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Mangerial Cost Accounting
Ch5-8
48
Accounting
Undergraduate 3
10/22/2008

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Term
Action Analysis Report
Definition
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.
Term
Activity
Definition
An event that causes the consumption of overhead resources in an organization.
Term
Activity Based Costing (ABC)
Definition
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.
Term
Activity Based Management (ABM)
Definition
A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects.
Term
Activity Cost Pool
Definition
A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system.
Term
Activity Measure
Definition
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.
Term
Batch-Level Activity
Definition
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.
Term
Benchmarking
Definition
A systematic approach to identifying the activities with the greatest potential for improvement.
Term
Customer-level Activities
Definition
Activities that are carried out to support customers but that are not related to any specific product.
Term
Duration Driver
Definition
A measure of the amount of time required to perform an activity.
Term
First stage allocation
Definition
The process by which overhead costs are assigned to activity cost pools in an activity-based costing system.
Term
Organization sustaining activities
Definition
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.
Term
product level activities
Definition
Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.
Term
second stage allocation
Definition
The process by which activity rates are used to apply costs to products and customers in activity-based costing.
Term
transaction driver
Definition
A simple count of the number of times an activity occurs.
Term
unit level activities
Definition
Activities that are performed each time a unit is produced.
Term
Absorption costing
Definition
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
Term
Fixed manufacturing overhead cost deferred in inventory
Definition
The portion of the fixed manufacturing overhead cost of a period that goes into ending inventory under the absorption costing method
Term
Fixed manufacturing overhead cost released from inventory
Definition
The fixed manufacturing overhead cost of a prior period that becomes an expense of the current period under the absorption costing method.
Term
variable costing
Definition
A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.
Term
break-even point
Definition
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.
Term
contribution margin method
Definition
A method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit.
Term
contribution margin ratio
Definition
A ratio computed by dividing contribution margin by dollar sales.
Term
Cost-volume-profit (CVP) graph
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.
Term
Degree of operating leverage
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.
Term
equation method
Definition
A method of computing the break-even point that relies on the equation Sales = Variable expenses + Fixed expenses + Profits.
Term
incremental analysis
Definition
An analytical approach that focuses only on those costs and revenues that change as a result of a decision.
Term
margin of safety
Definition
The excess of budgeted (or actual) dollar sales over the break-even dollar sales
Term
operating leverage
Definition
A measure of how sensitive net operating income is to a given percentage change in dollar sales
Term
Sales mix
Definition
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.
Term
variable expense ratio
Definition
A ratio computed by dividing variable expenses by dollar sales.
Term
account analysis
Definition
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.
Term
activity base
Definition
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.
Term
committed fixed costs
Definition
Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.
Term
contribution approach
Definition
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.
Term
contribution margin
Definition
The amount remaining from sales revenues after all variable expenses have been deducted.
Term
cost structure
Definition
The relative proportion of fixed, variable, and mixed costs in an organization.
Term
dependent variable
Definition
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.
Term
discretionary fixed costs
Definition
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
Term
engineering approach
Definition
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.
Term
high-low method
Definition
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.
Term
independent variable
Definition
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.
Term
least-squares regression model
Definition
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.
Term
linear cost behavior
Definition
Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.
Term
mixed cost
Definition
A cost that contains both variable and fixed cost elements.
Term
multiple regression
Definition
An analytical method required when variations in a dependent variable are caused by more than one factor
Term
relevant range
Definition
The range of activity within which assumptions about variable and fixed cost behavior are reasonably valid.
Term
step-variable cost
Definition
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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