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Absorption costing  A costing method that includes all manufacturing costs—direct materials, direct labour, and both variable and fixed overhead—as part of the cost of a finished unit of product. This term is synonymous with full cost.
Absorption costing  A costing method that includes all manufacturing costs—direct materials, direct labour, and both variable and fixed manufacturing overhead—in the cost of a unit of product. Absorption costing is also referred to as the full cost method.
Account analysis  A method for analyzing cost behaviour in which each account under consideration is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.
Accounts receivable turnover  A rough measure of how many times a company’s accounts receivable have been turned into cash during the year.
Acid-test (quick) ratio  Test of short-term debt-paying ability without having to rely on -inventory.
Action analysis report  A report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity.
Activity  Any event that causes the consumption of overhead resources.
Activity base  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 an activity base for explaining the total cost of X-ray film.
Activity cost pool  A “bucket” in which costs are accumulated that relate to a single activity measure in the activity-based costing system.
Activity measure  An allocation base in an activity-based costing system; ideally a measure of the amount of activity that drives the costs in an activity cost pool; also called a cost driver.
Activity-based budgeting  A type of budgeting in which emphasis is placed on budgeting the costs of the activities needed to produce and market the firm’s goods and services.
Activity-based costing (ABC)  A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed costs.
Activity-based management (ABM)  A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects.
Administrative costs  All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing, marketing, or selling.
After-tax benefit  The amount of net cash inflow realized from a taxable cash receipt after income tax effects have been considered. The amount is determined by multiplying the taxable cash receipt by (1 – Tax rate).
After-tax cost  The amount of net cash outflow resulting from a tax-deductible cash expense after income tax effects have been considered. The amount is determined by multiplying the tax-deductible cash expense by (1 – Tax rate).
Allocation base  A measure of activity such as direct labour-hours or machine-hours that is used to assign costs to cost objects.
Annuity  A series, or stream, of identical cash flows.
Appraisal costs  Costs that are incurred to identify defective products before the products are shipped to customers.
Average collection period  Measure of the average number of days taken to collect an account receivable.
Average sale period  Measure of the average number of days taken to sell the inventory one time.
Avoidable cost  Any cost that can be eliminated (in whole or in part) by choosing one alternative over another in a decision-making situation. In managerial accounting, this term is synonymous with relevant cost and differential cost.
Balanced scorecard  An integrated set of performance measures that is derived from and supports the organization’s strategy.
Batch-level activities  Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.
Benchmarking  The process of measuring a firm against the most -successful firms in the industry.
Bill of materials  A document that shows the type and quantity of each major item of the materials required to make a -product.
Bill of materials  A listing of the quantity of each type of material required to manufacture a unit of product.
Book value per share  Measures the amount that would be distributed to holders of common shares if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off.
Bottleneck  A machine or process that limits total output because it is operating at capacity.
Bottlenecks  A machine, activity or process that limits total output because it is operating at capacity.
Break-even point  The level of sales at which profit is zero. The break-even point can also be defined as the point where total sales equals total expenses or as the point where total contribution margin equals total fixed expenses. Sales – variable expenses – fixed expenses = $0.00
Budget  A detailed plan for the future, usually expressed in formal quantitative terms.
Budget  A detailed plan for the acquisition and use of financial and other resources over a specified time period.
Budget committee  A group of key management personnel responsible for: overall policy matters related to the budget program, coordinating the preparation of the budget, handling disputes related to the budget, and approving the final budget.
Budget variance  A measure of the difference between the actual fixed overhead costs incurred during the period and budgeted fixed overhead costs as contained in the flexible budget.
Business process  A series of steps that are followed in order to carry out some task in a business.
Capital budgeting  The process of planning significant outlays on projects that have long-term implications, such as the purchase of new equipment or the introduction of a new product.
Cash budget  A detailed plan showing how cash resources will be acquired and used over some specific time period.
Cash burn rate  The monthly rate of cash use.
Committed fixed costs  Those fixed costs that are difficult to adjust and that relate to the investment in facilities, equipment, and the basic organizational structure of a firm.
Common cost  A common cost is a cost that is common to a number of costing objects but cannot be traced to them individually.
Common fixed costs  A fixed cost that supports the operations of more than one segment but is not traceable in whole or in part to any one segment.
Common-size statement  A statement that shows the items appearing on it in percentage form as well as in dollar form. On the income statement, the percentages are based on total sales revenue; on the balance sheet, the percentages are based on total assets.
Compound interest  The process of paying interest on interest in an investment.
Constraint  A limitation under which a company must operate, such as limited machine time available or limited raw materials available, that restricts the company’s ability to satisfy demand.
Continuous or perpetual budget  A 12-month budget that rolls forward one month as the current month is completed.
Contribution approach  An income statement format that is geared to cost behaviour in that costs are separated into variable and fixed categories.
Contribution margin  The amount remaining from sales revenues after all variable expenses have been deducted.
Contribution margin (CM) ratio  The contribution margin as a percentage of total sales.
Contribution margin method  A method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit.
Control  The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals.
Control  Those steps taken by management that attempt to increase the likelihood that the objectives developed at the planning stage are attained and to ensure that all parts of the organization function in a manner consistent with organizational policies.
Controller  The manager in charge of the accounting department in an organization.
Controlling  Ensuring that the plan is actually carried out and is appropriately modified as circumstances change.
Conversion cost  Direct labour cost plus manufacturing overhead cost.
Conversion cost  Direct labour cost plus manufacturing overhead cost.
Conversion feature  A preferred shares or bond feature that allows the purchaser to convert preferred shares or bonds into common shares at some future time.
Corporate governance  A system by which a company is directed and controlled.
Cost behaviour  The way in which a cost reacts or responds to changes in the level of business activity.
Cost centre  A business segment whose manager has control over cost but has no control over revenue or the use of investment funds.
Cost driver  A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.
Cost object  Anything for which cost data are desired.
Cost object  The specific product or service to be costed.
Cost of capital  The overall cost to an organization of obtaining investment funds, including the cost of both debt sources and equity sources. (Same as hurdle rate, cut-off rate, and required rate of return.)
Cost of goods manufactured  The manufacturing costs associated with the goods that were finished during the period.
Cost of goods manufactured  Costs that contain the direct materials used, the direct labour used, and the manufacturing overhead used for the finished production during the period.
Cost structure  The -relative proportion of fixed, variable, and mixed costs found within an organization.
Cost structure  The relative proportion of fixed and variable costs in an organization.
Cost-plus pricing  A pricing method in which a predetermined markup is applied to a cost base to determine the target selling price.
Cost-volume-profit (CVP) graph  The relationships among revenues, costs, and level of activity in an organization presented in graphic form.
Costs of not carrying sufficient inventory  Those costs that result from not having enough inventory on hand to meet customers’ needs; such costs would include customer ill will, quantity discounts forgone, erratic production, added transportation charges, and lost sales.
Current ratio  Test of short-term debt-paying ability.
Curvilinear costs  A relationship between cost and activity that is a curve rather than a straight line.
Customer-level activities  Activities that are carried out to support customers but that are not related to any specific product.
Debt-to-equity ratio  Measure of the amount of assets being provided by creditors for each dollar of assets being provided by the shareholders.
Decentralization  The delegation of decision-making authority throughout an organization by providing managers at various operating levels with the authority to make key decisions -relating to their areas of responsibility.
Decentralized organization  An organization in which decision making is spread throughout the organization rather than being confined to a few top executives.
Degree of operating leverage  A measure, at a given level of sales, of how a percentage change in sales volume will affect profits. The degree of operating leverage is computed by dividing contribution margin by operating income.
Delivery cycle time  The amount of time required from receipt of an order from a customer to shipment of the completed goods.
Denominator activity  The activity figure used to compute the predetermined overhead rate.
Dependent variable  A variable that reacts or 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.
Dependent variable  A variable that reacts or 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.
Differential cost  A difference in cost between any two alternatives.
Differential cost  Any cost that differs between alternatives in a decision-making situation. In managerial accounting, this term is synonymous with avoidable cost and relevant cost.
Differential revenue??  The difference in revenue between any two alternatives.
Direct cost  A cost that can easily and conveniently be traced to the particular cost object under consideration.
Direct costing  Same as variable costing.
Direct labour  Those factory labour costs that can be traced easily to individual units of product. Also called touch labour.
Direct labour budget  A detailed plan showing labour requirements over some specific time period.
Direct materials  Those materials that become an integral part of a finished product and can be conveniently traced to it.
Direct materials budget  A detailed plan showing the amount of raw materials that must be purchased during a period to meet both production and inventory needs.
Directing and motivating  Mobilizing people to carry out plans and run routine operations.
Discount rate  The rate of return that is used to find the present value of a future cash flow.
Discounting  The process of finding the present value of a future cash flow.
Discretionary fixed costs  Those fixed costs that arise from annual decisions by management to spend in certain fixed cost areas, such as advertising and research.
Dividend payout ratio  An index showing whether a company pays out most of its earnings in dividends or reinvests the earnings internally.
Dividend yield ratio  Shows the return in terms of cash dividends being provided by a share.
Duration driver  A measure of the amount of time required to perform an activity.
Earnings per share  Net income available for common shareholders divided by the average number of common shares outstanding during the year.
Economic order quantity (EOQ)??  The order size for materials that results in a minimization of the costs of ordering inventory and carrying inventory.
Economic production lot size??  The number of units produced in a production lot that results in a minimization of set-up costs and the costs of carrying inventory.
Economic value added (EVA®)  A concept similar to residual income.
Ending finished goods inventory budget  A budget showing the dollar amount of cost expected to appear on the balance sheet for unsold units at the end of a period.
Engineering approach  A detailed analysis of cost behaviour 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.
Enterprise risk management  A process used by a company to proactively identify and manage foreseeable risks.
Enterprise system  A computer application designed to overcome problems in data inconsistency and duplication by integrating data across an organization into a single software system.
Equation method  A method of computing break-even sales using the contribution format income statement.
Equivalent units  The product of the number of partially completed units and their percentage of completion with respect to a particular cost. Equivalent units are the number of complete whole units one could obtain from the materials and effort contained in partially completed units.
Equivalent units of -production (weighted-average method)  The units transferred to the next department (or to finished goods) during the period plus the equivalent units in the department’s ending work in process inventory.
External failure costs  Costs that are incurred when a product or service that is defective is delivered to a customer.
Feedback  Accounting and other reports that help managers monitor performance and focus on problems and/or opportunities that might otherwise go unnoticed.
FIFO method  A method of accounting for cost flows in a process costing system in which equivalent units and unit costs relate only to work done during the current period.
Financial accounting  The phase of accounting concerned with providing information to shareholders, creditors, and others outside the organization.
Financial leverage  Acquiring assets with funds that have been obtained from creditors or from preferred shareholders at a fixed rate of return.
Finished goods  Inventories consisting of units of product that have been completed but have not yet been sold to customers.
Finished goods  Consist of units of product that have been completed but have not yet been sold to customers.
First-stage allocation  The process by which overhead costs are assigned to activity cost pools in an activity-based costing system.
Fixed cost  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.
Fixed manufacturing overhead cost deferred in inventory  The portion of the fixed manufacturing overhead cost of a period that goes into inventory under the absorption costing method as a result of production exceeding sales.
Fixed manufacturing overhead cost released from inventory  The portion of the fixed manufacturing overhead cost of a prior period that becomes an expense of the current period under the absorption costing method as a result of sales exceeding production.
Flexible budget  A budget that provides estimates of what revenues and costs should be for any level of activity within a specified range.
Flexible budget variance  The difference between actual and flexible budget amounts for revenues and expenses.
Full cost  Same as absorption costing.
Full cost method  Same as absorption costing.
Fully diluted earnings per share  An earnings per share figure showing full conversion into common shares.
Gross margin percentage  A broad gauge of profitability, calculated by dividing sales into the gross margin.
High-low method  A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low levels of activity.
Horizontal or trend analysis  A side-by-side comparison of two or more years’ financial statements.
Ideal standards  Standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times.
Incremental analysis  An analytical approach that focuses only on those items of revenue, cost, and volume that will change as a result of a decision.
Incremental cost  An increase in cost between two alternatives.
Independent variable  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.
Independent variable  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.
Indirect cost  A cost that cannot easily and conveniently be traced to the particular cost object under consideration.
Indirect labour  The labour costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced directly to particular -products.
Indirect materials  Small items of material such as glue and nails. These items may become an integral part of a finished product but are traceable to the product only at great cost or inconvenience.
Intermediate market  A market in which a transferred product or service is sold in its present form to outside customers.
Internal failure costs  Costs that are incurred as a result of identifying defective products before they are shipped to customers.
Internal rate of return  The discount rate at which the net present value of an investment project is zero; thus, the internal rate of return represents the interest yield promised by a project over its useful life. This term is synonymous with time-adjusted rate of return.
Inventoriable costs  Same as product costs.
Inventory carrying costs  Those costs associated with the storage of inventory, such as rental or storage space, handling costs, property taxes, insurance, and interest on funds.
Inventory ordering costs  Those costs associated with the acquisition of inventory, such as clerical costs and transportation costs.
Inventory turnover ratio  Measure of how many times a company’s inventory has been sold during the year.
Investment centre  A business segment whose manager has control over cost and revenue and also has control over the use of investment funds.
ISO 9000 standards  Quality control requirements issued by the International Standards Organization.
Job cost sheet  A form prepared for each job that records the materials, labour, and overhead costs charged to the job.
Job-order costing system  A costing system used in situations where many different products, jobs, or services are produced each period.
Joint product costs  Costs that are incurred up to the split-off point in producing joint products.
Joint products  Two or more items that are produced from a common input.
Just-in-time (JIT)  A pull system in the lean thinking model where production is not initiated until a customer has ordered a product.
Labour efficiency variance  A measure of the difference between the actual hours taken to complete a task and the standard hours allowed, multiplied by the standard hourly labour rate.
Labour rate variance  A measure of the difference between the actual hourly labour rate and the standard rate, multiplied by the number of hours worked during the period.
Lead time  The interval between the time that an order is placed and the time that the order is finally received from the supplier.
Lean thinking model  A five-step management approach that organizes resources around the flow of business processes and pulls units through in response to customer orders.
Least-squares regression method  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.
Line  A position in an organization that is directly related to the achievement of the -organization’s basic objectives.
Linear cost behaviour  Cost behaviour is linear when a straight line is a reasonable approximation for the relationship between cost and activity.
Make or buy decision  A decision as to whether an item should be produced internally or purchased from an outside supplier.
Management by exception  A system of management in which standards are set for various operating activities which are then periodically compared to actual results. Any differences that are deemed significant are brought to the attention of management as “exceptions.”
Managerial accounting  The phase of accounting concerned with providing information to managers for use in planning and controlling operations and for decision making.
Manufacturing cycle efficiency (MCE)  Process (value-added) time as a percentage of throughput time.
Manufacturing overhead  All costs associated with manufacturing except direct materials and direct labour.
Manufacturing overhead budget  A detailed plan showing the indirect production costs that will be incurred over a specified time period.
Margin  Operating income divided by sales.
Margin of safety  The excess of budgeted (or actual) sales over the break-even volume of sales.
Marginal costing  Same as variable costing.
Market price  The price being charged for an item on the open (intermediate) market.
Market share variance  Actual sales volume minus the anticipated portion of the actual market volume, multiplied by budgeted contribution margin per unit.
Market volume variance  Actual market volume minus budget market volume times anticipated market share, multiplied by budgeted contribution margin.
Marketing or selling costs  All costs necessary to secure customer orders and get the finished product or service into the hands of the customer.
Markup  The difference between the selling price of a product or service and its cost. The markup is usually expressed as a percentage of cost.
Master budget  A summary of a company’s plans in which specific targets are set for sales, production, distribution, and financing activities; generally culminates in a cash budget, budgeted income statement, and budgeted balance sheet.
Materials loading charge  A markup applied to the cost of materials that is designed to cover the costs of ordering, handling, and carrying materials in inventory and to provide for some profit.
Materials price variance  A measure of the difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased.
Materials quantity variance  A measure of the difference between the actual quantity of materials used in production and the standard quantity allowed, multiplied by the standard price per unit of materials.
Materials requisition form  A detailed source document that specifies the type and quantity of materials that are to be drawn from the storeroom and identifies the job to which the costs of materials are to be charged.
Mix variance  The dollar effect of a difference between the actual mix of materials and the budgeted mix of materials on total materials cost.
Mixed cost  A cost that contains both variable and fixed cost elements.
Months to burn out  The time needed to use up cash and liquid assets.
Multiple predetermined overhead rates  A costing system in which there are multiple overhead cost pools with a different predetermined rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Frequently, each production department is treated as a separate overhead cost pool.
Multiple regression  An analytical method required in those situations where variations in a dependent variable are caused by more than one factor.
Negative financial leverage  A situation in which the fixed return to a company’s creditors and preferred shareholders is greater than the return on total assets. In this situation, the return on common shareholders’ equity will be less than the return on total assets.
Negotiated transfer price  A transfer price agreed on between buying and selling divisions.
Net present value  The difference between the present value of the cash inflows and the present value of the cash outflows associated with an investment project.
Non-valued-added activities  Activities that customers are not willing to pay for because they add no value.
Normal cost system  A costing system in which overhead costs are applied to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.
Operating assets  Cash, accounts receivable, inventory, plant and equipment, and all other assets held for productive use in an organization.
Operating income  Income before interest and income taxes have been deducted.
Operating leverage  A measure of how sensitive operating income is to a given percentage change in sales. It is computed by dividing the contribution margin by operating income.
Operation costing  A hybrid costing system used when products are manufactured in batches and when the products have some common characteristics and some individual characteristics. This system handles materials the same as in job-order costing, and labour and overhead the same as in process costing.
Opportunity cost  The potential benefit that is given up when one alternative is selected over another.
Organization chart  A visual diagram of a firm’s organizational structure that depicts formal lines of reporting, communication, and responsibility between managers.
Organization-sustaining activities  Activities that are carried out regardless of which customers are serviced, which products are produced, how many batches are run or how many units are made.
Out of pocket costs  Actual cash outlays for operating costs.
Overapplied overhead  A credit balance in the Manufacturing Overhead account that arises when the amount of overhead cost applied to Work in Process is greater than the amount of overhead cost actually incurred during a period.
Overhead application  The process of charging manufac-turing overhead cost to job cost sheets and to the Work in Process account.
Overhead cost pool  A group of overhead cost elements.
Overtime premium  The extra hourly wage rate paid to workers who must work above their normal time requirements.
Participative budget  A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by the manager’s supervisor, and any issues are resolved by mutual agreement.
Payback period  The length of time that it takes for a project to recover its initial cost out of the cash receipts that it generates.
Performance report  A detailed report comparing budgeted data to actual data.
Period costs  Those costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued; such costs consist of selling (marketing) and administrative expenses.
Planning  Selecting a course of action and specifying how the action will be implemented.
Planning  Developing objectives and preparing budgets to achieve these objectives.
Planning and control cycle  The flow of management activities through planning, directing and motivating, and controlling, and then back to planning again.
Plantwide overhead rate  A single predetermined overhead rate that is used throughout a plant.
Positive financial leverage  A situation in which the fixed return to a company’s creditors and preferred shareholders is less than the return on total assets. In this situation, the return on common shareholders’ equity will be greater than the return on total assets.
Post-appraisal  Following up on a project that has been approved to see if expected results are realized.
Practical capacity  The productive capacity of operations at a theoretical level less unavoidable downtime.
Practical standards  Standards that allow for normal machine downtime and other work interruptions and that can be attained through reasonable, although highly efficient, efforts by the average employee.
Predetermined overhead rate  A rate used to charge overhead cost to jobs in production; the rate is established in advance for each period by use of estimates of total manufacturing overhead cost and of the total allocation base for the period.
Preference decision  A decision as to which of several competing acceptable investment proposals is best.
Present value  The value now of an amount that will be received in some future period.
Prevention costs  Costs that are incurred to keep defects from occurring.
Prime cost  Direct materials cost plus direct labour cost.
Process costing  A costing method used in situations where essentially homogeneous products are produced on a continuous basis.
Process costing system  A costing system used in those manufacturing situations where a single, homogeneous product (such as cement or flour) is produced for long periods of time.
Processing department  Any location in an organization where work is performed on a product and where materials, labour, or overhead costs are added to the product.
Product costs  All costs that are involved in the purchase or manufacture of goods. In the case of manufactured goods, these costs consist of direct materials, direct labour, and manufacturing overhead. Also called inventoriable costs.
Product-level activities  Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.
Production budget  A detailed plan showing the number of units that must be produced during a period in order to meet both sales and inventory needs.
Production report  A report that summarizes all activity in a department’s Work in Process account during a period and that contains three parts: a quantity schedule and a computation of equivalent units, a computation of total and unit costs, and a cost reconciliation.
Productivity ratios  Ratios that measure output in relation to some measure of input, such as direct labour charges.
Profit centre  A business segment whose manager has control over cost and revenue but has no control over the use of investment funds.
Profitability index  The ratio of the present value of a project’s cash inflows to the investment required.
Profitability Index =  Contribution margin per unit / Quantity of constrained
Quality circles  Small groups of employees that meet on a regular basis to discuss ways of improving quality.
Quality cost  Costs that are incurred to prevent defective products from falling into the hands of customers or that are incurred as a result of defective units.
Quality cost report  A report that details prevention costs, appraisal costs, and the costs of internal and external failures.
Quality of conformance  The degree to which a product or service meets or exceeds its design specifications and is free of defects or other problems that mar its appearance or degrade its performance.
Range of acceptable transfer prices  The range of transfer prices within which the profits of both the selling division and the purchasing division would increase as a result of a transfer.
Raw (direct) materials  The materials that are used to make a product.
Raw materials  Materials that are used to make a product.
Raw materials  Any materials that go into the final product.
Reciprocal method  A method of allocating service department costs that gives full recognition to interdepartmental services.
Relaxing (or elevating) the constraint  An action that increases the capacity of a bottleneck.
Relevant cost  A cost that differs between alternatives in a particular decision. In managerial accounting, this term is synonymous with avoidable cost and differential cost.
Relevant range  The range of activity within which assumptions about variable and fixed cost behaviour are valid.
Relevant range  The range of activity within which assumptions about variable and fixed cost behaviour are valid.
Reorder point??  The point in time when an order must be placed to replenish depleted stocks; it is determined by multiplying the lead time by the average daily or weekly usage.
Required rate of return  The minimum rate of return that an investment project must yield to be acceptable.
Residual income  The operating income that an investment centre earns above the required return on its operating assets.
Responsibility accounting  A system of accountability in which managers are held responsible for those items of revenue and cost—and only those items—over which the manager can exert significant influence. The managers are held responsible for differences between budgeted and actual results.
Responsibility centre  Any business segment whose manager has control over cost or profit or the use of investment funds.
Return on common shareholders’ equity  Measures the income as a percentage of average common shareholders’ investment in the company.
Return on investment (ROI)  Operating income divided by average operating assets. ROI also equals margin multiplied by turnover.
Return on total assets  Measure of how well assets have been employed by -management.
Safety stock??  The difference between average usage of materials and maximum usage of materials that can reasonably be expected during the lead time.
Sales budget  A detailed schedule showing the expected sales for coming periods; these sales are typically expressed in both dollars and units.
Sales mix  The relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.
Sales price variance  Actual sales price minus budgeted sales price, multiplied by actual sales quantity.
Sales volume variance  The difference between flexible and static budget amounts for revenues and expenses.
Schedule of costs of goods manufactured  A schedule showing the direct materials, direct labour, and manu-facturing overhead costs incurred for a period and assigned to work in process and completed goods.
Screening decision  A decision as to whether a proposed investment meets some preset standard of acceptance.
Second-stage allocation  The process by which activity rates are used to apply costs to products and customers in activity-based costing.
Segment  Any part of an organization that can be evaluated independently of other parts and about which the manager seeks financial data.
Segment  Any part or activity of an organization about which a manager seeks cost, revenue, or profit data.
Segment margin  A segment margin is obtained by deducting a segment’s traceable fixed costs from the segment’s contribution margin.
Self-imposed budget  Same as participative budget.
Sell or process further decision  A decision as to whether a joint product should be sold at the split-off point or processed further and sold at a later time in a different form.
Selling and administrative expense budget  A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.
Set-up costs??  Labour and other costs involved in getting facilities ready for a run of a different production item.
Simple rate of return  The rate of return computed by dividing a proj-ect’s annual accounting operating income by the initial investment required.
Six Sigma  A process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvement.
Special order  A one-time order that is not considered part of the company’s normal ongoing business.
Split-off point  That point in the manufacturing process where some or all of the joint products can be recognized as individual products.
Staff  A position in an organization that is only indirectly related to the achievement of the -organization’s basic objectives. Such positions are supportive in nature in that they provide service or assistance to line positions or to other staff positions.
Standard cost card  A detailed listing of the standard amounts of materials, labour, and overhead that should go into a unit of product, multiplied by the standard price or rate that has been set for each cost element.
Standard cost per unit  The standard cost of a unit of product as shown on the standard cost card; it is computed by multiplying the standard quantity or hours by the standard price or rate for each cost element.
Standard hours allowed  The time that should have been taken to complete the period’s output, as computed by multiplying the actual number of units produced by the standard hours per unit.
Standard hours per unit  The amount of labour time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, clean-up, rejects, and other normal inefficiencies.
Standard price per unit  The price that should be paid for a single unit of materials, including allowances for quality, quantity purchased, shipping, receiving, and other such costs, net of any discounts allowed.
Standard quantity allowed  The amount of materials that should have been used to complete the period’s output, as computed by multiplying the actual number of units produced by the standard quantity per unit.
Standard quantity per unit  The amount of materials that should be required to complete a single unit of product, including allowances for normal waste, spoilage, rejects, and similar inefficiencies.
Standard rate per hour  The labour rate that should be incurred per hour of labour time, including employement taxes, employee benefits, and other such labour costs.
Static budget  A budget designed for only the planned level of activity.
Static budget variance  The difference between actual and static budget amounts for revenues and expenses.
Statistical process control  A charting technique used to monitor the quality of work being done at a workstation for the purpose of immediately correcting any -problems.
Step-variable cost  A cost (such as the cost of a maintenance worker) that is obtainable only in large chunks and that increases and decreases only in response to fairly wide changes in the activity level.
Strategy  A game plan that enables a company to attract customers by distinguishing itself from competitors.
Suboptimization  An overall level of profitability that is less than a segment or a company is capable of earning.
Sunk cost  Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Sunk cost  Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Supply chain management  The coordination of business processes across companies to better serve end customers.
Target costing  The process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably manufactured and distributed for that maximum target cost figure.
Theoretical capacity  The volume of activity resulting from operations conducted 24 hours per day, 7 days per week, 365 days per year, with no downtime.
Theory of constraints (TOC)  A management approach that emphasizes the importance of managing constraints.
Throughput time  The amount of time required to turn raw materials into completed products.
Time and materials pricing  A pricing method, often used in service firms, in which two pricing rates are established—one based on direct labour time and the other based on direct materials used.
Time ticket  A detailed source document that is used to record an employee’s hour-by-hour activities during a day.
Time-adjusted rate of return  Same as internal rate of return.
Times interest earned ratio  Measure of the company’s ability to make interest payments.
Total manufacturing costs  Costs that represent the direct materials used, direct labour used, and the manufacturing overhead used to perform the production work for finished or unfinished products for the period.
Traceable fixed costs  Fixed costs that can be identified with a particular segment and that arise because of the existence of the segment.
Transaction driver  A simple count of the number of times an activity occurs.
Transfer price  The price charged when one division or segment provides goods or services to another division or segment of an organization.
Transferred-in cost  The cost attached to -products that have been received from a prior -processing department.
Trend percentages  The expression of several years’ financial data in percentage form in terms of a base year.
Turnover  The amount of sales generated in an investment centre for each dollar invested in operating assets. Sales divided by average operating assets.
Undepreciated capital cost (UCC)  The remaining book value of an asset class or pool of assets that is available for tax?deductible depreciation (capital cost allow-ance). The maximum amount of capital cost allowance that can be deducted in a taxation year of a particular CCA class is the UCC multiplied by the CCA rate for that asset class.
Underapplied overhead  A debit balance in the Manufacturing Overhead account that arises when the amount of overhead cost actually incurred is greater than the amount of overhead cost applied to Work in Process during a period.
Unit-level activities  Activities that arise as a result of the total volume of goods and services that are produced and that are performed each time a unit is produced.
Value chain  Consists of the major business functions that add value to a company’s products and services.
Variable cost  A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.
Variable costing  A costing method that includes only variable manufacturing costs—direct materials, direct labour, and variable manufacturing overhead—in the cost of a unit of -product.
Variable expense ratio  The ratio of variable expenses to sales dollars.
Variable overhead efficiency variance  The difference between the actual activity (direct labour-hours, machine-hours, or some other base) of a period and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate.
Variable overhead spending variance  The difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period.
Variance  The difference between standard prices and quantities and actual prices and quantities.
Vertical analysis  The presentation of a company’s financial statements in common-size form.
Vertical integration  The involvement by a company in more than one of the steps from production of basic raw materials to the manufacture and distribution of a finished product.
Weighted-average method  A method of process costing that blends together units and costs from both the current and prior periods.
Work in process  Inventories consisting of units of product that are only partially complete.
Work in process  Consists of units of product that are only partially complete and will require further work before they are ready for sale to a customer.
Working capital  The excess of current assets over current liabilities.
Working capital  Measures the company’s ability to repay current liabilities using only current assets.
Yield  A term synonymous with internal rate of return and time-adjusted rate of return.
Yield variance  The portion of the efficiency variance that is not the mix variance. It occurs when the actual yield differs from the standard yield expected from a given mix of inputs.
Zero-base budget  A method of budgeting in which managers are required to justify all costs as if the programs involved were being proposed for the first time.







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