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Budget

answer

A detailed plan for the future that is usually expressed in formal quantitative terms. (p. 3)

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Controlling

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The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change. (p. 3)

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Corporate social responsibility

answer

A concept whereby organizations consider the needs of all stakeholders when making decisions. (p. 14)

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Enterprise risk management

answer

A process used by a company to identify its risks and develop responses to them that enable it to be reasonably assured of meeting its goals. (p. 12)

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Lean Production

answer

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. (p. 16)

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Performance Report

answer

Compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance. (p. 4)

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Segment

answer

A part or activity of an organization about which managers would like cost, revenue, or profit data. (p. 3)

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Value chain

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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. (p. 15)

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Account analysis

answer

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. (p. 39)

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Activity base

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A measure of whatever causes the incurrence of a variable cost. Also known as a cost driver. Most common examples include direct labor-hours, machine-hours, units produced, and units sold (p. 33)

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Administrative costs

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All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling (p. 30)

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Committed fixed costs

answer

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes. (p. 35)

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Common cost

answer

A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. (p. 29)

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Contribution approach

answer

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes. (p. 45)

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Contribution margin

answer

The amount remaining from sales revenues after all variable expenses have been deducted. (p. 45)

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Conversion cost

answer

Direct labor cost plus manufacturing overhead cost. (p. 32)

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Cost behavior

answer

The way in which a cost reacts to changes in the level of activity. (p. 33)

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Cost object

answer

Anything for which cost data are desired. Examples are products, customers, jobs, and parts of the organization such as departments or divisions. (p. 28)

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Cost structure

answer

The relative proportion of fixed, variable, and mixed costs in an organization. (p. 33)

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Dependent variable

answer

A variable that responds to some causal factor. (p. 39)

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Differential cost

answer

A difference in cost between two alternatives. Also see Incremental cost. (p. 46)

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Differential revenue

answer

The difference in revenue between two alternatives. (p. 46)

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Direct cost

answer

A cost that can be easily and conveniently traced to a specified cost object. (p. 28)

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Direct labor

answer

Factory labor costs that can be easily traced to individual units of product. Also called touch labor. (p. 29)

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Direct materials

answer

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it. (p. 29)

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Discretionary fixed costs

answer

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research. (p. 35)

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Engineering approach

answer

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. (p. 39)

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Fixed cost

answer

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 (i.e. more units produced means a smaller average fixed cost per unit) (p. 34)

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High-low method

answer

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. (p. 40)

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Incremental cost

answer

An increase in cost between two alternatives. Also see Differential cost. (p. 46)

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Independent variable

answer

A variable that acts as a causal factor. (p. 40)

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Indirect cost

answer

A cost that cannot be easily and conveniently traced to a specified cost object. (p. 29)

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Indirect labor

answer

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products. (p. 30)

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Indirect materials

answer

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. (p. 29)

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Least-squares regression method

answer

A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. (p. 42)

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Linear cost behavior

answer

A straight line is a reasonable approximation for the relation between cost and activity. (p. 40)

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Manufacturing overhead

answer

All manufacturing costs except direct materials and direct labor. (p. 30)

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Mixed cost

answer

A cost that contains both variable and fixed cost elements. (p. 37)

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Opportunity cost

answer

The potential benefit that is given up when one alternative is selected over another. (p. 46)

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Period costs

answer

Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. (p. 31)

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Prime cost

answer

Direct materials cost plus direct labor cost. (p. 32)

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Product costs

answer

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing over head. Also see Inventoriable costs. (p. 31)

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Raw materials

answer

Any materials that go into the final product. (p. 29)

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Relevant range

answer

The range of activity within which assumptions about variable and fixed cost behavior are valid. (p. 36)

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Selling costs

answer

All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer. (p. 30)

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Sunk cost

answer

A cost that has already been incurred and that cannot be changed by any decision made now or in the future. (p. 46)

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Variable cost

answer

A cost that varies, in total, in direct proportion to changes in the level of activity. This cost is constant per unit. (p. 33)

Managerial Accounting (15e) by Garrison, Noreen, and Brewer (Ch. 1-2) – Flashcards

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