Applied Management Accounting (AMAC) Vocabulary Flashcards

Comprehensive vocabulary flashcards covering basic costing, budgeting, variance analysis, decision-making, performance indicators, and financial technology from the Applied Management Accounting (AMAC) course notes.

Direct Cost

A cost that can be directly identified with and traced to the production of a single specific unit of a product or service.

Prime Cost

The total sum of all direct costs incurred in producing a cost unit, comprising direct materials, direct labour, and direct expenses.

Indirect Cost (Overheads)

A cost that cannot be directly traced to a single unit of production and is shared over many units produced over a period of time.

Production Costs

Costs incurred within the factory environment during the manufacturing process, such as direct materials, production staff wages, factory rent, and factory power.

Non-production Costs

Costs incurred outside the factory production process, including administrative expenses, selling and distribution costs, and finance charges.

Variable Cost

A cost that varies in direct proportion with changes in the volume of production while remaining constant per unit.

Fixed Cost

A cost that remains unchanged in total across varying levels of production volume within a given period.

Stepped Fixed Cost (Semi-fixed Cost)

A cost that stays fixed within a certain range of activity but increases by a discrete amount ('steps up') once a specific activity threshold is exceeded.

Semi-variable Cost (Mixed Cost)

A cost containing both a fixed cost element that is incurred regardless of volume and a variable cost element that fluctuates with production volume, calculated as $\text{Total Cost} = \text{Fixed Cost} + (\text{Variable Cost per Unit} \times \text{Production Volume})$.

High-Low Method

A mathematical technique used to separate a semi-variable cost into its fixed and variable elements by comparing total costs at the highest and lowest activity levels.

Capital Expenditure (Capex)

Spending on long-term assets that will benefit the organization for more than one year, recognized as a non-current asset on the statement of financial position and depreciated over its useful life.

Revenue Expenditure (Revex)

Spending on operational items or short-term expenses that last for less than one year, charged directly to the income statement in the current accounting period.

Cost Card

A structured summary breakdown of all direct and indirect unit costs involved in producing a single cost unit of a product or service.

Cost Unit

A unit of product or service to which costs are accumulated and assigned.

Cost Centre

A specific location, department, or function within an organization to which costs are allocated and for which the manager has responsibility solely over costs.

Revenue Centre

A organizational department where the manager is held accountable strictly for generating revenues and meeting sales targets.

Profit Centre

A business department or division where the manager has control over both costs and revenues and is assessed on overall profit performance.

Investment Centre

A business unit where the manager is responsible for cost control, revenue generation, and capital investment decisions.

Budget

A quantitative and financial plan of action prepared for a specified future period.

Budget Manual

A document providing standard guidelines, objectives, departmental structures, procedures, administrative dates, and template layouts for the budgeting process.

Budget Committee

A group of senior managers appointed to coordinate, review, administer, and agree upon planning assumptions and budgets across the organization.

Budget Holder

The individual manager responsible for managing, achieving, and maintaining performance targets within a specific departmental budget.

Top-down Budgeting (Enforced Budgeting)

A budgeting style where senior management sets the target budgets with minimal or no involvement from lower-level staff.

Bottom-up Budgeting (Participatory Budgeting)

A budgeting process where departmental operational managers prepare their own initial budgets, which are subsequently submitted upward for senior management approval.

Incremental Budgeting

A budgeting method where the upcoming period's budget is derived by adjusting the prior period's actual or budgeted figures for expected changes such as inflation and volume growth.

Zero-Based Budgeting (ZBB)

A budgeting approach that starts from a zero base each year, requiring every item of planned expenditure to be re-justified from scratch.

Rolling Budget (Continuous Budget)

A budget that is continuously updated by adding a new accounting period (e.g., a month or quarter) as each current period expires, maintaining a constant planning horizon.

Activity-Based Budgeting (ABB)

A budgeting system based on activity-based costing principles that plans revenues and costs by analyzing the underlying activities and cost drivers of the organization.

Priority-Based Budgeting

A modification of zero-based budgeting that ranks departmental activities by organizational priorities and categorizes expenditure levels as essential, highly desirable, or beneficial.

Contingency-Based Budgeting

A budgeting approach that incorporates unallocated risk reserve funds to buffer against sudden, unexpected financial uncertainties or events.

Principal Budget Factor (PBF)

The primary operational constraint or scarce resource (such as sales demand or material supply) that limits the growth and activity level of an organization, dictating the order in which functional budgets are drawn up.

Ideal Standard

A target standard based on perfect operating conditions that makes no allowance for inefficiency, waste, machine downtime, or idle time.

Attainable Standard

A standard target based on efficient operating conditions that incorporates realistic allowances for wastage, inefficiency, and normal downtime.

Basic Standard

An unaltered historical standard established in the past that remains constant over long periods to observe long-term trends.

Current Standard

A standard based on present operational efficiency levels and cost rates, showing current performance without setting a stretch target.

Flexed Budget

A revised budget recalculated at the end of an accounting period to reflect the actual output volume achieved using original standard costs and revenues.

Time Series Analysis

A statistical technique used to examine a chronological series of historical data points to identify patterns and project future trends.

Trend (T)

The long-term, underlying movement in a consistent direction over an extended period within time series data.

Seasonal Variation (SV)

Predictable, short-term, recurring fluctuations in time series data that repeat within a fixed time frame of up to one year.

De-seasonalised Data

Historical time series data from which short-term seasonal fluctuations have been removed to isolate the underlying trend, calculated under the additive model as $\text{Trend} = \text{Time Series} - \text{Seasonal Variation}$.

Expected Value (EV)

A long-run weighted average outcome calculated by multiplying each potential financial result by its associated probability and summing the totals.

Index Number

A calculated figure measuring the relative percentage change in price, volume, or value of a variable over time compared to a chosen base period, calculated as $\text{Index Number} = \frac{\text{Current Period Figure}}{\text{Base Period Figure}} \times 100$.

Retail Price Index (RPI)

A statistical measure tracking changes in the average cost of a representative basket of household consumer goods and services over time to measure inflation.

Product Life Cycle

The distinct sequential phases (development, introduction, growth, maturity, and decline) through which a product passes from initial conception to market withdrawal.

Material Price Variance

The difference between the standard cost of actual material quantities purchased and the actual expenditure incurred on materials.

Material Usage Variance

The difference between the standard material quantity allowed for actual production output and the actual material quantity used, valued at standard price per unit.

Labour Rate Variance

The difference between the standard labour cost for actual hours paid and the actual direct labour expenditure incurred.

Labour Efficiency Variance

The difference between standard labour hours expected for actual output and actual productive hours worked, valued at the standard hourly wage rate.

Labour Idle Time Variance

The financial cost of non-productive hours paid for due to unplanned downtime, calculated as idle hours multiplied by the standard hourly labour rate.

Sales Price Variance

The difference between expected revenue at standard selling prices for actual volume sold and actual revenue achieved.

Sales Volume Variance

The difference between actual sales volume and budgeted sales volume, valued at the standard profit margin or standard contribution per unit.

Fixed Overhead Expenditure Variance

The difference between the budgeted total fixed overhead expenditure and the actual total fixed overhead expenditure incurred.

Fixed Overhead Volume Variance

The difference between budgeted production volume and actual production volume, valued at the standard fixed overhead rate per unit.

Limiting Factor

A scarce operational resource (such as direct labour hours, machine capacity, or raw material supply) that restricts the maximum output or sales volume an organization can achieve.

Activity-Based Costing (ABC)

An overhead absorption technique that groups indirect costs into activity cost pools and assigns them to products or services using specific cost drivers.

Cost Pool

An aggregation of indirect overhead costs associated with a distinct operational activity within activity-based costing.

Cost Driver

The primary activity or factor that directly causes or drives the incurrence of costs within an activity cost pool.

Life Cycle Costing

A management accounting approach that accumulates and tracks all revenues and costs associated with a product or service across its entire lifecycle.

Target Costing

A market-driven costing approach that determines a product's maximum allowable cost by subtracting a required target profit margin from the competitive market selling price.

Cost Gap

The positive difference between the estimated or current unit cost of a product and its allowable target cost.

Value Engineering

A systematic cost-prevention process conducted during the product design phase to eliminate unnecessary costs before full manufacturing begins.

Value Analysis

A structured examination of product components during its active operational lifecycle to reduce production costs without diminishing required quality or performance.

Return on Investment (ROI)

A divisional performance metric measuring controllable profit generated relative to the capital investment/assets employed, calculated as $\text{ROI} = \frac{\text{Divisional Profit}}{\text{Divisional Capital Employed}} \times 100$.

Residual Income (RI)

A divisional performance measure calculated as divisional controllable profit minus a required capital charge (imputed interest) on the assets employed, calculated as $\text{Residual Income} = \text{Divisional Profit} - (\text{Divisional Capital Employed} \times \text{Cost of Capital})$.

Transfer Price

The internal price charged by one division or department of an organization for goods or services supplied to another division within the same company.

Cloud Accounting

Accounting software hosted on remote online servers that enables users to process, store, and access financial data securely over the internet in real time.

Artificial Intelligence (AI)

Advanced computer systems and machine-learning technology capable of making automated decisions, identifying patterns, and automating complex finance functions.

Big Data

Extremely large, high-velocity, and diverse datasets characterized by the four V's: Volume, Velocity, Variety, and Veracity.

Data Analytics

The process of collecting, organizing, and analyzing large datasets to identify hidden patterns, trends, and actionable business insights.

Data Visualisation

The presentation of complex data and analytical insights in user-friendly graphical formats such as charts, dashboards, and diagrams.