Accounting 202 Test #1
Corporate Social Responsibility
A concept whereby organizations consider all stakeholders in decision making
Common cost
A cost incurred to support a number of cost objects but cannot be traced to them individually (type of indirect cost)
Direct cost
A cost that can be easily and conveniently traced to a specific cost object...To be traced to a cost object such as a particular product, the cost must be caused by the cost object
Indirect cost
A cost that cannot be easily, conveniently traced to a cost object
Fixed cost
A cost that remains constant, regardless of any changes in the level of activity
Budget
A detailed plan for the future that is expressed in formal, quantitative forms
Cost driver
A factor, such as machine hours, that causes overhead costs
Strategy
A game plan that enables a company to attract customers by distinguishing itself from competitors
Activity base
A measure of whatever causes the incurrence of a variable cost, also called a cost driver
Allocation base
A measure such as direct labor hours that is used to allocate manufacturing overhead
Enterprise Risk Management
A process used by a company to identify those risks and develop responses to them that enable it to be reasonably assured of meeting its goals
Business process
A series of steps that are followed in order to carry out some task in business
Common-size financial statement
A vertical analysis in which each financial statement account is expressed as a percentage
Selling cost
All costs incurred to secure customers' orders and get the finished product to the customer (advertising, commissions, etc.)
Product cost
All costs involved in acquiring or making a product (direct materials, direct labor, and manufacturing overhead)
Period cost
All the costs that aren't product costs (selling and administrative expenses), expensed on the income statement
Discretionary fixed costs
Arise from annual decisions to spend money on certain fixed cost items
Overhead application
Assigning overhead cost to jobs
Independent variable
Causes variation in the cost
Performance Report
Compares budgeted data to actual data to identify and learn from performance
Finished goods
Completed units of product that have not yet been sold to customers
Direct labor
Consists of labor costs that can be easily (physically and conveniently) traced to individual units of products, sometimes called touch labor because direct labor workers typically touch the product while it is being made
Value chain
Consists of the major business functions that add value to a company's products and services
Mixed cost
Contains both variable and fixed cost elements
Sunk cost
Cost that has already been incurred and that cannot be changed by any decision made now or in the future
Dependent variable
Cost, depends on the level of activity for the period
Administrative cost
Costs associated with general management rather than manufacturing or selling
Working capital
Current assets - current liabilities
Incremental cost
Differential cost, difference in cost between any 2 alternatives
Variable cost
Direct proportion to changes in the level of activity
Predetermined overhead rate
Dividing total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base
Planning
Establishing goals and how to achieve them
Vertical analysis
Focuses on relations among financial statement accounts at a given point in time
Controlling
Gathering feedback to ensure a plan is being properly executed or modified as circumstances change
Cost behavior
How a cost reacts to a change in a level of activity
High-low method
Identifying the period with the highest and lowest level of activity, and then calculating slope (y2-y1/x2-x1)...this gives us variable cost, which we use to calculate that portion of the mixed cost
Negative financial leverage
If ROA < after tax cost of financing, leverage is negative
Positive financial leverage
If ROA>after tax cost of financing, leverage is positive
Indirect materials
Included as part of the manufacturing overhead, not traceable to a specific cost...(glue, minor items, etc.)
Manufacturing Overhead
Includes all manufacturing costs except direct materials and direct labor (ie. indirect materials, indirect labor, maintenance and repairs, depreciation on manufacturing facilities)...Selling and administrative not included here!
Indirect labor
Labor costs that cannot be physically traced to a particular product, or that be traced only at great cost and inconvenience)
Lean production
Management process that only caters business productions to customer orders
Cost of goods manufactured
Manufacturing costs associated with the goods that were finished during the period
Direct materials
Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product
Committed fixed costs
Organizational investments for a multiyear plan
Opportunity cost
Potential benefit that's given up when one alternative is selected over another
Inventoriable cost
Product costs that are assigned to inventory
Cost structure
Proportion of each type of cost (variable, fixed, and mixed) in a company
Contribution approach
Provides managers with an income statement that distinguishes between types of costs
Relevant range
Range of activity within which the assumption that cost behavior is strictly linear is reasonably valid
Financial leverage
Refers to borrowing money to acquire assets in an effort to increase sales and profits
Contribution margin
Sales-Variable expenses
Decision making
Selecting a course of action from competing alternatives
Conversion cost
Sum of direct labor and manufacturing overhead
Prime cost
Sum of direct materials cost and direct labor
Raw materials
The materials that go into the final product
Horizontal analysis
Trend analysis, analyzing financial data over time (percentage change from year to year)
Work in process
Units of product that are only partially complete and will require further work before they are ready for sale
If overhead is overapplied
We credit COGS
If overhead is underapplied
We debit COGS