Study Guide: Master Budgets, Variable Costing, and Activity Based Costing

Segment

A part of an organization for which cost, revenue, or profit data is collected.

Segment Margin

Contribution margin minus traceable fixed costs.

Variable Costing

Costing method including only variable manufacturing costs (DM, DL, and Variable FO) in unit product costs.

Absorption Costing

Costing method that includes all manufacturing costs (DM, DL, and fixed and variable FO) in unit product costs.

Common Fixed Costs

Fixed costs that support multiple segments but are not traceable to a single segment.

Lean Production (Just-In-Time Inventory)

Inventory is produced only as needed to meet demand, reducing stockpiling.

Segment Reporting

Cost and revenues are assigned to specific segments for analysis.

Traceable Costs

Costs that can be directly assigned to a specific segment.

Common Costs

Costs that should not be allocated to segments.

Activity Based Costing

A costing method based on activities that assign costs more accurately to products.

Activity Based Management

Management approach focused on reducing waste and inefficiencies.

Activity

Any event consuming overhead resources.

Activity Cost Pool

A collection of costs for a specific activity.

Activity Measure (Cost Drivers)

A factor that causes costs to increase.

Benchmarking

Comparing processes to industry best practices for improvement.

Batch-Level Activities

Activities performed for each batch, regardless of the number of units.

Customer-Level Activities

Activities performed to support customers but not specific products.

Unit-Level Activities

Activities performed for each unit of production.

Organization-Sustaining Activities

Overhead activities that support the entire business, not tied to specific products or customers.

Transaction Driver

Measures the number of times an activity occurs.

First-Stage Allocation

Assigning overhead costs to an activity cost pools.

Second-Stage Allocation

Applying costs from cost pools to products.

Duration Driver

Measures time spent on an activity.

Value-Adding Activity

An activity that increases product value.

Non-Value-Adding Activity

An activity that doesn’t enhance product quality.

Cost Hierarchy

Classification of costs into unit-level, batch-level, product-level, customer-level, and organizational-level.

Budget

A quantitative plan for future operations.

Master Budget

A collection of interrelated budgets forming an overall plan.

Cash Budget

A plan showing cash inflows and outflows.

Self-Imposed Budget

A budget developed with input from all management levels.

Sales Budget

Estimates expected sales volume and revenue.

DM Budget

Plans raw material needed for production.

DL Budget

Plans required labor hours and costs.

Production Budget

Determines production levels to meet sales and inventory needs.

Inventory Purchases Budget

Plans how much inventory to buy in a given period.

Manufacturing Overhead Budget

Estimates all manufacturing costs except DM and DL.

FG Inventory Budget

Determines ending finished goods inventory.

SG&A Expense Budget

Accounts for non-manufacturing costs.

Planning

Setting organizational goals and determining how to achieve them.

Control

Gathering feedback to ensure adherence to plans.

Financial Budget

Predicts financial outcomes of operations.

Operating Budget

Covers daily operational planning.