Managerial Accounting Test 1

Strategy

A company's "game plan" for attracting customers by distingushing itself from competitors.

Corporate Social Responsiblity

A concept whereby organizations consider the needs of all stakeholders when makind decisions.

Direct Cost

A cost that can be easily and conveniently traced to a specified cost object.

Independent Cost

A cost that cannot be easily and conveniently traced to a specified cost object.

Indirect Cost

A cost that cannot be easily and conveniently traced to a specified cost object.

Mixed Cost

A cost that contains both variable and fixed cost elements.

Sunk Cost

A cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Common Cost

A cost that is incurred to support a number of cost objects but cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot's wage is caused by any one passenger taking the flight.

Fixed Cost

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.

Variable Cost

A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.

Engineering Approach

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.

Budget

A detailed plan for the future that is usually expressed in formal quantitative terms.

Differential Cost

A difference in cost between two alternatives. Also see Incremental Cost.

Theory of Constraints

A management approach that emphasizes the importance of managing constraints.

Lean Production

A management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders.

Activity Base

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.

Account Analysis

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.

High-Low Method

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.

Least-Squares Regression Method

A method of sepoarating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors.

Segment

A part or acivity of an organizaton about which managers whould like cost, revenue, or profit data.

Enterprise Risk Management

A process used by a company to identify its risks and devlop responses to them that enable it to be reasonably assured of meeting its goals.

Performance Report

A report that compares budgeted data to actual data to highlight instances of excellent and unsatisfactory performance.

Business Process

A series of steps that are followed in order to carry out some task in a business.

Dependent Variable

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.

Selling Costs

All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer.

Product Costs

All costs that are involved in aquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Also see Inventoriable Costs.

Administrative Costs

All executive, organizational, and clreical costs associated with the general management of an organization rather than with manufacturing or selling.

Manufacturing Overhead

All manufacturing costs except direct materials and direct labor.

Contribution Approach

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categoreies rather than being separated into product and period costs for external reporting purposes.

Incremental Cost

An increase in cost between two alternatives. Also see Differential Cost.

Raw Materials

Any materials that go into the final product.

Cost Object

Anything for which cost data are desired. Examples of cost objects are products, customers, jobs, and parts of the organization such as departments or divisions.

Constraint

Anything that prevents you from getting more of what you want.

Linear Cost Behavior

Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.

Period Costs

Costs that are taken directly to the income statement as expenses in the period in which they are incrurred or accrued.

Coversion Cost

Direct labor cost plus manufacturing overhead cost.

Direct Labor

Factory labor costs that can be easily traced to individual units of product. Also called touch labor.

Committed Fixed Costs

Investment in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.

Direct Materials

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

Decision Making

Selecting a course of action from competing alternatives.

Indirect Materials

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.

Inventoriable Costs

Synonym for product costs

Contribution Margin

The amount remaing from sales revenues after all variable expenses have been deducted.

Differential Revenue

The difference in revenue between two alternatives.

Indirect Labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.

Value Chain

The major business functions that add value to a company's products and services, such as research and development, product design, manufacturing, marketing, distribution, and customer service.

Managerial Accounting

The phase of accounting that is concerned with providing information to mangers for use within the organization.

Financial Accounting

The phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators.

Opportunity Cost

The potential benefit that is given up when one alternativeis selected over another.

Planning

The process of establishing goals and specifying how to achieve them.

Controlling

The process of gathering feedback to ensure that a plan is being properly executed or modified as cirumstances change.

Relevant Range

The range of activity within which assumptions about variable and fixed cost behavior are valid.

Cost Structure

The relative proportion of fixed, variable, and mixed costs in an organization.

Cost Behavior

The way in which a cost reacts to changes in the level of activity.

Discretionary Fixed Cost

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.