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Financial Accounting

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concerned with reporting financial information to external parties (stockholders, creditors, and regulators).

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Managerial Accounting

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concerned with providing information to managers for use within the organization.

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Budget

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Detailed plan for the future that is usually expressed in formal quantitative terms

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Performance Report

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compares budget data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance

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Strategy

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a "game plan" that enables a company to attract customers by distinguishing itself from competitors.

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Corporate social Responsibility (CSR)

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A concept whereby organizations consider the needs of all stakeholders when making decisions such as the environment and the community around the business

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Business Process

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a series of steps that are followed in order to carry out some tasks in a business

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Value train

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consists of the major business functions that add value to a company's products and services.

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Lean Production

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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

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Segment

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activity of an organization about which managers would like cost, revenue, or profit data

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Planning

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The process of establishing goals and specifying how to achieve them

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Enterprise Risk Management

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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

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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

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Account analysis

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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

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Activity base

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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

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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

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Committed fixed costs

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

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Common cost

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A cost that is incurred to support a number of cost objects but that 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

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Contribution approach

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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

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Contribution margin

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

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Conversion cost

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Direct labor cost + manufacturing overhead cost (DL + MoH)

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Cost behavior

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

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Cost object

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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

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Cost structure

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

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Dependent variable

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A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y 5 a 1 bX

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Differential cost

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A difference in cost between two alternatives.

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Differential revenue

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The difference in revenue between two alternatives

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Direct cost

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

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Direct materials

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

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Discretionary fixed costs

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

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Engineering approach

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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

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Fixed cost

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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.

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High- low method

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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

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Incremental cost

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An increase in cost between two alternatives.

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Independent variable

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A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y 5 a 1 bX

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Indirect cost

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

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Indirect labor

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

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Indirect materials

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

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Inventoriable costs

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Synonym for product costs

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Least- squares regression method

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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

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Linear cost behavior

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

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Manufacturing overhead

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All manufacturing costs except direct materials and direct labor includes items such as indirect materials and indirect labor maintenance and repairs on production equipment heat and light property taxes insurance depreciation

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Mixed cost

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A cost that contains both variable and fixed cost elements

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Period costs

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that are taken directly to the income statement as expenses in the period in which they are incurred or accrued they are everything that is not a product cost

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Prime cost

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materials cost plus direct labor cost (Materials + DL)

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Product costs

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All costs that are involved in acquiring or making a product. In the case of manu-factured goods, these costs consist of direct materials, direct labor, and manufacturing over-head

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Raw materials

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Any materials that go into the final product

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Relevant range

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

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Selling costs

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

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Sunk cost

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

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Variable cost

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

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Absorption costing

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A costing method that includes all manufacturing costs— direct materials, direct labor, and both variable and fixed manufacturing overhead— in the cost of a product

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mixed cost

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contains variable and fixed costs elements

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