Managerial Accounting CH 5 : Activity based costing and management

Consumption ratio

220, the proportion of an overhead activity consumed by a product.

Driver analysis

237, the effort expended to identify those factors that are the root causes of activity costs.

Activity output measure

237, the number of times an activity is performed. It is the quantifiable measure of the output.

Activity analysis

237, the process of identifying, describing, and evaluating the activities an organization performs.

Nonvalue- added costs

239, costs that are caused either by nonvalue-added activities or by the inefficient performance of value-added activities.

Activity sharing

240, increasing the efficiency of necessary activities by using economies of scale.

Activity selection

240, the process of choosing among sets of activities caused by competing strategies.

Amount of Activity Driver per Product /Total Driver Quantity

Consumption Ratio (equation)

Time / Units Produced

Cycle Time

Total Overhead Costs /Total Direct Labor Hours

Overhead ( equation)

Units Produced /Time

Velocity

Activity- based costing (ABC) system

a cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign costs to cost objects.

Activity dictionary

a list of activities described by specific attributes such as name, definition, classification as primary or secondary, and activity driver.

Activity- based management

a systemwide, integrated approach that focuses management's attention on activities with the objective of improving customer value and the profit achieved by providing this value. It includes driver analysis, activity analysis, and performance evaluation, and draws on activity-based costing as a major source of information.

Activity

action taken or work performed by equipment or people for other people.

value-added activities

activities that are necessary for a business to achieve corporate objectives and remain in business.

Nonvalue- added activities

all activities other than those that are absolutely essential to remain in business.

Process-value analysis

an approach that focuses on processes and activities and emphasizes systemwide performance instead of individual performance.

Value-added costs

costs caused by value-added activities.

Activity reduction

decreasing the time and resources required by an activity.

Activity drivers

factors that measure the consumption of activities by products and other cost objects. Mowen, Maryanne M.; Hansen, Don R.; Heitger,

Nonunit- level activity drivers

factors that measure the consumption of nonunit-level activities by products and other cost objects.

Resource drivers

factors that measure the consumption of resources by activities.

Unit-Level activities

factors that measure the consumption of unit-level activities by products and other cost objects.

Work distribution matrix

identifies the amount of labor consumed by each activity and is derived from the interview process (or a written survey).

Cycle time

the length of time required to produce one unit of a product.

Velocity

the number of units that can be produced in a given period of time (e.g., output per hour).

Activity elimination

the process of eliminating nonvalue-added activities.

Activity inputs

the resources consumed by an activity in producing its output. (They are the factors that enable the activity to be performed.)

Activity outputs

the result or product of an activity.

Product diversity

the situation present when products consume overhead in different proportions.