Ch 25

Normal selling price

Cost amount per unit + Markup

Markup percentage

Desired profit + total selling and administrative expenses / total product cost

Desired profit

Desired rate of return x total assets

Activity rate

Estimated activity cost / estimated activity-base usage

Target cost

Expected selling price - desired profit

True

If the company is operating at full capacity, any additional production increases fixed and variable manufacturing costs. Selling and administrative expenses may also increase because of the additional business T/F

True

If the company is operating below full capacity, any additional production does not increase fixed manufacturing costs. T/F

Product cost per unit

Total product cost / Estimated units produced and sold

Theory of constraints

a manufacturing strategy that focuses on reducing the influence of bottlenecks on production process

Activity base

a measure of physical activity for each activity.

Target costing

a method of setting prices that combines market-based pricing with a cost-reduction emphasis.

Sunk costs

costs that have been incurred in the past, cannot be recouped, and are not relevant to future decisions

Activity based costing

identifies and traces costs and expenses to activities and then to specific products

Product cost concept

only the costs of manufacturing the product, termed the product costs, are included in the cost amount per unit to which the markup is added.

Differential cost

the amount of increase or decrease in cost that is expected from a course of action as compared to an alternative.

Differential revenue

the amount of increase or decrease in revenue that is expected from a course of action compared to an alternative.

Differential income

the difference between the differential revenue and differential costs

Differential analysis

(Sometimes called incremental analysis) analyzes differential revenues and costs in order to determine the differential impact on income of two alternative courses of action.

Production bottleneck

(or constraint) a point in the manufacturing process where the demand for the company's product exceeds the ability to produce the product

Markup per unit

Markup percentage x product cost per unit

Engineering change order

The document that initiates changing a product or process

Opportunity cost

The revenue that is forgone from an alternative use of an asset such as cash.