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260 Cards in this Set
- Front
- Back
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Account Analysis
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Cost estimation method that calls for a review of each account making up the total cost being analyzed
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Activity-Based Costing (ABC)
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Costing method that first assigns costs to activities and then assigns them to products based on the products' consumption of activities
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Activity-Based Cost Management
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Use of activity analysis to make decisions and manage costs
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Actual Activity
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Actual volume for the period
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Actual Cost
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Cost of job determined by actual direct material and labor cost plus overhead applied using an actual overhead rate and an actual allocation base
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Adjusted R-squared
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Correlation coefficient squared and adjusted for the number of independent variables used to make the estimate
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Administrative Costs
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Costs required to manage the organization and provide staff support, including executive salaries, costs of data processing, and legal costs
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Appraisal Costs
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Costs incurred to detect individual units of products that do not conform to specifications
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Asset Acquisition
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Costs involved in purchasing and installing an asset that can involve the disposal of old assets, resulting in a gain or a loss
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Balanced Scorecard
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Performance measurement system relying on multiple financial and nonfinancial measures of performance
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Behavioral Congruence
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When individuals behave in the best interests of the organization regardless of their own goals
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Benchmarking
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Continuous process of measuring products, services, or activities against competitors' performance
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Bottleneck
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Operation where the work required limits production
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Break-even Point
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Volume level at which profits equal zero
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Budget
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Financial plan of the resources needed to carry out activities and meet financial goals
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Budgeted Balance Sheets
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Statements of budgeted financial position
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Business-level Strategy
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Organization's plan to compete in each of its businesses
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Business Model
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Description of how different levels and employees in the organization must perform for the organization to achieve its goals
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By-products
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Outputs of joint production processes that are relatively minor in quantity or value
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Cash Budget
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Statement of cash on hand at the start of the budget period, expected cash receipts, expected cash disbursements, and the resulting cash balance at the end of the budget period
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Centralized
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Describes those organizations in which decisions are made by a relatively few individuals in the high ranks of the organization
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Coefficient of Determination
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Square of the correlation coefficient, interpreted as the proportion of the variation in the dependent variable explained by the independent variable(s)
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Compensation and Reward System
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Specification of how the subordinate will be compensated for his or her performance based on the measured performance
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Conformance to Specification
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Degree to which a good or service meets specifications
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Constraints
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Activities, resources, or policies that limit or bound the attainment of an objective
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Contingent Compensation
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Compensation that is based on measured performance
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Continuous Flow Processing
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System that generally mass-produces a single, homogeneous output in a continuing process
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Continuous Improvement
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Continuous reevaluation and improvement of the efficiency of activities
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Contribution Margin
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Sales price minus variable costs per unit
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Contribution Margin per Unit of Scarce Resource
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Contribution margin per unit of a particular input with limited availability
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Contribution Margin Ratio
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Contribution margin as a percentage of sales revenue
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Control Account
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Account in the general ledger that summarizes a set of subsidiary ledger accounts
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Controllability
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Extent to which an item can be managed
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Controllability Concept
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Idea that managers should be held responsible for costs or profits over which they have decision-making authority
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Conversion Costs
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Sum of direct labor and manufacturing overhead
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Correlation Coefficient
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Measure of the linear relation between two or more variables, such as cost and some measure of activity
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Cost
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Sacrifice of resources
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Cost Accounting
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Field of accounting that measures, records, and reports information about costs
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Cost Allocation
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Process of assigning indirect costs to products, services, people, business units, etc.
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Cost Allocation Rule
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Method used to assign costs in the cost pool to the cost objects
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Cost-benefit Analysis
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Process of comparing benefits (often measured in savings or increased profits) with costs associated with a proposed change within an organization
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Cost Center
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Organization subunit responsible only for costs
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Cost Driver
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Factor that causes, or "drives," costs
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Cost Flow Diagram
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Diagram or flowchart illustrating the cost allocation process
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Cost Hierarchy
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Classification of cost drivers into general levels of activity, volume, batch, product, and so on
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Cost Management System
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System to provide information about the costs of process, products, and services used and produced by an organization
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Cost Object
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Any end to which a cost is assigned; examples include a product, a department, or a product line
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Cost of Capital
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Opportunity cost of the resources (equity and debt) invested in the business
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Cost of Invested Capital
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Cost of capital multiplied by the assets invested
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Cost of Goods Sold
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Expense assigned to products sold during a period
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Cost of Quality (COQ)
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System that identifies the costs of producing low quality items, including rework, returns, and lost sales
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Cost-plus Transfer Pricing
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Transfer pricing policy based on full costing or variable costing and actual cost or standard cost plus an allowance for profit
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Cost Pool
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Collection of costs to be assigned to the cost objects
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Cost Structure
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Proportion of fixed and variable costs to total costs of an organization
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Cost Variance Analysis
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Comparison of actual input amounts and prices with standard input amounts and prices
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Cost-Volume-Profit (CVP) Analysis
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Study of the relations among revenues, costs, and volume and their effect on profit
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Critical Success Factors
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Strengths of a company that enable it to outperform competitors
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Current Cost
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Cost to replace or rebuild an existing asset
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Customer Expectations of Quality
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Customer's anticipated level of product or service (including tangible and intangible features)
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Customer Relationship Management (CRM)
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System that allows firms to target profitable customers by assessing customer revenues and costs
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Death Spiral
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Process that begins by attempting to increase price to meet reported product costs, losing market, reporting still higher costs, and so on, until the firm is out of business
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Decentralization
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Delegation of decision-making authority to a subordinate
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Decentralized
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Describes those organizations in which decisions are spread among relatively many divisional and departmental managers
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Delegated Decision Authority
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Specification of the authority to make decisions in the organization's name
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Delphi Technique
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Forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole
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Department Allocation Method
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Allocation method that has a separate cost pool for each department, which has its own overhead allocation rate or set of rates
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Dependent Variable
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Y term or the left-hand side of a regression equation
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Differential Analysis
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Process of estimating revenues and costs of alternative actions available to decision makers and of comparing these estimates to the status quo
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Differential Costs
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With two or more alternatives, costs that differ among or between alternatives
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Differential Revenues
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Revenues that change in response to a particular course of action
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Direct Cost
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Any cost that can be directly (unambiguously) related to a cost object
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Direct Labor
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Work that actually transforms materials into finished products during the production process
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Direct Manufacturing Costs
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Product costs that can be feasibly identified with units of production
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Direct Materials
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Those materials that can feasibly be identified directly with the product
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Direct Method
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Cost allocation method that charges costs of service departments to user departments without making allocations between or among service departments
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Discount Rate
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Interest rate used to compute net present values
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Discretionary Cost Center
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Organization subunit whose managers are held responsible for costs where the relationship between costs and outputs is not well established
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Disinvestment Flows
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Cash flows that take place at the termination of a capital project
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Distribution Chain
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Set of firms and individuals that buys and distributes goods and services from the firm
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Divisional Income
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Divisional revenues minus divisional costs
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Dual-rate Method
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Cost allocation method that separates a common cost into fixed and variable components and then allocates each component using a different allocation base
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Dual Transfer Pricing
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Transfer pricing system that charges the buying division with costs only and credits the selling division with cost plus some profit allowance
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Dumping
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Exporting a product to another company at a price below domestic cost
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Dysfunctional Decision Making
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Decisions made in the interests of local managers that are not in the interests of the organization
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Econometric Models
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Statistical methods of forecasting economic data using regression models
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Economic Value Added (EVA)
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Annual after-tax (adjusted) operating profit minus the total annual cost of (adjusted) capital
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Efficiency Variance
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Differences between budgeted and actual results arising from differences between the inputs that were budgeted per unit of output and the inputs actually used
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Engineering Estimate
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Cost estimate based on measurement and pricing of the work involved in a task
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Enterprise Resource Planning (ERP)
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information technology that links the various systems of the enterprise into a single comprehensive information system
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Equivalent Units
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Number of complete physical units to which units in inventories are equal in terms of work done to date
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Estimated Net Realizable Value
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Sales price of a final product minus additional processing costs necessary to prepare a product for sale
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Expense
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Cost that is charged against revenue in an accounting period
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External Failure Costs
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Costs incurred when nonconforming products and services are detected after being delivered to customers
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Favorable Variance
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Variance that, taken alone, results in an addition to operating profit
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Final Cost Center
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Cost center, such as a production or marketing department, whose costs are not allocated to another cost center
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Financial Accounting
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Field of accounting that reports financial position and income according to accounting rules
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Financial Budgets
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Budgets of financial resources, for example, the cash budget and the budgeted balance sheet
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Finished Goods
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Product fully completed, but not yet sold
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First-in, First-out (FIFO) Process Costing
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Inventory method whereby the first goods received are the first ones charged out when sold or transferred
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Fixed Compensation
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Compensation that is not directly linked to measured performance
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Fixed Costs
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Costs that are unchanged as volume changes within the relevant range of activity
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Flexible Budget
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Budget that indicates revenues, costs, and profits for different levels of activity
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Flexible Budget Line
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Expected monthly costs at different output levels
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Flexible Production Budget
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Standard input price times standard quantity of input allowed for actual good output
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Full Absorption Cost
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All variable and fixed manufacturing costs; used to compute a product's inventory value under GAAP
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Full cost
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Sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs)
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Generally Accepted Accounting Principles (GAAP)
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Rules, standards, and conventions that guide the preparation of financial accounting statements for shareholders
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Goal Congruence
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When all members of a group hold a common set of objectives
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Gross Margin
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Revenue minus COGS on income statements. Per unit, the gross margin equals sales price minus full absorption cost per unit
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Gross Margin Ratio
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Gross margin divided by sales
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High-low Cost Estimation
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Method to estimate costs based on two cost observations, usually at the highest and lowest activity levels
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Historical Cost
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Original cost to purchase or build an asset
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Impact
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Likely monetary effect from an activity (such as a variance)
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Independent Variable
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X term, or predictor, on the right-hand side of a regression equation
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Indirect Cost
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Any cost that cannot be directly related to a cost object
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Indirect Manufacturing Costs
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All product costs except direct costs
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Industry Volume Variance
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Portion of the sales activity variance due to changes in industry volume
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Intermediate Cost Center
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Cost center whose costs are charged to other departments in the organization
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Internal Control
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A process designed to provide reasonable assurance that an organization will achieve its objectives
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Internal Failure Costs
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Costs incurred when nonconforming products and services are detected before being delivered to customers
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Inventoriable Costs
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Costs added to inventory accounts
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Investment Center
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Organization subunit responsible for profits and investment in assets
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Investment Tax Credit (ITC)
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Reduction in federal income taxes arising from the purchase of certain assets
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Job
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Units of a product that are easily distinguishable from other units
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Job Cost Sheet
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Record of the cost of the job kept in the accounting system
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Job Costing
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Accounting system that traces costs to individual units or to specific jobs, contracts, or batches of goods
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Job Shop
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Firm that produces jobs
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Joint Cost
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Cost of a manufacturing process with two or more outputs
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Joint Products
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Outputs from a common input and common production process
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Just-in-time (JIT) Method
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In production or purchasing, each unit is purchased or produced just in time for its use
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Learning Phenomenon
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Systematic relationship between the amount of experience in performing a task and the time required to perform it
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Local Knowledge
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Information about local conditions, markets, regulations, and so on
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Make-or-Buy Decision
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Decision concerning whether to make needed goods internally or purchase them from outside sources
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Management by Exception
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Approach to management requiring that reports emphasize the deviation from an accepted base point, such as a standard, a budget, an industry average, or a prior period experience
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Management Control System
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System to influence subordinate to act in the organization's interests
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Manufacturing Cycle Efficiency
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Measure of the efficiency of the total manufacturing cycle; equals processing time divided by the manufacturing cycle time
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Manufacturing Cycle Time
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Time involved in processing, moving, storing, and inspecting products and materials
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Manufacturing Overhead
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All production costs except direct labor and direct materials
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Margin of Safety
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The excess of projected or actual sales over the break-even volume
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Margin of Safety Percentage
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The excess of projected or actual sales over the break-even volume expressed as a percentage of the break-even volume
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Market Price-based Transfer Pricing
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Transfer pricing policy that sets the transfer price at the market price or at a small discount from the market price
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Market Share Variance
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Portion of the activity variance due to changes in the company's proportion of sales in the markets in which the company operates
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Marketing Costs
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Costs required to obtain customer orders and provide customers with finished products, including advertising, sales commissions, and shipping costs
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Master Budget
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Financial plan of an organization for the coming year or other planning period
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Mission
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Organization's purpose
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Mission Statement
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Description of an organization's values, definition of its responsibilities to stakeholders, and identification of its major strategies
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Negotiated Transfer Pricing
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System that arrives at transfer prices through negotiation between managers of buying and selling divisions
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Net Present Value (NPV)
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Economic value of a project at a point in time
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Net Realizable Value Method
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Joint cost allocation based on the proportional values of the joint products at the split-off point
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Toxoplasma gondii disease
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Brain abscess in HIV
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Normal Activity
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Long-run expected volume
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Normal Cost
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Cost of job determined by actual direct material and labor cost plus overhead applied using a predetermined rate and an actual allocation base
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Operating Budgets
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Budgeted income statement, production budget, budgeted COGS, and supporting budgets
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Operating Leverage
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Extent to which an organization's cost structure is made up of fixed costs
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Operating Margin Ratio
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Operating income divided by sales
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Operating Profit
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Excess of operating revenues over the operating costs necessary to generate those revenues
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Operation
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Standardized method or technique of making a product that is repeatedly performed
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Operation Costing
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Hybrid costing system used in manufacturing goods that have some common characteristics and some individual characteristics
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Opportunity Cost
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Forgone benefit from the best (forgone) alternative course of action
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Organization Goals
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Company's broad objectives established by management that employees work to achieve
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Outlay Cost
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Past, present, or future cash outflow
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Outsourcing
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Having one or more of the firm's activities performed by another firm or individual in the supply or distribution chain
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Overapplied Overhead
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Excess of applied overhead costs incurred over actual overhead during a period
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Participative Budgeting
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Use of input from lower- and middle-management employees; also called grass roots budgeting
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Peak-load Pricing
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Practice of setting prices highest when the quantity demanded for the product approaches capacity
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Performance Evaluation System
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System and specification of how the subordinate will be evaluated
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Performance Measure
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Metric that indicates how well an individual, business unit, product, firm, and so on, is working
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Period Costs
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Costs recognized for financial reporting when incurred
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Physical Quantities Method
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Joint cost allocation based on measurement of the volume, weight, or other physical measure of the joint products at the split-off point
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Planned Variance
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Variance that is expected to occur if certain conditions affect operations
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Plantwide Allocation Method
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Allocation method using one cost pool for the entire plant. It uses one overhead allocation rate, or one set of rates, for all of a plant's departments
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Practical Capacity
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Amount of production possible assuming only the expected downtime for scheduled maintenance and normal breaks and vacations
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Predatory Pricing
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Practice of setting price below cost with the intent to derive competitors out of business
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Predetermined Overhead Rate
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Cost per unit of the allocation based used to charge overhead to products
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Present Value
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Amounts of future cash flows discounted to their equivalent worth today
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Prevention Costs
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Costs incurred to prevent defects in the products or services being produced
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Price Discrimination
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Practice of selling identical goods to different customers at different prices
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Price Fixing
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Agreement among business competitors to set prices at a particular level
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Price Variance
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Difference between actual costs and budgeted costs arising from changes in the cost of inputs to a production process or other activity
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Prime Costs
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Sum of direct materials and direct labor
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Principal-Agent Relationship
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Relationship between a superior referred to as the principal, and a subordinate, called the agent
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Prior Department Costs
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Manufacturing costs incurred in some other department and transferred to a subsequent department in the manufacturing process
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Process Costing
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Accounting system used when identical units are produced through a series of uniform production steps
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Product Costs
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Costs assigned to the manufacture of products and recognized for financial reporting when sold
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Product Life Cycle
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Time from initial research and development to the time that support to the customer ends
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Production Budget
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Production plan of resources needed to meet current sales demand and ensure that inventory levels are sufficient for future sales
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Production Cost Report
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Report that summarizes production and cost results for a period; generally used by managers to monitor production and cost flows
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Production Mix Variance
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Variance that arises from a change in the relative proportion of inputs (a materials or labor mix variance)
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Production Volume Variance
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Variance that arises because the volume used to apply fixed overhead differs from the estimated volume used to estimate fixed costs per unit
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Production Yield Variance
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Difference between expected output from a given level of inputs and the actual output obtained from those inputs
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Profit Center
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Organization subunit responsible for profits and thus revenues, costs, production, and sales volumes
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Profit Equation
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Operating profit equals total revenue less total costs
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Profit Margin Ratio
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After-tax income divided by sales
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Profit Plan
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Income statement portion of the master budget
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Profit Variance Analysis
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Analysis of the causes of differences between budgeted profits and the actual profits earned
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Profit-Volume Analysis
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Version of cost-volume-profit analysis using a single profit line
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Project
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Complex job that often takes months or years to complete and requires the work of many different departments, divisions, or subcontractors
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Purchase Price Variance
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Price variance based on the quantity of materials purchased
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Reciprocal Method
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Method to allocate service department costs that recognizes all services provided by any service department, including services provided to other service departments
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Regression
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Statistical procedure to determine the relation between variables
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Relative Performance Evaluation (RPE)
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Managerial evaluation method that compares divisional performance with that of peer group divisions (i.e., divisions operating in similar product markets)
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Relevant Range
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Activity levels within which a cost estimate is valid; in particular the range within which a given fixed or unit variable cost will be unchanged even though volume changes
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Residual Income (RI)
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Excess of actual profit over the cost of capital invested in the unit
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Resources Supplied
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Expenditures or the amounts spent on a specific activity
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Resources Used
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Determined by multiplying the cost driver rate by the cost driver volume
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Responsibility Accounting
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System of reporting tailored to an organizational structure so that costs and revenues are reported at the level having the related responsibility within the organization
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Responsibility Center
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Specific unit of an organization assigned to a manager who is held accountable for its operations and resources
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Return on Investment (ROI)
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Ratio of profits to investment in the asset that generates those profits
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Revenue Center
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Organization subunit responsible for revenues and, typically, marketing costs
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Sales Activity Variance
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Difference between operating profit in the master budget and operating profit in the flexible budget that arises because the actual number of units sold is different from the budgeted number; also known as sales volume variance
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Sales Mix Variance
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Variance arising from the relative proportion of different products sold
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Sales Price Variance
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Difference between actual revenue and actual units sold multiplied by budgeted selling price
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Sales Quantity Variance
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Variance occurring in multiproduct companies from the change in volume of sales, independent of any change in mix
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Scattergraph
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Graph that plots costs against activity levels
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Semivariable Cost
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Cost that has both fixed and variable components; also called mixed cost
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Separation of duties
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No one person has control over an entire transaction
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Service Department
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Department that provides service to other subunits in the organization
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Short Run
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Period of time over which capacity will be unchanged, usually one year
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Special Order
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Order that will not affect other sales and is usually a short-run occurrence
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Spending (or Budget) Variance
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Price variance for fixed overhead
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Split-off Point
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Stage of processing when two or more products are separated
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Stakeholders
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Groups or individuals, such as employees, suppliers, customers, shareholders, and the community, who have an interest in what the organization does
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Standard Cost
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Cost of job determined by standard (budgeted) direct material and labor cost plus overhead applied using a predetermined overhead rate and a standard (budgeted) allocation base
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Standard Cost Center
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Organization subunit whose managers are held responsible for costs and in which the relationship between costs and output is well defined
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Standard Cost Sheet
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Form providing standard quantities of inputs used to produce a unit of output and the standard prices for the inputs
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Standard Costing
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Accounting method that assigns costs to cost objects at predetermined amounts
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Static Budget
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Budget for a single activity level; usually the master budget
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Step Cost
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Cost that increases with volume in steps; also called semifixed cost
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Step Method
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Method of service department cost allocation that allocates some service department costs to other service departments
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Strategic Long-Range Plan
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Statement detailing steps to take to achieve a company's organization goals
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Subsidiary Ledger Account
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Account that records financial transactions for a specific customer, vendor, or job
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Sunk Cost
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Cost incurred in the past that cannot be changed by present or future decisions
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Supply Chain
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Linked set of firms that exchange goods or services in combination to provide a final product or service to the consumer
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t-statistic
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t is the value of estimated coefficient, b, divided by its standard error
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Target Cost
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Equals the target price minus desired profit margin
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Target Price
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Price based on customers' perceived value for the product and the price that competitors charge
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Tax Basis
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Remaining tax-depreciable "book value" of an asset for tax purposes
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Tax Shield
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Reduction in tax payment because of depreciation deducted for tax purposes
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Theoretical Capacity
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Amount of production possible under ideal conditions with no time for maintenance, breakdowns, or absenteeism
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Theory of Constraints (TOC)
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Focuses on revenue and cost management when faced with bottlenecks
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Throughput Contribution
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Sales dollars minus direct materials costs and variables such as energy and piecework labor
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Time Value of Money
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Concept that cash received earlier is worth more than cash received later
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Total Contribution Margin
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Difference between revenues and total variable costs
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Total Cost Variance
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Differences between budgeted and actual results (equal to the sum of the price and efficiency variances)
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Total Quality Management (TQM)
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Management method by which the organization seeks to excel on all dimensions, with the customer ultimately defining quality
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Transfer Price
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Value assigned to the goods or services sold or rented (transferred) from one unit of an organization to another
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Trend Analysis
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Forecasting method that ranges from a simple visual extrapolation of points on a graph to a highly sophisticated computerized time series analysis
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Two-Stage Cost Allocation
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Process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases
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Underapplied Overhead
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Excess of actual overhead costs incurred over applied overhead costs
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Unfavorable Variance
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Variance that, taken alone, reduces operating profit
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Unit Contribution Margin
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Differences between revenues per unit (price) and variable costs per unit
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Unused Resource Capacity
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Difference between resources used and resources supplied
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User Department
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Department that uses the functions of service departments
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Value-Added Activities
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Those activities that customers perceive as adding utility to the goods or services they purchase
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Value Chain
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Linked set of activities that increases the usefulness (or value) of the goods or services of an organization
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Variable Costs
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Costs that change in direct proportion with a change in volume within the relevant range of activity
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Variance
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Difference between planned result and actual outcome
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Weighted-Average Process Costing
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Inventory method that for product costing purposes combines costs and equivalent units of a period with the costs and the equivalent units in beginning inventory
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Working Capital
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Cash, accounts receivable, and other short-term assets required to maintain an activity
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Work in Process
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Product in the production process but not yet complete
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