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A202 Chapter 10
Exam 2
22
Accounting
Undergraduate 2
11/12/2011

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Term
Profit Margin
Definition
equals a product's contribution margin less the cost of capacity resources needed to support its production. This is also the appropriate measure for evaluating long term profitability.
Term
Four steps in designing a product costing system
Definition
1 determine how to form cost pools
2 identify which cost pools to allocate
3 identify the cost driver to use for allocating each cost pool
4 determine the appropriate denominator volume of each cost driver to calculate allocation rate
Term
Activity-Based Costing
Definition
this method assigns the controllable costs of capacity resources more reliably than traditional systems do.
Term
Business Process
Definition
converts organizational inputs into a measurable output
Term
Activity
Definition
the basic element of any business process
Term
Activity-Based Management
Definition
using information from ABC system to improve profitability by managing products, customers, and resources
Term
Batch-level activity
Definition
activities that pertain to a group of units
Term
Cross-subsidization
Definition
some cost allocation systems allocate systematically lower amounts to some products and higher amounts to allocate other products. In such instances, prducts receiving higher allocations are said cross-subsidize products receiving lower allocations.
Term
Customer Planning
Definition
the set of decisions to assess the profitability of individual customers and customer segments, including the actions taken to improve their profitability.
Term
Facility-level activity
Definition
activities that are required to sustain the business
Term
Practical capacity
Definition
a realistic estimate of the maximum possible activity level
Term
Product-/-customer-level activity
Definition
activities that relate to a specific product or a specific customer
Term
product planning
Definition
the set of decisions about which products to offer and their prices
Term
profit margin
Definition
contribution margin less the controllable cost of capacity resources
Term
resource planning
Definition
decisions that pertain to improving the efficiency and effectiveness of organizational processes
Term
unit-level activity
Definition
activities that are proportional to production volume
Term
Whale Curve
Definition
a curve that plots customer profitability, after ranking customers in order of their profitability. Has the appearance of a "whale"
Term
Forming cost pools with ABC
Definition
the pools are formed by activities
Term
Determining the costs in each cost pool ABC
Definition
this is done by analyzing each account to determine the activities facilitated by the expenditure
Term
Deciding which costs to allocate ABC
Definition
they only allocate cost that are considered to be controllable rather than allocating all manufacturing costs and expenses all selling costs
Term
Measuring Denominator volume and ABC
Definition
the key difference here is practical capacity is used as the denominator instead of the actual volume. This means that if not all of the capacity is used in a period it may seem like it was a costlier period
Term
steps to improve efficiency with ABC
Definition
1 develop a process map for each activity/process chosen
2 identify value- and non-value-adding activities
3 seek ways to improve value adding activities
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