direct Labor

Back 14

Factory labor costs that can be easily traced to individual units of product. AKA => Touch labor

Front 15

Direct Materials

Back 15

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it (pg. 25)

Front 16

Discretionary fixed cost

Back 16

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research (pg. 31)

Front 17

Engineering Approach

Back 17

A detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the pieces of those inputs (pg. 35)

Front 18

Fixed Cost

Back 18

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity (pg. 30)

Front 19

High-low Method

Back 19

A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels (pg. 39)

Front 20

Incremental Cost

Back 20

An increase in cost between two alternatives (pg. 44)

Front 21

Independent variable

Back 21

A variable that acts as a casual factor; activity is the independent variable, as represented by the letter X, in the equation Y=a+bX (pg.36)

Front 22

Indirect cost

Back 22

A cost that cannot be easily and conveniently traced to a specific cost object (pg. 44)

Front 23

Indirect Labor

Back 23

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products (pg. 25)

Front 24

Indirect Materials

Back 24

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it (pg. 25)

Front 25

Least-squares regression method

Back 25

A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors (pg. 36)

Front 26

Linear cost behavior

Back 26

Cost behavior is said to be linear whenever a straight line is approximation for the relation between cost and activity (pg. 36)

Front 27

Manufacturing Overhead

Back 27

All manufacturing costs except direct materials and direct labor (pg. 26)

Front 28

Mixed Cost

Back 28

A cost that contains both variable and fixed cost elements (pg. 33)

Front 29

Opportunity Cost

Back 29

The potential benefit that is given up when one alternative is selected over another (pg. 45)

Front 30

Period Costs

Back 30

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued (pg. 27)

Front 31

Prime Cost

Back 31

Direct materials cost plus direct labor cost (pg. 27)

Front 32

Product costs

Back 32

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these consist of direct materials, direct labor, and manufacturing overhead (pg. 27)

AKA => Inventoriable costs

Front 33

Raw materials

Back 33

Any materials that go into the final product (pg. 25)

Front 34

Relevant range

Back 34

The range of activity within which assumptions about variable and fixed cost behavior are valid (pg. 32)

Front 35

Selling costs

Back 35

All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer (pg. 26)

Front 36

Sunk cost

Back 36

A cost that has already been incurred and that cannot be changed by any decision made now or in the future (pg. 46)

Front 37

Variable cost

Back 37

A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit (pg. 29)