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: FC 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 stock piling

Segment Reporting: Cost and revenues are assigned to specific segments for analysis

Traceable vs Common Costs: Only traceable costs should be assigned to segments; common costs shouldn’t be allocated

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): factor that causes costs to increase

Benchmarking: comparing processes to industry best practices for improvement

Batch-Level Activities: Performed for each batch, regardless of the number of units

Customer-Level Activities: performed to support customers but not specific products

Unit-Level 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 tome spent on an activity

Value-Adding Activity: Increases product value

Non-Value-Adding Activity: Doesn’t enhance product quality

Cost Hierarchy: 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 FG 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: cover daily operational planning