Chapter 5 and 10 Costing Systems and Cost Behavior

Flashcards covering fundamental terms and definitions from Chapters 5 and 10, focusing on traditional and activity-based costing, cost behavior, and customer profitability.

Traditional costing system

A costing method using one cost pool and one activity base, resulting in a single overhead rate.

Product under costing

Occurs when a product is believed to be profitable due to underestimation of its costs.

Product over costing

Leads to a product being overpriced, often causing a loss of market share.

Cost allocation base

The denominator used for allocating indirect costs to cost objects, seeking a causal relationship.

Activity based costing (ABC)

A costing method that recognizes the relationship between costs, activities, and products to allocate costs more accurately.

Facilities sustaining cost

Costs that support an organization as a whole rather than specific products, challenging to allocate.

Absorption costing

A costing method where all manufacturing costs (fixed and variable) are considered inventoriable.

Variable costing

A costing method where only variable manufacturing costs are inventoriable; fixed costs are treated as period costs.

Throughput costing

Costing method where only direct materials are included in inventoriable costs, treating all other costs as period costs.

Revenue analysis

Analysis focusing on revenue differences caused by volume of purchases and price discounting.

Customer profitability profile

Determines profitability by analyzing customer revenue against customer costs.

Cost behavior

The way costs change in response to changes in activity levels.

High-low method

Cost estimation method that calculates variable cost per unit by comparing costs at the highest and lowest activity levels.

Regression analysis

A statistical method to estimate cost functions using all data observations, providing a good fit for the cost-driver relationship.

Cost hierarchy

Classification of costs based on their level of activity: output unit level, batch level, product sustaining, and facility sustaining.

Over applied overhead

Occurs when the actual overhead costs are less than the allocated overhead based on the predetermined rate.