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.