Chapter 3: Basic Cost Management Concepts – Flashcards
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allocation bases
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the cost drivers used to allocate costs.
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average cost or unit cost
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the total manufacturing cost (materials, labor, and overhead) divided by the number of units of output
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conversion cost
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refers to direct labor and overhead combined into a single amount
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cost
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incurred when a resource is used for some purpose
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cost allocation
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the assignment of indirect costs to cost pools and cost objects.
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cost assignment
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the process of assigning costs to cost pools or from cost pools to cost objects.
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cost driver
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any factor that causes a change in the cost of an activity
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cost object
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any product, service, customer, activity, or organizational unit to which costs are assigned for some management purpose
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cost of goods manufactured
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the cost of goods finished and transferred out of the Work-inProcess Inventory account this period.
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cost of goods sold
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the cost of the product transferred to the income statement when inventory is sold.
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cost pools
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the meaningful groups into which costs are often collecte
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direct cost
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can be conveniently and economically traced directly to a cost pool or a cost object
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direct labor cost
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includes the labor used to manufacture the product or to provide the service
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direct materials cost
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includes the cost of the materials in the product and a reasonable allowance for scrap and defective unit
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executional cost drivers
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factors the firm can manage in the short term to reduce costs, such as workforce involvement, design of the production process, and supplier relationships.
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factory overhead
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All indirect costs are commonly combined into a single cost in a factory
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finished goods inventory
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the cost of goods that are ready for sale.
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fixed cost
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the portion of the total cost that does not change with a change in the quantity of the cost driver within the relevant rang
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indirect cost
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has no convenient or economical trace from the cost to the cost pool or from the cost pool to the cost object.
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indirect labor cost
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includes supervision, quality control, inspection, purchasing and receiving, and other manufacturing support costs.
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indirect materials cost
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refers to the cost of materials used in manufacturing that are not physically part of the finished product.
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internal accounting controls
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a set of policies and procedures that restrict and guide activities in the processing of financial data with the objective of preventing or detecting errors and fraudulent acts.
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materials inventory
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the cost of the supply of materials used in the manufacturing process or to provide the service.
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mixed cost
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the term used to refer to total cost when total cost includes both variable and fixed cost components
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overhead
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All indirect costs are commonly combined into a single cost
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period costs
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are all non product expenditures for managing the firm and selling the product.
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prime costs
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refer to direct materials and direct labor that are combined into a single amount.
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product costs
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for a manufacturing firm include only the costs necessary to complete the product: direct materials, direct labor, and factory overhea
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relevant range
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the range of the cost driver in which the actual value of the cost driver is expected to fall and for which the relationship to total cost is assumed to be approximately linear.
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step cost
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varies with the cost driver but in steps.
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structural cost drivers
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strategic in nature and involve plans and decisions that have a long-term effect with regard to issues such as scale, experience, technology, and complexit
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total manufacturing cost
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the sum of materials used, labor, and overhead for the period.
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unit cost or average cost
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the total manufacturing cost (materials, labor, and overhead) divided by the number of units of output
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value stream
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a group of related products
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variable cost
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the change in total cost associated with each change in the quantity of the cost driver.
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work-in-process inventory
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contains all costs put into the manufacture of products that are started but not complete at the financial statement date.
