Cost Management Study Notes (Chapters 1, 2, 3, 5, and 6)

Comprehensive vocabulary flashcards covering Cost Management, Strategy, Value Chain, Balanced Scorecard, Cost Concepts, Activity-Based Costing, and Process Costing.

Strategic Cost Management

The use of cost information to support strategy and competitive advantage, going beyond cost measurement to determine how cost information can strengthen customer value.

Cost Leadership

A competitive strategy that emphasizes efficiency and low cost to compete through lower costs and efficient operations.

Differentiation

A competitive strategy that emphasizes features, service, quality, innovation, or other unique attributes that customers value.

Critical Success Factor

An area of performance in which strong performance is essential for strategic and competitive success, including cost, quality, speed, delivery, innovation, flexibility, customer service, and sustainability.

Cost Object

Anything for which management desires a separate cost measurement.

SWOT Analysis

A strategic framework that organizes information into internal strengths and weaknesses, as well as external opportunities and threats.

Execution

The process of putting strategy into action by aligning resources, incentives, processes, and performance measures.

Value Chain

The linked set of activities used to design, develop, produce, market, deliver, and support products or services to create and deliver customer value.

Balanced Scorecard (BSC)

A strategic performance measurement system that translates strategy into linked measures across four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth.

Strategy Map

A visual cause-and-effect representation showing how strategic objectives link across the Balanced Scorecard perspectives.

Sustainability

Managing long-term performance across economic, environmental, and social dimensions.

Cost

A resource used or sacrificed for a specific purpose.

Cost Driver

A factor that causes or influences the amount of a cost.

Direct Cost

A cost that can be conveniently and economically traced to a specific cost object.

Indirect Cost

A cost that cannot be conveniently or economically traced to a cost object and must therefore be allocated.

Variable Cost

A cost that changes in total in direct proportion to activity changes, but is generally constant per unit within the relevant range.

Fixed Cost

A cost that remains constant in total within the relevant range, but changes per unit as volume changes.

Mixed Cost

A cost that contains both fixed and variable components, represented by the formula $Y = a + bX$.

Activity-Based Drivers

Cost drivers that measure activities such as setups, inspections, purchase orders, or engineering changes.

Volume-Based Drivers

Cost drivers that measure production volume, such as units produced, machine hours, and direct labor hours.

Structural Drivers

Cost drivers that relate to fundamental strategic choices regarding scale, technology, and complexity.

Executional Drivers

Cost drivers that relate to how effectively operational activities are performed.

Product Cost

Manufacturing costs composed of direct materials, direct labor, and manufacturing overhead that are capitalized into inventory and expensed as Cost of Goods Sold when sold.

Period Cost

Selling, administrative, and other nonmanufacturing costs that are expensed in the accounting period incurred.

Prime Cost

The direct production costs calculated as direct materials plus direct labor ($\text{DM} + \text{DL}$).

Conversion Cost

The costs required to convert raw materials into finished goods, calculated as direct labor plus manufacturing overhead ($\text{DL} + \text{MOH}$).

Activity-Based Costing (ABC)

A costing approach that uses a two-stage assignment process: assigning resource costs to activities and then assigning activity costs to cost objects.

Resource Consumption Driver

A driver used to assign resource costs to specific activities in an Activity-Based Costing system.

Activity Consumption Driver

A driver used to assign activity costs to cost objects such as products, services, or customers.

Idle Capacity

The unused portion of available capacity, calculated as $\text{Capacity supplied} - \text{Capacity used}$.

Activity-Based Management (ABM)

The use of activity-based costing information to manage operations, improve processes, and make strategic decisions.

Value-Added Analysis

An analysis that distinguishes activities that create or support customer value from non-value-added activities that can be reduced or eliminated.

Customer Profitability Analysis

An evaluation of the profitability of individual customers by calculating customer revenue minus customer-specific costs (such as ordering, delivery, returns, and support).

Time-Driven Activity-Based Costing (TDABC)

An ABC approach that assigns costs using a capacity cost rate and the estimated time required to perform activities.

Process Costing

A costing system used for continuous or repetitive manufacturing of homogeneous products, where costs are accumulated by department or process rather than by individual job.

Equivalent Units

A measure that expresses partially completed units as an equivalent number of fully completed units ($\text{Equivalent units} = \text{Physical units} \times \%\,\text{completion}$).

Weighted-Average Method (Process Costing)

A process costing method that blends beginning work-in-process inventory costs and work with current-period costs and work for equivalent unit and unit cost determinations.

FIFO Method (Process Costing)

A process costing method that separates prior-period work and costs in beginning work-in-process from work performed in the current period, focusing unit costs solely on current-period work.

Transferred-In Cost

Cost accumulated and transferred out of a prior manufacturing department into a subsequent department in a multi-department production process.

Backflush Costing

A simplified costing approach often used in JIT environments that delays some detailed cost assignments until later production or sales events occur.