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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. |
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Term
Four steps in designing a product costing system |
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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 |
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Definition
this method assigns the controllable costs of capacity resources more reliably than traditional systems do. |
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Definition
converts organizational inputs into a measurable output |
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Definition
the basic element of any business process |
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Activity-Based Management |
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Definition
using information from ABC system to improve profitability by managing products, customers, and resources |
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Definition
activities that pertain to a group of units |
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Term
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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. |
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Definition
the set of decisions to assess the profitability of individual customers and customer segments, including the actions taken to improve their profitability. |
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Definition
activities that are required to sustain the business |
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Definition
a realistic estimate of the maximum possible activity level |
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Product-/-customer-level activity |
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Definition
activities that relate to a specific product or a specific customer |
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Definition
the set of decisions about which products to offer and their prices |
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Term
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Definition
contribution margin less the controllable cost of capacity resources |
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Term
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Definition
decisions that pertain to improving the efficiency and effectiveness of organizational processes |
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Term
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Definition
activities that are proportional to production volume |
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Term
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Definition
a curve that plots customer profitability, after ranking customers in order of their profitability. Has the appearance of a "whale" |
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Term
Forming cost pools with ABC |
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Definition
the pools are formed by activities |
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Term
Determining the costs in each cost pool ABC |
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Definition
this is done by analyzing each account to determine the activities facilitated by the expenditure |
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Term
Deciding which costs to allocate ABC |
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Definition
they only allocate cost that are considered to be controllable rather than allocating all manufacturing costs and expenses all selling costs |
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Term
Measuring Denominator volume and ABC |
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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 |
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Term
steps to improve efficiency with ABC |
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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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