Cost Accounting Test 1

Vocabulary flashcards covering key terms, definitions, formulas, and concepts from Cost Accounting Units 1 through 20.

Value Chain

Activities that convert raw materials and other resources into finished goods and services for use by consumers.

Value-Added Activities

Activities customers are willing to pay for because customers believe the activities add value to the finished good or service.

Financial Accounting

An accounting system focused on the preparation of the four financial statements in accordance with GAAP, which is external in nature and focused on the past.

Cost Accounting

An accounting system that provides managers of the company with timely and relevant data and information about company costs; it is not guided by GAAP, and its focus is internal and on the future.

Nonvalue-Added Activities

Activities not adding value to the product or service from the customer perspective, which managers seek to identify and eliminate.

Cost-Benefit Analysis

An evaluation where a manager analyzes the perceived benefit resulting from a cost.

Cost Driver

A factor that causes a particular cost to increase.

Differential Costs

Costs that differ among alternatives.

Differential Revenue

A change in revenue due to a change in action.

Responsibility Center

A specific unit within the organization for which a single manager has responsibility for what does and does not happen in the unit.

Budget

A financial plan about expected revenues, production, costs, inventories, and income for a responsibility center.

Lean Manufacturing

A manufacturing approach focused on the elimination of waste and continuous improvement through production and supplier partnerships.

Design for Manufacturing (DFM)

The concept pairing the manufacturing cost and the complexity in the design of the product.

Activity-Based Costing (ABC)

A costing method that first assigns costs to activities and then to products based on consumption of activities by the various products.

Benchmarking

A basis for comparison that measures products and services against best performance to achieve continuous improvement.

Just-In-Time (JIT)

A philosophy where goods and services are bought and sold just in time for their use, keeping inventories at a minimum.

Customer Relationship Management (CRM)

A system that allows firms to target customers by assessment of customer revenues and costs.

Outsourcing

Having an activity done by someone outside the firm rather than by the firm.

Total Quality Management (TQM)

A method by which the company seeks to excel in all dimensions, with the customer defining quality.

Cost of Quality

A system to measure the cost of poor quality, including rework, returns, and lost sales.

Enterprise Resource Planning (ERP)

Information technology linking the various systems of a company into a single master information system.

Competence (IMA Ethical Standard)

Having an appropriate level of knowledge, seeking to maintain and improve knowledge, following relevant laws, and providing accurate, clear, concise, and timely information.

Confidentiality (IMA Ethical Standard)

Keeping all company information confidential unless disclosure is authorized, supervising subordinates on confidential info, and never using confidential information for unfair advantage.

Integrity (IMA Ethical Standard)

Avoiding all possible conflicts of interest, keeping others advised of potential conflicts, and refraining from actions that discredit the profession or prejudice ethical duty.

Credibility (IMA Ethical Standard)

Communicating everything fairly and objectively, disclosing all relevant information, and disclosing potential deficiencies in reporting.

Cost

What you give up or sacrifice to acquire goods and services; recorded on the books as an asset.

Expense

An expired cost recognized on the income statement.

Outlay Costs

Past, present, or future cash outflows (out-of-pocket costs) that are always recorded in the accounting information system.

Opportunity Cost

The benefit forgone or sacrificed by selecting the best option available; never recorded in accounting records.

Operating Profit

The excess of operating revenue over operating costs, calculated as Revenue - Cost = Operating Profit

Product Costs

Costs consisting of direct materials, direct labor, and manufacturing overhead.

Direct Materials

The cost of materials that are clearly and easily traceable to the finished product.

Direct Labor

The cost of labor that is clearly and easily traceable to the finished product.

Manufacturing Overhead

Any cost to make a product other than direct materials and direct labor, such as indirect materials and indirect labor.

Prime Cost

The sum of direct materials and direct labor; Prime Cost = Direct Materials + Direct Labor

Conversion Cost

The sum of direct labor and manufacturing overhead; Conversion Cost = Direct Labor + Manufacturing Overhead

Period Costs

Non-manufacturing costs expensed in the period incurred and never carried in any inventory account, including marketing and administrative costs.

Cost Allocation

The process of assigning indirect costs to products, people, segments, or other cost objects.

Cost Object

An end to which a cost is allocated, such as a product, department, or customer.

Cost Pool

The collection of costs to be assigned.

Direct Cost

A cost incurred in such a way that it is clearly and easily traceable to the product and never needs allocating.

Inventoriable Costs

Any cost added to one of the three inventory accounts: Direct Materials Inventory, Work in Process, or Finished Goods.

Cost of Goods Manufactured

The sum total of costs incurred for units manufactured during a specific time frame, calculated as Direct Materials Used + Direct Labor + Manufacturing Overhead + Beginning Work in Process - Ending Work in Process

Cost of Goods Sold

The sum total of costs incurred for units sold during a specific time period, calculated as Beginning Finished Goods + Cost of Goods Manufactured - Ending Finished Goods

Cost Behavior

How a cost changes as production volume changes (e.g., if one more unit is made).

Fixed Cost

A cost that remains the same in total even when production volume changes, but decreases per unit as production increases.

Variable Cost

A cost that increases in total in direct proportion to production volume, but stays constant on a per-unit basis.

Relevant Range

The expected range of activity over which production is expected to occur and over which fixed and variable cost definitions hold true.

Semivariable Cost

Also called a mixed cost, a cost that contains both fixed cost and variable cost components.

Step Cost

A cost that increases in discrete increments at specific volume levels rather than increasing per unit.

Full Cost

The total sum of all product costs and all period costs combined.

Full Absorption Cost

Includes only the costs to make a product: direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead; required by GAAP for inventory valuation.

Gross Margin

The difference between sales revenue and cost of goods sold; Gross Margin = Revenue - Cost of Goods Sold

Contribution Margin

The excess of sales revenue over variable costs; Contribution Margin = Sales - Variable Costs

Cost-Volume-Profit (CVP) Analysis

Analysis of the interrelationships that exist among costs, volume, and profit for a company.

Unit Contribution Margin

The difference between selling price per unit and variable cost per unit; Unit CM = Selling Price per Unit - Variable Cost per Unit

Breakeven Point

The level of sales where total sales revenues minus variable costs minus fixed costs equals zero.

Cost Structure

The relative proportion of variable costs and fixed costs relative to total costs.

Capital Intensive

A cost structure characterized by a high proportion of fixed costs.

Labor Intensive

A cost structure characterized by a high proportion of variable costs.

Operating Leverage

The use of fixed costs to get higher percentage changes in profits as sales activity increases.

Margin of Safety

The excess of budgeted sales over breakeven sales; Margin of Safety = Budgeted Sales - Breakeven Sales