ACCT201 Exam 1 Vocab

Financial accounting

Reporting financial information to external parties such as stockholders, creditors, and regulators

Managerial accounting

For employees within an organization to use for creating plans, controlling operations, and making decisions

Cost object

Anything that needs cost data for tracking, such as products, customers, plants, office locations, departments, etc.

Direct cost

Easily traced to a specific cost object, such as an employee's salary (cost must be caused by the cost object)

Indirect cost

Cannot be easily traced to a specific cost object, such as when the cause of the cost is unclear/an amalgamation of different factors

Common cost

A cost that supports a number of cost objects, but cannot be traced to it alone

Raw materials

Any materials used in the final product/output

Direct materials

Raw materials that can be easily traced to finished products

Direct labor

Aka touch labor, labor costs that are easily traced to finished products

Prime cost

Direct materials cost + direct labor cost

Manufacturing overhead

All manufacturing costs except direct materials and direct labor

Indirect materials

Raw materials that cannot be easily traced to finished products

Indirect labor

Employees who play an essential role in manufacturing but cannot be easily traced to finished products (janitors, supervisors, maintenance workers, security, etc.)

Conversion cost

Direct labor + manufacturing overhead

Selling costs

Total cost of getting customer orders and getting finished products to them

Administrative costs

Total cost of general management of an organization/manufacturer rather than costs of manufacturing or selling (accounting, legal, secretarial, PR, etc.)

Product/inventoriable costs

All costs in acquiring or making a product, attached to the product until it is sold (direct materials + direct labor + manufacturing overhead)

Work in process

Units that are only partially complete

Finished goods

Completed units yet to be sold

Period costs

All costs that are not product costs, such as selling and administrative costs (sales commissions, advertising, PR, rental)

Cost behavior

How a cost reacts to a change in some underlying activity

Activity base/cost driver

Measure of what causes the change in variable cost

Variable cost

Total cost changes in direct proportion to the change in the level of activity, a cost dependent on something else (Ex. Number of tickets sold for a rock band)

Fixed cost

Total cost is constant regardless of changes in the level of activity

Committed fixed costs

Investments in facilities, equipment, and organizational structure that are made for the long term and cannot be significantly reduced without damage to goals

Discretionary fixed costs

Annual decisions by management that can be cut for short-term periods without any damage to goals (Ex. Advertising, research, PR, interns)

Relevant range

Range of activity that the cost behavior will be linear within

Mixed/semivariable costs

Cost with variable and fixed elements (ex. Base fee on top of fee per unit sold)

Mixed cost equation

Y = fixed cost + variable cost (activity level)

Relevant costs

Cost that should be considered when making decisions

Relevant benefits

Benefit that should be considered when making decisions

Differential cost

Future cost that can be either of two alternatives

Incremental cost

Increase in cost between two alternatives

Differential revenue

Future revenue that can be either of two alternatives

Contribution approach

Separate costs into variable and fixed categories

Contribution margin

sales revenue - variable expenses

Job-order costing

Used by companies who make many products with differences in each one (keeping track of costs incurred in a job that gets a part of production done, as one job is one activity)

Absorption costing

Includes all manufacturing costs (direct materials and labor, fixed and variable manufacturing overhead) in unit product costs

Manufacturing costs are split into three categories

Direct materials, direct labor, and manufacturing overhead

Bill of materials

Document that lists the quantity of each type of direct material needed to make a product

Materials requisition form

Shows the type and quantity of materials to be taken from the storage and the job charged for the cost of those materials

Job cost sheet

Shows the materials, labor, and manufacturing overhead costs charged to that job

Time ticket

Hour by hour summary of the employee's activities throughout the day

Allocation base

Measure that is common to all products and used as a unit to assign overhead costs to the products (Ex. Direct labor hours or machine hours)

Predetermined overhead rate

estimated total manufacturing overhead cost/estimated total amount of the allocation base

Overhead applied to a specific job

predetermined overhead rate x amount of allocation base incurred by the job OR actual direct labor hours worked on the job

Normal cost system

Applies overhead costs by predetermined overhead rate x actual amount of the allocation base incurred by the jobs

Cost driver

Factor that causes overhead costs (ex. machine hours, beds occupied, computer time, flight hours)

Plantwide overhead rate

Single predetermined overhead rate used throughout a plant

Multiple predetermined overhead rate

A costing system with multiple overhead cost groups and a different predetermined overhead rate for each one, rather than one for the whole company

Cost-plus pricing

Pricing method where predetermined markup is added to cost base to get target selling price

Cost of goods manufactured

Manufacturing costs for units of product completed during the period

Schedule of cost of goods manufactured

Schedule of direct materials and labor + manufacturing overhead that summarizes the portions of those costs remaining in ending work in process and transferring to finished goods

Schedule of cost of goods sold

Schedule of direct materials and labor + manufacturing overhead that summarizes the portions of those costs remaining in ending work in process and transferring to cost of goods sold

Raw materials used in production

beginning raw materials inventory + purchases of raw materials - ending raw materials inventory

Total manufacturing costs added to production

direct materials used in production + direct labor + manufacturing overhead applied to work in process

Cost of goods manufactured equation

beginning work in process inventory + total manufacturing costs added to production - ending work in process inventory

Unadjusted cost of goods sold

beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory

Underapplied overhead

A debit balance in the Manufacturing Overhead account occurring when the overhead cost applied to Work in Process is less than the overhead cost actually incurred during a period

Overapplied overhead

A credit balance in the Manufacturing Overhead account that occurs when the overhead cost applied to Work in Process is greater than the overhead cost actually incurred during a period

Process costing

Used when homogeneous products are made on a continuous basis

Similarities in job-order and process costing

Both systems assign material, labor, manufacturing overhead costs to products to calculate costs, use the same manufacturing accounts, flow of costs is the same

Differences between job-order and process costing

Process costing is used for identical units, process costing charges by department

Processing department

Organizational unit where work is performed in a product and materials, labor, or overhead costs are added

Weighted average method of process costing

calculate unit costs by combining costs and outputs from current and prior periods

FIFO method of process costing

Calculate unit costs based on costs and outputs from the CURRENT period

Conversion Cost

Direct labor cost + manufacturing overhead cost

Equivalent units

Number of partially completed units x percentage completion

Weighted average method

Operation costing system

Hybrid costing system used when products have some common characteristics and some individual characteristics

Activity-based costing (ABC)

Costing method based on activities that gives managers information for decisions affecting capacity, fixed, and variable costs

Limitations of traditional absorption costing

Only assigns manufacturing costs to products, all manufacturing costs are assigned to products even if the products did not consume those costs, relies on a limited number of overhead cost pools

Benefits of ABC

Nonmanufacturing and manufacturing costs are assigned to products on a cause-and-effect basis, some manufacturing costs may be excluded from products, numerous overhead cost pools are used and allocated to products using unique measures of activity

Organization-sustaining costs

Things like factory security guard's wages, plant controller's salary, cost of supplies used by plant manager's admin assistant, ABC treats them as period expenses instead of assigning them to products

Unused/idle capacity costs

As budgeted level of activity declines, overhead rate and unit product costs rise to account for cost of 'idle capacity'

Activity

Event that consumes overhead resources

Activity cost pool

Bucket where costs related to an activity measure are accumulated

Unit-level activities

Performed each time a unit of produced, cost should be proportional to number of units produced

Batch-level activities

Performed each time a batch is handled or processed, regardless of units, dependent on number of batches processed

Product-level activities

Performed for specific products, such as designing, advertising, maintaining product manager or staff

Customer-level activities

Performed for specific customers, such as sales calls, catalog mailings, customer meetings, technical support

Organization-sustaining activities

Performed regardless of customers, products, batches, or units, such as heating the factory, cleaning offices, providing a computer network, loans, etc.

Activity measure/cost driver

Allocation base in ABC

Transaction driver

Simple counts of the number of times an activity occurs

Duration drivers

Amount of time required to perform an activity

First-stage allocation in ABC

process of assigning functionally organized overhead costs from the company ledger to activity cost pools

Second-stage allocation

Activity rates are used to apply overhead costs to products and customers

Activity based management

Focus on managing activities as a way to eliminate waste and reduce delays + defects

Benchmarking

Systematic approach to picking the activities that can improve the most