Term
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Definition
| Measures an organization undertakes to accomplish its mission. |
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Term
| Activity-based Cost Drivers |
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Definition
| Measures of activities that cause costs to be incurred, such as number of setups, percentage of use, and pounds of material delivered; using such measures as allocation bases can improve the accuracy of cost allocations in business environments where overhead costs are not driven by volume. |
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Term
| Activity-based Costing (ABC) |
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Definition
| (ABC) A two-stage cost allocation process. First, costs associated with specific business activities are allocated or assigned to activity cost pools. Second, these pooled costs are allocated to designated cost objects by using a variety of appropriate cost drivers. The cost drivers chosen for each cost pool are those that most accurately reflect the demand placed on that cost pool by the cost object. |
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Term
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Definition
| Cost centers composed of operating activities with similar characteristics; pooling indirect costs into activity centers reduces record-keeping costs by allowing allocations based on a common cost driver for each center. |
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Term
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Definition
| Costs of identifying nonconforming products produced regardless of prevention cost expenditures. |
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Term
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Definition
| Actions taken (e.g., materials handling, production setups) to produce groups of products, the cost of which is fixed regardless of the number of units produced in a batch. |
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Term
| Companywide Allocation Rate |
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Definition
| Factor based on a single measure of volume, such as direct labor-hours, used to allocate all overhead cost to the company's products or other cost objects. |
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Term
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Definition
| Costs incurred after the manufacturing process is complete, such as delivery costs and sales commissions. |
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Term
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Definition
| Costs resulting from delivering defective goods to customers. |
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Term
| Facility-level Activities |
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Definition
| Actions taken (e.g., insuring the facility, providing plant maintenance, employing a company president) that benefit the production process as a whole. |
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Term
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Definition
| Costs resulting from producing or providing nonconforming products or services. |
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Term
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Definition
| Costs incurred to correct defects before goods reach the customer. |
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Term
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Definition
| Costs incurred to avoid making nonconforming products. |
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Term
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Definition
| Actions taken (e.g., holding inventory, developmental engineering) that support a specific product or product line. |
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Term
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Definition
| The degree to which products or services conform to their design specifications. |
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Term
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Definition
| Accounting report that typically lists the company's quality costs both in absolute dollars and as a percentage of total quality cost. |
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Term
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Definition
| Costs of activities performed to prepare to make a different product or batch of products, such as resetting machinery, changing the production configuration, and conducting inspection. |
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Term
| Strategic Cost Management |
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Definition
| Newer techniques managers can use to more accurately measure and control costs; implemented as a response to the complex modern automated business environment. These strategies include eliminating nonvalue-added activities, designing more efficient manufacturing processes, and developing more effective ways, like activity-based costing, to trace overhead costs to cost objects. |
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Term
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Definition
| Strategy that sets the selling price by determining the price at which a product that will satisfy market demands will sell and then developing that product at a cost that results in a profit. |
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Term
| Total Quality Management (TQM) |
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Definition
| Management strategy that focuses on (1) continuous systematic problem-solving by personnel at all levels of the organization to eliminate waste, defects, and nonvalue-added activities; and (2) managing quality costs in a manner that leads to the highest level of customer satisfaction. |
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Term
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Definition
| Actions taken (e.g., using direct materials or direct labor) each time a unit of product is produced. |
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Term
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Definition
| Costs incurred before beginning the manufacturing process, such as research and development costs. |
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Term
| Volume-based Cost Drivers |
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Definition
| Measures of volume such as labor hours, machine-hours, or quantities of materials that are highly correlated with unit-level overhead cost; serve as appropriate bases for allocating unit-level overhead costs. |
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Term
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Definition
| Discretionary quality costs incurred for prevention and appraisal activities. |
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