Managerial Accounting: Chapters 1 and 2

Comprehensive vocabulary flashcards covering key definitions, classifications, processes, and cost behaviors from Chapter 1 (Role of Managerial Accounting) and Chapter 2 (Basic Cost Management Concepts).

Managerial Accounting

The process of identifying, measuring, analyzing, interpreting, and communicating information for decision making, planning, and controlling an organization's operations.

Planning

A fundamental management process that involves setting goals and outlining the steps and activities required to attain them.

Directing

A fundamental management process that involves overseeing and coordinating the day-to-day operations and activities of an organization.

Controlling

A fundamental management process that involves tracking and monitoring activities to ensure that organizational goals are being accomplished.

Balanced Scorecard

A strategic performance management framework that evaluates an organization across four interrelated perspectives: Financial Perspective, Customer Perspective, Internal Business, and Learning and Growth Perspectives.

Financial Accounting

The branch of accounting focused on generating published financial statements and reports for external users, regulated by bodies such as the FASB, SEC, and IASB, and based almost exclusively on historical transactions.

Line Position

An organizational role that is directly involved in the provision of goods or services, such as a production supervisor in a manufacturing plant.

Staff Position

An organizational role that supports and assists line positions, such as a cost accountant in a manufacturing plant.

Chief Financial Officer (CFO) / Controller

The chief managerial and financial accountant responsible for supervising accounting personnel, preparing and analyzing managerial and financial reports, and aiding in planning and decision making.

Treasurer

An executive responsible for raising capital and safeguarding the organization's assets, supervising relations with financial institutions, managing investments, and establishing credit policies.

Internal Auditor

A professional responsible for reviewing accounting procedures, records, and reports across controller and treasurer functions, and expressing an opinion to top management on internal controls.

Value Chain

A sequence of business activities that add value to goods and services, encompassing product design, research and development, securing raw materials, production, marketing, distribution, and customer service.

Theoretical Capacity

The upper limit on the amount of goods or services an organization could produce if everything works perfectly with no interruptions.

Practical Capacity

The capacity level of an organization that allows for normal operating occurrences such as equipment downtime, maintenance, and worker fatigue or illness.

Institute of Management Accountants (IMA)

The primary professional organization for management accountants that publishes research studies, administers the Certified Management Accountant (CMA) program, and maintains ethical standards.

IMA Statement of Ethical Professional Practice Standards

The four ethical standards established by the IMA that guide management accountants: Competence, Confidentiality, Integrity, and Credibility.

Cost

The measure of resources given up to achieve a particular purpose.

Product Costs

Costs assigned to inventory, representing goods that are either purchased or manufactured for resale; also referred to as inventoriable costs.

Period Costs

Costs that are expensed on the income statement during the time period in which they are incurred, appearing as operating expenses.

Expenses

The consumption of assets for the purpose of generating revenue.

Raw-Materials Inventory

The inventory consisting of raw materials that are on hand and waiting to be processed into finished products.

Work-in-Process Inventory

Partially completed products that have received raw materials and some application of direct labor and/or manufacturing overhead, but are not yet finished.

Finished-Goods Inventory

Completed manufactured products that are awaiting sale to customers.

Job Shop

A production process characterized by low production volume, little standardization, and one-of-a-kind products, such as custom home building.

Batch Production

A production process characterized by multiple products produced at low volume with high product diversity and some customization, such as heavy equipment manufacturing.

Assembly Process

A production process characterized by a few major products produced at higher volume with lower diversity and minimal customization, such as an automobile assembly line.

Continuous Flow

A production process characterized by high production volume of highly standardized commodity products, such as the production of gasoline.

Direct Material

Raw material that is consumed during production and can be easily and conveniently traced directly to the finished product.

Direct Labor

The cost of salaries, wages, and fringe benefits for personnel who work directly on manufactured products.

Manufacturing Overhead

All manufacturing costs other than direct material and direct labor, comprising indirect material, indirect labor, and factory support expenses such as depreciation, utilities, and taxes.

Indirect Material

Materials used to support the manufacturing process that cannot be conveniently traced to individual products, such as lubricants and cleaning supplies.

Indirect Labor

Personnel costs for factory employees who do not work directly on the product itself, including maintenance workers, janitors, and security guards.

Manufacturing Cost Flows

The sequence in which direct material, direct labor, and manufacturing overhead enter work-in-process inventory, transition to finished-goods inventory upon completion, and become cost of goods sold when sold.

Cost Driver

An activity or factor that causes costs to be incurred, such as machine hours, setup hours, or number of purchase orders.

Cost Behavior

The manner in which a cost reacts or changes in total and per unit in response to changes in the organization's level of business activity.

Variable Cost

A cost whose total dollar amount changes in direct proportion to changes in activity level, but whose per-unit cost remains constant over wide activity ranges.

Fixed Cost

A cost whose total dollar amount remains unchanged when activity level changes, but whose per-unit cost decreases as activity level increases.

Direct Cost

A cost that can be easily and conveniently traced to a specific cost object, product, or department.

Indirect Cost

A cost that cannot be conveniently traced to a cost object and must be allocated to be assigned to a product or department.

Controllable Cost

A cost that a specific manager has the authority or ability to significantly influence.

Uncontrollable Cost

A cost that a specific manager cannot significantly influence, such as national corporate advertising costs allocated to a local manager's unit.

Opportunity Cost

The potential benefit or sacrifice incurred when choosing one alternative over another, such as foregone annual earnings of $\$30,000$ while attending college.

Out-of-Pocket Cost

A cost that requires the actual disbursement or payment of cash or other assets as a result of its incurrence.

Sunk Cost

A cost that has already been incurred in the past, cannot be changed by any future decision, and must be ignored in decision-making analyses.

Differential Cost

The difference in total cost between two competing decision alternatives, such as commuting costs differing by $\$300 - \$50 = \$250$.

Marginal Cost

The additional cost incurred to manufacture or produce one extra unit of output.

Average Cost

The total cost required to produce a given quantity of goods divided by the total number of units produced.