Managerial Accounting Vocabulary

Allocation Base

A measure of activity such as direct labor-hours or direct machine-hours that is used to assign costs to cost objects.

Cost of Goods Manufactured

Includes the manufacturing costs associated with the goods that were finished during the period.

Mixed Costs

Costs that contain both fixed and variable elements.

Finished Goods

Consist of completed units of product that have not been sold to customers.

Manufacturing Overhead

Refers to all indirect costs associated with manufacturing a product, such as depreciation, maintenance, and utilities, that cannot be directly traced to specific units of production.

Predetermined Overhead Rate

A rate used to charge manufacturing overhead cost to jobs, that is established in advance for each period.

Direct Labor

Labor costs that can be easily traced to individual units of production.

Job Cost Sheet

A document that records the manufacturing costs associated with a specific job including direct materials, direct labor, and manufacturing overhead cost for tracking costs.

Direct Materials

Raw materials that can be directly traced to a product.

Job-Order Costing

A costing system used in situations where many different products, jobs, or services are produced each period.

Normal Costing

A costing method that assigns overhead cost based on a predetermined overhead rate applied to the actual costs of direct materials and direct labor.

Absorption Costing

A costing method that includes all manufacturing costs in the cost of a production. Such as, direct materials, direct labor, and both fixed and variable manufacturing overhead.

Raw Materials

The basic materials and supplies used in the production of goods. Any materials that go into the final product.

Work in Process

Consists of units of production that are only partially complete and will require further work before they are ready for sale to customers.

Overhead Application

The process of assigning overhead costs to specific jobs. Such as products or departments.

Sunk Costs

Costs that have already been incurred and cannot be changed or recovered, now or in the future. They should not factor into any future business decisions.

Differentail Costs

Costs that differ between two alternatives in decision making.

Cost Structure

Refers to the relative proportion of fixed and variable costs in an organization.

Operating Costing

Is a hybrid of job-order and process costing because it possesses attributes of both approaches.

Budget

A detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period.

Standard Quantity

The predetermined amount of materials or hours expected to be used in production, used as a benchmark for measuring efficiency and performance.

Self-Imposed Budget

A budget that is prepared with the full cooperation and participation of managers at all levels.

Operating Budget

Ordinarily cover a one-year period corresponding to a company’s fiscal year.

Actual Price

The amount actually paid for the input used.

Price Standards

Specify how much should be paid for each of the input.

Quantity Standards

Specify how much of an input should be used to make a product or provide a service.

Margin of Safety

Is the excess of budgeted or actual sales dollars over the break-even volume of sales dollars. The amount sales can drop before losses are incurred.

Actual Quantity

The amount of direct materials, direct labor, and variable manufacturing overhead actually used. The quantities pertain to input items.

Equivalent Units

Defined as a product of the number of partially completed units and the percentage completion of those units.

Standard Price

The amount that should have been paid for the input used. It serves as a benchmark for measuring cost performance in budgeting and variance analysis.

Flexible Budget

An estimate of what revenues and costs should have been, given the actual level of activity for the period.

Operating Leverage

A measure of how sensitive net operating income is to percentage changes in sales.

Target Profit Analysis

We estimate what sales volume is needed to achieve a specific target profit.

Residual Income

Is the net operating income that an investment center earns above the minimum required return on its assets.

Average Operating Assets

Is the cash, accounts receivable, inventory, plant and equipment, and other productive assets.

Net Operating Income

Is the income make by a company, before interest and taxes (EBIT).