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A report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity. |
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An event that causes the consumption of overhead resources in an organization. |
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Activity Based Costing (ABC) |
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A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs. |
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Activity Based Management (ABM) |
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A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects. |
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A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system. |
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An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool. |
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Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch. |
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A systematic approach to identifying the activities with the greatest potential for improvement. |
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Customer-level Activities |
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Activities that are carried out to support customers but that are not related to any specific product. |
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A measure of the amount of time required to perform an activity. |
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The process by which overhead costs are assigned to activity cost pools in an activity-based costing system. |
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Organization sustaining activities |
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Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. |
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Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run. |
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The process by which activity rates are used to apply costs to products and customers in activity-based costing. |
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A simple count of the number of times an activity occurs. |
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Activities that are performed each time a unit is produced. |
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A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs. |
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Fixed manufacturing overhead cost deferred in inventory |
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Definition
The portion of the fixed manufacturing overhead cost of a period that goes into ending inventory under the absorption costing method |
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Fixed manufacturing overhead cost released from inventory |
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Definition
The fixed manufacturing overhead cost of a prior period that becomes an expense of the current period under the absorption costing method. |
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A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs. |
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The level of sales at which profit is zero or the point where total sales equals total expenses or as the point where total contribution margin equals total fixed expenses. |
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contribution margin method |
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Definition
A method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit. |
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contribution margin ratio |
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A ratio computed by dividing contribution margin by dollar sales. |
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Cost-volume-profit (CVP) graph |
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Definition
A graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand. |
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Degree of operating leverage |
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Definition
A measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income. |
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A method of computing the break-even point that relies on the equation Sales = Variable expenses + Fixed expenses + Profits. |
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An analytical approach that focuses only on those costs and revenues that change as a result of a decision. |
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The excess of budgeted (or actual) dollar sales over the break-even dollar sales |
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A measure of how sensitive net operating income is to a given percentage change in dollar sales |
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The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. |
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A ratio computed by dividing variable expenses by dollar sales. |
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A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves. |
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A measure of whatever causes the incurrence of a variable cost. For example, the total cost of 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. |
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Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes. |
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An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated according to organizational functions. |
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The amount remaining from sales revenues after all variable expenses have been deducted. |
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The relative proportion of fixed, variable, and mixed costs in an organization. |
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A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y = a + bX. |
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discretionary fixed costs |
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Definition
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research. |
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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 prices of those inputs. |
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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. |
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A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y = a + bX. |
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least-squares regression model |
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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. |
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Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity. |
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A cost that contains both variable and fixed cost elements. |
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An analytical method required when variations in a dependent variable are caused by more than one factor |
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The range of activity within which assumptions about variable and fixed cost behavior are reasonably valid. |
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The cost of a resource that is obtainable only in large chunks and that increases and decreases only in response to fairly wide changes in activity. |
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