Chapter 1-4 Terms

Activity-based costing

A costing approach that assigns resource costs to cost objects based on activities performed for the cost objects.

normal costing system

A costing process that uses actual costs for direct materials and direct labor and applies factory overhead to various jobs using a predetermined application rate.

actual costing system

A costing process that uses actual costs incurred for direct materials, direct labor, and factory overhead.

cost driver

A factor that causes or relates to a change in the cost of an activity.

enterprise risk management

A framework and process that firms use to manage the risks that could negatively or positively affect the company's competitiveness and success.

strategy map

A graphical representation of the organization's value proposition; used to depict the series of causes and effects embodied in the various perspectives of an organization's balanced scorecard.

value stream

A group of related products; useful for preparing profitability reports as part of lean accounting; all the activities required to create customer value for a family of products or services.

operation costing

A hybrid costing system that uses job costing to assign direct materials costs to jobs and process costing to assign conversion costs to products or services.

business process improvement

A management method by which managers and workers commit to a program of continuous improvement in quality and other critical success factors.

periodic inventory system

A method that involves a count of inventory at the end of each accounting period to determine the ending balance in inventory.

perpetual inventory system

A method that updates the finished goods inventory account for each purchase or sales transaction.

life-cycle costing

A method used to identify and monitor the costs of a product throughout its life cycle.

strategy

A plan for using resources to achieve sustainable goals within a competitive environment.

Materials Inventory

Cost of the supply of materials used in the manufacturing process or to provide the service.

actual factory overhead

Costs incurred in an accounting period for indirect materials, indirect labor, and other indirect production costs, including factory rent, insurance, property tax, depreciation, repairs and maintenance, power, light, heat, and employer payroll taxes for factory personnel.

conversion cost

Direct labor and factory overhead combined into a single amount.

executional cost drivers

Factors that the firm can manage in the short term to reduce costs such as workforce involvement, design of the production process, and supplier relationships.

value activities

Firms in an industry perform activities to design, manufacture, and provide customer service.

cost

Incurred when a resource is used for some purpose.

critical success factors

Measures of those aspects of the firm's performance that are essential to its competitive advantage and therefore to its success.

product costs

Only the costs necessary to complete the product (direct materials, direct labor, and factory overhead).

costing

The process of accumulating, classifying, and assigning direct materials, direct labor, and factory overhead costs to products, services, or projects.

cost assignment

The process of assigning costs to cost pools or from cost pools to cost objects.

cost allocation

The process of assigning indirect costs to cost pools and cost objects.

relevant range

The range of the cost driver in which the actual value of the cost driver is expected to fall, and for which the relationship between the cost and the cost driver is assumed to be approximately linear.

prime costs

The sum of direct materials and direct labor.

total manufacturing cost

The sum of materials used, labor, and overhead for the period.

management control

The system used by upper-level managers to evaluate the performance of other managers.

average cost

The total cost of manufacturing resources consumed divided by the units of output (materials, labor, and overhead).

unit cost

The total manufacturing cost (materials, labor, and overhead) divided by the number of units of output.

total quality management

The unyielding and continuous effort by everyone in the organization to understand, meet, and exceed customer expectations.

cost leadership

A competitive strategy in which a firm outperforms competitors in producing products or services at the lowest cost.

differentiation

A competitive strategy in which a firm succeeds by developing and maintaining a unique value for the product (or service) as perceived by customers.

direct cost

A cost conveniently and economically traced directly to a cost pool or a cost object.

job cost sheet

A cost sheet that records and summarizes the cost of direct materials, direct labor, and factory overhead for a particular job.

variable cost

A cost that changes in total in response to changes in one or more cost drivers.

mixed cost

A cost that includes both variable and fixed cost components.

indirect cost

A cost that is not conveniently or economically traceable to a specific cost pool or cost object.

step cost

A cost that varies with the cost driver, but in discrete steps; also called semi-fixed cost.

benchmarking

A process by which a firm identifies its critical success factors, studies the best practices of other firms (or other business units within a firm) for achieving these critical success factors, and then implements improvements in the firm's processes to match or beat the performance of those competitors.

overhead application

A process of allocating overhead costs to cost objects.

job costing

A product costing system that accumulates and assigns costs to specific jobs, customers, projects, or contracts.

management accounting

A profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy.

internal accounting controls

A set of policies and procedures that restrict and guide activities in the processing of financial data with the objective of preventing or detecting errors and fraudulent acts.

time ticket

A sheet showing the time an employee worked on each job, the pay rate, and the total cost chargeable to each job.

value-chain analysis

A strategic analysis tool used to identify where value to customers can be increased or costs reduced, and to better understand the firm's linkages with suppliers, customers, and other firms in the industry.

SWOT analysis

A systematic procedure for identifying a firm's critical success factors: its internal strengths and weaknesses and its external opportunities and threats.

period costs

All nonproduct expenditures for managing the firm and selling the product; also referrred to as selling, general, and administrative expenses.

overhead

All the indirect costs commonly combined into a single cost pool; called factory overhead in a manufacturing firm.

factory overhead

All the indirect manufacturing costs commonly combined into a single cost pool in a manufacturing firm.

balanced scorecard

An accounting report that includes the firm's critical success factors in four areas: (1) financial performance, (2) customer satisfaction, (3) internal processes, and (4) learning and growth.

theory of constraints

An analysis of operations that improves profitability and cycle time by identifying the bottleneck in the operation and determining the most profitable product mix given the bottleneck.

value chain

An analytic tool firms use to identify the specific steps required to provide a product or service to the customer.

business intelligence

An approach to strategy implementation in which the management accountant uses data to understand and analyze business performance.

predetermined factory overhead rate

An estimated rate used to apply factory overhead cost to a cost object.

Work-in-Process Inventory

An inventory account that contains all costs put into the manufacture of products that are started but not complete at the financial statement date.

materials requisition

An online data entry or a source document used to request the release of materials into the production process.

cost object

Any product, service, customer, activity, or organizational unit to which costs are accumulated for some management purpose.

planning and decision making

Budgeting and profit planning, cash flow management, and other decisions related to operations.

preparation of financial statements

Requires management to comply with the financial reporting requirements of regulatory agencies.

core competencies

Skills or competencies that the firm employs especially well.

structural cost drivers

Strategic plans and decisions that have a long-term effect with regard to issues such as scale, experience, technology, and complexity.

indirect labor cost

Supervision, quality control, inspection, purchasing and receiving, and other labor-related manufacturing support costs; a component of total manufacturing overhead.

lean accounting

The accounting technique that uses value streams to measure the financial benefits of a firm's progress in implementing lean manufacturing.

factory overhead applied

The amount of overhead assigned to a cost object using a predetermined factory overhead rate.

underapplied overhead

The amount that actual factory overhead exceeds the factory overhead applied for a given accounting period.

sustainability

The balancing of the company's short and long-term goals in all three dimensions of performance- social, environmental, and financial.

allocation bases

The cost drivers used to allocate costs.

Finished Goods Inventory

The cost of goods that are ready for sale.

cost of goods manufactured

The cost of goods that were finished and transferred out of the Work-in-Process inventory account during a given period.

indirect materials cost

The cost of materials used in manufacturing that are not part of the product or are not easily or economically traceable to the finished produce; a component of total manufacturing overhead.

direct materials cost

The cost of the materials in the product and a reasonable allowance for scrap and defective units.

cost of goods sold

The cost of the product transferred to the income statement when inventory is sold.

target costing

The desired cost for a product as determined on the basis of a given competitive price, so the product will earn a desired profit.

strategic management

The development and implementation of a sustainable competitive position.

cost management

The development and use of cost management information.

activity analysis

The development of a detailed description of the specific activities performed in the firm's operations.

overapplied overhead

The excess of applied overhead over actual factory overhead cost for a period.

cost management information

The information developed and used to implement the organization's strategy. It consists of financial information about costs and revenues and nonfinancial information about customer retention, productivity, quality and other key success factors for the organization.

direct labor cost

The labor used to manufacture the product or to provide the service.

cost pools

The meaningful groups into which costs are collected.

operational control

The monitoring of short-term operating performance; takes place when mid-level managers monitor the activities of operating-level managers and employees.

fixed cost

The portion of the total cost that does not change with a change in the quantity of a designated cost driver within the relevant range.

activity-based management

Uses activity analysis and activity-based costing to help managers identify the value of activities and to make strategic performance management decisions- adding and deleting products, adjusting process capacities, adjusting prices, removing costs and complexities, and more.