AOF Managerial Accounting Vocabulary List Units 7-10

break-even analysis

The process of reviewing the break-even point and the relationship between costs, volume, and profit to determine how many units must be sold to make a net income.

break-even point

The amount of sales required to cover all costs at which net income is zero.

loss leader

A product sold that earns little or no net income. A loss leader is intended to attract customers to other more profitable products.

margin of safety

The dollar amount of net income a company earns beyond the break-even point.

planned net income

The calculation of how much a business wishes to earn after the break-even point.

required contribution margin

The dollar amount needed to pay fixed costs and have an amount remaining for planned net income.

sales volume changes

The information that tells managers how increasing or decreasing unit sales affects net income.

markup

The percentage by which a retailer increases wholesale price; also called gross profit.

MSRP (manufacturer’s suggested retail price)

The price that a manufacturer recommends retailers sell the product.

sales mix

The amount of each product sold. It is also called the product mix.

sales volume

The quantity of items sold at a given unit price.

wholesale price

The price a manufacturer sells a product to a retailer.

cost accounting

The process of collecting and reporting the direct materials, direct labor, and factory overhead costs related to producing a good or service.

direct labor

The labor costs directly required to produce a product. For example, the salary and benefits of those employees who are working directly on producing a product are considered direct labor.

direct materials

All of the significant materials that are an integral part of the finished product.

factory overhead

All of the costs required to manufacture a finished product that are not related to the direct materials or direct labor costs. Examples include maintenance of the factory and utilities.

finished goods

A manufacturing inventory account that records products that are fully completed. It includes the direct materials, direct labor, and factory overhead specific to that product.

indirect labor

The labor costs associated with those employees who are a part of the company but are not necessarily working directly with the actual production of the product. Examples include a maintenance manager and janitorial staff.

indirect materials

The materials that are used in the production of the product but are not as important as the direct materials. Glue, stain, and varnish are examples of indirect materials.

manufacturing business

A company that buys finished goods to be resold for a profit.

manufacturing costs

The costs associated with the production of goods.

merchandising business

A company that buys raw materials and converts them into a finished product to be sold either to a merchandiser, an end user, or another manufacturer for use in another product.

raw materials

Items in inventory to be used in the production of the products.

work in process

A manufacturing inventory account that represents the goods that are in production but are not yet considered a finished product. It includes direct materials, direct labor, and factory overhead allocated to the percent of completion for the merchandise.

base activity

The cost most closely proportional to factory overhead costs. Accountants calculate factory overhead costs by multiplying the base activity by a set percentage.

conversion costs

The combination of direct labor and factory overhead costs used in process costing.

cost sheet

The form used in job-order costing to record and calculate direct materials costs, direct labor costs, and factory overhead costs in order to determine per unit cost.

equivalent units

The number of completed units in a specific period of time in process accounting.

factory overhead rate

The percentage of costs other than direct material and direct labor costs allocated to production of an item. It is determined by dividing the estimated factory overhead costs by the direct labor costs.

flowchart

A diagram that represents the order decisions and actions that are made in a process.

job-order costing

The cost accounting method that charges direct materials, direct labor, and factory overhead costs to a specific job. Job-order costing is most appropriate for manufactured products that are not identical or are custom made.

job-time record

The form used in job-order costing to record the amount of labor hours contributed to a production of a particular job.

materials requisition form

The form used in job-order costing to record the amount and cost of materials used for a particular job.

period costs

The portion of direct materials, direct labor, and factory overhead costs contributed to the production of a product in process accounting during a specific period of time.

process costing

The cost accounting method in which costs are averaged over the units produced during a certain period of time. Process costing is most appropriate for items that are manufactured on a continuous basis.