Management and Cost Accounting Vocabulary

Vocabulary flashcards covering fundamental management and cost accounting terms, CVP concepts, overhead allocation, costing systems, and budgeting techniques.

Management Accounting

Measures and reports financial and non-financial information that assists managers in fulfilling the goals of the organisation.

Financial Accounting

Focuses on external reporting guided by generally accepted accounting principles, used primarily by external users such as investors, banks, regulators, and suppliers.

Control Cycle

A managerial process involving planning, coordination and monitoring, evaluation, and feedback to improve future performance.

Cost

The monetary value of resources sacrificed or forgone to achieve a specific objective.

Cost Object

Anything for which a cost measurement is desired.

Direct Costs

Costs that can be traced easily and economically to a specific cost object.

Indirect Costs

Costs (also called overheads) that cannot be traced easily and economically to a cost object and are therefore allocated.

Variable Costs

Costs that change in total in proportion to changes in volume or activity level.

Fixed Costs

Costs that remain unchanged in total for a given time period despite changes in volume.

Prime Costs

All direct manufacturing costs, calculated as Direct Materials plus Direct Labour ($\text{DM} + \text{DL}$).

Conversion Costs

The costs of transforming direct materials into finished goods, calculated as Direct Labour plus Manufacturing Overhead ($\text{DL} + \text{MOH}$).

Inventoriable Costs

Product costs that are treated as assets until the product is sold, at which point they become Cost of Goods Sold (COGS).

Period Costs

All costs in the income statement other than Cost of Goods Sold (COGS).

Cost Accumulation

The process of collecting cost data in an organised way through an accounting system.

Cost Assignment

The process of assigning accumulated costs to cost objects by tracing direct costs and allocating indirect costs.

Predetermined Overhead Rate

A rate calculated before the accounting period begins as $\text{Budgeted OH} \div \text{Budgeted Allocation Base}$.

Cost Allocation Base

The method or cost driver (such as machine hours or direct labour hours) used to link an indirect cost to a cost object.

Actual Costing

A costing system that reports only the actual costs of production, making it accurate but not necessarily timely.

Normal Costing

A costing system that uses actual Direct Materials and Direct Labour, but applies overhead using a predetermined overhead rate.

Standard Costing

A costing system that uses predetermined rates for all production costs (Direct Materials, Direct Labour, and Manufacturing Overhead).

Underapplied Overhead

Occurs when Actual Overhead exceeds Applied Overhead ($\text{Actual OH} > \text{Applied OH}$), requiring the difference to be added to COGS.

Overapplied Overhead

Occurs when Applied Overhead exceeds Actual Overhead ($\text{Applied OH} > \text{Actual OH}$), requiring the difference to be subtracted from COGS.

Job Costing

A costing system used when products are heterogeneous and produced in distinct individual jobs or batches.

Process Costing

A costing system that traces production costs to a process or department and averages them across a continuous flow of homogeneous units.

Relevant Range

The range of activity for which assumptions about cost behaviour remain valid.

Cost-Volume-Profit (CVP) Analysis

An analysis examining the relationships between costs, revenue, volume, and profit by separating costs into fixed and variable components.

Contribution Margin

The amount that contributes towards covering fixed costs and earning profit, calculated per unit as selling price minus variable cost per unit.

Contribution Margin Ratio

The percentage of sales revenue that contributes towards fixed costs and profit, calculated as $\text{CM per Unit} \div \text{Selling Price}$ or $\text{Total CM} \div \text{Sales Revenue}$.

Breakeven Point

The sales volume or revenue level where total revenue equals total costs and profit equals zero ($\text{Profit} = 0$).

CVP Graph

A visual representation showing Total Revenue (TR), Total Cost (TC), Fixed Costs (FC), Loss Area, Profit Area, and Breakeven Point within a specified relevant range.

Master Budget

A core working document expressing management's operating and financial plans for a specified period, comprising an operating budget and a financial budget.

Rolling Budget

A budget that is continually available for a specified future period by adding a month, quarter, or year to the period just ended.

Cost Centre

A responsibility centre whose manager is accountable for costs only.

Revenue Centre

A responsibility centre whose manager is accountable for revenues only.

Profit Centre

A responsibility centre whose manager is accountable for both revenues and costs.

Investment Centre

A responsibility centre whose manager is accountable for investments, revenues, and costs.

Controllability

The degree of influence a specific manager has over costs, revenues, or related items for which they are responsible.

Budgetary Slack

The practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve.

Kaizen Budgeting

A budgeting approach that sets targets requiring continuous minor operational improvements to be found and successfully implemented.

Stretch Targets

Challenging but achievable levels of expected performance intended to create discomfort and encourage greater effort.