Chapter-1-8_MA

The process of systematically recording, measuring, analyzing, and communicating information about business/financial transactions of an entity.

Accounting

Financial Accounting

A branch of accounting that organizes accounting information for presentation to interested parties outside of the organization.

Managerial Accounting

A branch of accounting that deals with how accounting data and other financial information will meet the information needs of management.

Planning & Decision Making

The process of formulating short-term and long-term goals and objectives, predicting potential results under alternative ways of achieving them, and deciding how to attain the desired results.

Performance Evaluation & Control

The process of comparing actual performance with plans and providing feedback for future planning and control.

Cost Management

The process of managing the activities that cause the incurrence of costs.

Cost Determination

Also known as product costing or inventory valuation and income determination, it deals with measuring the total amount of resources used for something.

Direct Materials

All materials that become an integral part of the finished product.

Direct Labor

The labor that is involved directly in making the product.

Non-manufacturing Cost

Costs associated with selling expenses and general and administrative expenses.

Direct Cost

Costs that can be traced directly to the costing object.

Product Cost

Inventoriable costs that are part of inventory on hand.

Variable Cost

Costs that vary in total in direct proportion to changes in activity.

Fixed Cost

Costs that remain constant in total regardless of changes in activity.

Semi-variable Cost

Costs that vary with changes in volume but do not vary in direct proportion.

Controllable and Noncontrollable Costs

The distinction between costs that are significantly under the manager's influence and costs that are not subject to influence at a given level of managerial supervision.

Standard Cost

A production or operating cost that is carefully predetermined and compared with the actual cost to measure performance.

Incremental Cost

The difference in costs between two or more alternatives.

Sunk Cost

Costs of resources that have already been incurred and will not be affected by any decision made now or in the future.

Relevant Cost

Expected future costs that will differ between alternatives.

Opportunity Cost

The potential benefit that is given up when one alternative is selected over another.

Conversion Cost

Direct labor and overhead expenses incurred due to the transformation of raw materials into finished products.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time.

Income Statement

A financial statement that shows a company's income and expenditures and whether it is making a profit or loss for a given period.

Schedule of COGM

Reports the total manufacturing costs for the period that were added to work-in-process and adjusts these costs for the change in the work-in-process inventory account to calculate the cost of goods manufactured.

Cost of Goods Sold (COGS)

The direct costs of producing the goods sold by a company, excluding indirect expenses.

Cost of Goods Manufactured (COGM)

The cost of goods manufactured consists of the manufacturing costs associated with goods that were finished during the period.

Product Cost Flows

The flow of costs into inventory accounts as they are incurred, rather than going into expense accounts.

Inventoriable Costs

Product costs that go directly into inventory accounts as they are incurred.

Non-inventoriable Costs

Selling and administrative expenses that are not involved in making a product and are treated as period costs.

Marginal Revenue

The revenue that can be obtained from selling one more unit of a product.

Marginal Cost

The cost involved in producing one more unit of a product.

Idle Time

The labor costs incurred during periods of machine breakdowns, materials shortages, power failures, etc.

Overtime Premium

The additional pay given to factory workers for working overtime, considered part of manufacturing overhead.

External Failure Cost

Costs resulting from delivering defective products to customers.

Prevention Cost

Costs incurred to reduce the number of defects in a product.

Appraisal Cost

Costs incurred to identify defective products before they are shipped to customers.

Process Costing

A costing system used when a company produces many units of a single product for long periods.

Job-order Costing

A costing system used when many different products are produced each period.

Bill of Materials

A document that lists the type and quantity of each type of direct material needed to complete a unit of product.

Materials Requisition Form

A detailed source document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials.

Job Cost Sheet

A form prepared for a job that records the materials, labor, and manufacturing overhead costs charged to that job.

Time Ticket System

Workers use time tickets to record the time they spend on each job and task.

Manufacturing Overhead

Indirect costs that are difficult to trace to a particular product or job.

Predetermined Overhead Rate

The rate used to apply manufacturing overhead to products, computed by dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base.

Overhead Application

The process of assigning overhead cost to jobs.

Normal Cost System

A cost system that applies overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs.

Cost Driver

A factor that causes overhead costs, such as machine-hours or flight-hours.

Overhead costs

The indirect costs of production that are not directly tied to a specific product or job.

Job cost sheet

A document that tracks the costs associated with a specific job or project.

Direct labor

The labor costs directly associated with the production of a product.

Manufacturing overhead

The indirect costs of production, such as supervision and maintenance.

Work in process

The inventory of partially completed products that are still in the production process.

Predetermined overhead rate

The rate used to allocate manufacturing overhead costs to specific jobs or projects.

Clearing account

An account used to temporarily hold costs until they can be properly allocated.

Non-manufacturing costs

Costs that are not directly related to the production process, such as selling and administrative expenses.

Cost of goods manufactured

The total cost of producing finished goods during a specific period.

Cost of goods sold

The cost of the goods that have been sold to customers.

Journal entries

The recorded transactions in a company's accounting system.

Schedule of COGM & COGS

A summary of the cost flows related to the production and sale of goods.

Income statement

A financial statement that shows a company's revenues, expenses, and net income for a specific period.

Closed Out to Cost of Goods Sold

The method of closing out the balance in Manufacturing Overhead to the Cost of Goods Sold account.

Allocated between Accounts

The method of allocating underapplied or overapplied overhead between Work in Process, Finished Goods, and Cost of Goods Sold in proportion to the overhead applied during the current period.

Processing Department

Any location in an organization where materials, labor, or overhead are added to the product.

Equivalent Units of Production

The product of the number of partially completed units and the percentage of completion of those units.

FIFO Method

A method of calculating equivalent units of production that considers the units completed and transferred out first before accounting for the units in ending and beginning work in process inventory.

Cost Reconciliation

The process of reconciling the costs incurred with the equivalent units of production to determine the cost per equivalent unit.

Quantity Schedule

A schedule that shows the quantity of units completed and transferred out, as well as the quantity of units in ending work in process inventory.

Cost Per Equivalent Unit

The cost incurred divided by the equivalent units of production.

FIFO vs

The differences between the FIFO method and the weighted-average method in terms of computing equivalent units and treating the costs of beginning inventory in the cost reconciliation report.

FIFO method

A method of inventory valuation where the first items purchased or produced are assumed to be the first ones sold or used.

Quantity schedule

A schedule that calculates the equivalent units of production for a specific period.

Equivalent units

The number of complete units that could have been produced given the amount of work done on partially completed units.

Cost per equivalent unit

The cost of producing one equivalent unit of production.

Cost reconciliation

A process of comparing the costs accounted for in the production process to the costs actually incurred.

Service departments

Departments within an organization that provide services or assistance to operating departments.

Direct method

A method of allocating service department costs where all costs are directly allocated to operating departments.

Step-down method

A method of allocating service department costs where costs are allocated sequentially starting with the department that provides the most service to other departments.

Reciprocal method

A method of allocating service department costs that takes into account interdepartmental services and allocates costs in both directions.

Variable cost

A cost that varies in direct proportion to changes in the activity level.

Fixed cost

A cost that remains constant regardless of changes in the activity level.

Step-variable costs

Costs that increase or decrease only in response to fairly wide changes in activity.

Mixed cost

A cost that has both fixed and variable components.

Account analysis

Classifying costs as either variable or fixed based on the analyst's knowledge of how the account behaves.

Engineering approach

Classifying costs based on an industrial engineer's evaluation of production methods and requirements.

Scattergraph plot

A graphical representation of the relationship between two variables.

High-low method

A method of analyzing mixed costs by using the highest and lowest activity levels and their corresponding costs.

Least-squares regression method

A method of analyzing mixed costs that uses all data points to estimate the fixed and variable cost components.

Contribution format

An income statement format that separates costs into fixed and variable components to determine contribution margin.

Traditional format

An income statement format that groups costs by function (e.g., cost of goods sold, selling and administrative expenses).

Cost-volume-profit analysis

An analysis of how changes in costs, volume, and selling price affect a company's profit.

Budgeting

The process of planning and allocating resources to achieve financial goals.

Segmented reporting

Reporting profit data for different segments or divisions of a company.

Regression analysis

A statistical method used to determine the relationship between two or more variables.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted.

Net Operating Income

The remaining contribution margin after fixed expenses have been covered.

Cost-Volume-Profit Analysis

Analysis of how changes in activity affect contribution margin and net operating income.

CVP Graph

A graphical representation of the relationship among revenue, cost, profit, and volume.

Contribution Margin Ratio

The ratio of contribution margin to sales revenue, used to compute changes in contribution margin and net operating income resulting from changes in sales volume.

Variable Costs

Costs that vary with changes in sales volume.