Managerial Accounting Vocab

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Activity format: A format for the statement of cash flows that reports cash flows for three categories: (1) cash flows from operating activities, (2) cash flows from investing activities, and (3) cash flows from financing activities.
Time ticket: A source document by which direct labor costs are assigned to individual jobs.
Residual income: The difference between operating income and the minimum dollar return required on a company's operating assets.
Environmental costs: Costs that are incurred because poor environmental quality exists or may exist.
Cash inflows: Activities that increase cash and are sources of cash.
Joint products: Products that are inseparable prior to a split-off point. All manufacturing costs up to the split-off point are joint costs.
Return on total assets: The result of dividing net income plus the after-tax cost of interest by the average total assets.
Quality product (service): A product that meets or exceeds customer expectations.
Variable budgets: (See Flexible budget.)
Allocation: When an indirect cost is assigned to a cost object using a reasonable and convenient method.
Favorable (F) variances: Variances produced whenever the actual amounts are less than the budgeted or standard allowances.
Discounted cash flows: Future cash flows expressed in present-value terms.
Earnings per share: Earnings per share is computed by dividing net income less preferred dividends by the average number of shares of common stock outstanding during the period.
Realized external failure costs: Environmental costs caused by environmental degradation and paid for by the responsible organization.
Overapplied overhead: The amount by which applied overhead exceeds actual overhead.
Discounting: The act of finding the present value of future cash flows.
Common-size analysis: A type of analysis that expresses line items or accounts in the financial statements as percentages.
Degree of operating leverage (DOL): A measure of the sensitivity of profit changes to changes in sales volume. It measures the percentage change in profits resulting from a percentage change in sales.
Activity attributes: Nonfinancial and financial information items that describe individual activities.
Support departments: Units within an organization that provide essential support services for producing departments.
Contribution margin income statement: The income statement format that is based on the separation of costs into fixed and variable components.
Staff positions: Positions that are supportive in nature and have only indirect responsibility for an organization's basic objectives.
Expenses: Costs that are used up (expired) in the production of revenue.
Flexible budget variance: The sum of price variances and efficiency variances in a performance report comparing actual costs to expected costs predicted by a flexible budget.
Accumulating costs: The way that costs are measured and recorded.
Discount rate: The rate of return used to compute the present value of future cash flows.
Work in process (WIP): The cost of the partially completed goods that are still being worked on at the end of a time period.
Overhead variance: The difference between actual overhead and applied overhead.
Adjusted cost of goods sold: The cost of goods sold after all adjustments for overhead variances are made.
Learning and growth (infrastructure) perspective: A Balanced Scorecard viewpoint that defines the capabilities that an organization needs to create long-term growth and improvement.
Predetermined overhead rate: An overhead rate computed using estimated data.
Present value: The current value of a future cash flow. It represents the amount that must be invested now if the future cash flow is to be received assuming compounding at a given rate of interest.
Statement of cash flows: A statement that provides information regarding the sources and uses of a firm's cash.
Cost of capital: The cost of investment funds, usually viewed as a weighted average of the costs of funds from all sources.
Process-costing system: A costing system that accumulates production costs by process or by department for a given period of time.
Intercept: The fixed cost, representing the point where the cost formula intercepts the vertical axis.
Ordering costs: The costs of placing and receiving an order.
Discounting models: Capital investment models that explicitly consider the time value of money in identifying criteria for accepting and rejecting proposed projects.
Selling (marketing) costs: Those costs necessary to market, distribute, and service a product or service.
Job: One distinct unit or set of units for which the costs of production must be assigned.
Economic order quantity (EOQ): The amount that should be ordered (or produced) to minimize the total ordering (or setup) and carrying costs.
Single-loop feedback: Information about the effectiveness of strategy implementation.
Product diversity: The situation present when products consume overhead in different proportions.
Control activities: Activities performed by an organization to prevent or detect poor quality (because poor quality may exist).
Turnover: The ratio of sales to average operating assets.
Discount factor: The factor used to convert a future cash flow to its present value.
Margin: The ratio of net operating income to sales.
Step cost: A cost that displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point, where it remains for a similar range of output.
Cash outflows: Activities that decrease cash and are uses of cash.
Activity inputs: The resources consumed by an activity in producing its output (they are the factors that enable the activity to be performed).
Target costing: A method of determining the cost of a product or service based on the price (target price) that customers are willing to pay.
Value-added activities: Activities that are necessary for a business to achieve corporate objectives and remain in business.
Normal cost system: An approach that assigns the actual costs of direct materials and direct labor to products but uses a predetermined rate to assign overhead costs.
Dividend yield: A profitability measure that is computed by dividing the dividends received per unit of common share by the market price per common share.
Return on sales: A measure of the efficiency of a firm that is computed by dividing net income by sales.
Total budget variance: The difference between the actual cost of an input and its planned cost.
Direct labor budget: A budget showing the total direct labor hours needed and the associated cost for the number of units in the production budget.
Variable costs: Costs that, in total, vary in direct proportion to changes in output within the relevant range.
Currently attainable standards: Standards that reflect an efficient operating state; they are rigorous but achievable.
Selling and administrative expenses budget: A budget that outlines planned expenditures for nonmanufacturing activities.
Postaudit: A follow-up analysis of an investment decision, comparing actual benefits and costs with expected benefits and costs.
Services: Tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities.
Cost reconciliation: The final section of the production report that compares the costs to account for with the costs accounted for to ensure that they are equal.
Manufacturing organization: An organization that produces tangible products.
Sales mix: The relative combination of products (or services) being sold by an organization.
Line positions: Positions that have direct responsibility for the basic objectives of an organization.
Fixed costs: Costs that, in total, are constant within the relevant range as the level of output increases or decreases.
Capital budgeting: The process of making capital investment decisions.
Operating income: Revenues minus operating expenses from the firm's normal operations. Operating income is before-tax income.
Process-value analysis: An approach that focuses on processes and activities and emphasizes system wide performance instead of individual performance.
Profit-volume graph: A graphical portrayal of the relationship between profits and sales activity in units.
Vertical analysis: A type of analysis that expresses the line item as a percentage of some other line item for the same period.
Management accounting: The provision of accounting information for a company's internal users.
Strategic plan: The long-term plan for future activities and operations, usually involving at least five years.
Required rate of return: The minimum rate of return that a project must earn in order to be acceptable. Usually corresponds to the cost of capital.
Internal failure costs: Costs incurred because products and services fail to conform to requirements where lack of conformity is discovered prior to external sale.
Value chain: The set of activities required to design, develop, produce, market, and deliver products and services to customers.
Participative budgeting: An approach to budgeting that allows managers who will be held accountable for budgetary performance to participate in the budget's development.
Cost object: Any item such as products, customers, departments, projects, and so on, for which costs are measured and assigned.
Sensitivity analysis: The "what-if" process of altering certain key variables to assess the effect on the original outcome.
Unfavorable (U) variances: Variances produced whenever the actual input amounts are greater than the budgeted or standard allowances.
Core objectives and measures: Those objectives and measures common to most organizations.
Price: The revenue per unit.
Production budget: A budget that shows how many units must be produced to meet sales needs and satisfy ending inventory requirements.
Accounts receivable turnover ratio: A ratio that measures the liquidity of receivables. It is computed by dividing net sales by average accounts receivable.
Independent projects: Projects that, if accepted or rejected, will not affect the cash flows of another project.
Standard hours allowed: The direct labor hours that should have been used to produce the actual output (Unit labor standard 3 Actual output).
Conversion cost: The sum of direct labor cost and overhead cost.
Tangible products: Goods produced by converting raw materials through the use of labor and capital inputs, such as plant, land, and machinery.
Compounding of interest: Paying interest on interest.
Carrying costs: The costs of holding inventory.
High-low method: A method for separating mixed costs into fixed and variable components by using just the high and low data points. [Note: The high (low) data point corresponds to the high (low) output level.]
Capital investment decisions: The process of planning, setting goals and priorities, arranging financing, and identifying criteria for making long-term investments.
Controlling: The managerial activity of monitoring a plan's implementation and taking corrective action as needed.
Plantwide overhead rate: A single overhead rate calculated using all estimated overhead for a factory divided by the estimated activity level across the entire factory.
Environmental detection costs: Costs incurred to detect poor environmental performance.
Materials usage variance (MUV): The difference between the direct materials actually used and the direct materials allowed for the actual output multiplied by the standard price.
Standard cost per unit: The per-unit cost that should be achieved given materials, labor, and overhead standards.
Lean Accounting: An accounting practice that organizes costs according to the value chain by focusing primarily on the elimination of waste. The objective is to provide information to managers that support this effort and to provide financial statements that better reflect overall performance, using financial and nonfinancial information.
Keep-or-drop decisions: Relevant costing analyses that focus on keeping or dropping a segment of a business.
Appraisal costs: Cost incurred to determine whether products and services are conforming to requirements.
Investing activities: Those activities that involve the acquisition or sale of long-term assets.
Decision model: A specific set of procedures that, when followed, produces a decision.
Process value chain: The innovation, operations, and postsales service processes.
Just-in-time (JIT): A demand-pull system whose objective is to eliminate waste by producing a product only when it is needed and only in the quantities demanded by customers.
Cost behavior: The way in which a cost changes when the level of output changes.
Scattergraph method: A method to fit a line to a set of data using two points that are selected by judgment. It is used to break out the fixed and variable components of a mixed cost.
Causal factors: Activities or variables that invoke service costs. Generally, it is desirable to use causal factors as the basis for allocating service costs.
Administrative costs: All costs associated with research, development, and general administration of the organization that cannot reasonably be assigned to either selling or production.
Nonmonetary incentives: The use of psychological and social rewards to motivate managers.
Supplies: Those materials necessary for production that do not become part of the finished product or are not used in providing a service.
Method of least squares (regression): A statistical method to find the best-fitting line through a set of data points. It is used to break out the fixed and variable components of a mixed cost.
Leverage ratios: Ratios that measure the ability of a company to meet its long- and short-term obligations. These ratios provide a measure of the degree of protection provided to a company's creditors.
Failure costs: The costs incurred by an organization because failure activities are performed.
Incentives: The positive or negative measures taken by an organization to induce a manager to exert effort toward achieving the organization's goals.
Segment margin: The contribution a segment makes to cover common fixed costs and provide for profit after direct fixed costs and variable costs are deducted from the segment's sales revenue.
Annuity: A series of future cash flows.
Operations process: A process that produces and delivers existing products and services to customers.
Double-loop feedback: Information about both the effectiveness of strategy implementation and the validity of assumptions underlying the strategy.
Sequential processing: A processing pattern in which units pass from one process to another in a set order.
Operating activities: The ongoing, day-to-day, revenue-generating activities of an organization.
Performance report: A report that compares the actual data with planned data.
Driver: A factor that causes or leads to a change in a cost or activity; a driver is an output measure.
Activity-based costing (ABC) system: A cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign costs to cost objects.
Producing departments: Units within an organization responsible for producing the products or services that are sold to customers.
Total quality management: A management philosophy in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products.
Markup: The percentage applied to a base cost; it includes desired profit and any costs not included in the base cost.
Master budget: The collection of all area and activity budgets representing a firm's comprehensive plan of action.
Value-added costs: Costs caused by value-added activities.
Financial budgets: The portions of the master budget that include the cash budget, the budgeted balance sheet, the budgeted statement of cash flows, and the capital budget.
Continuous improvement: Searching for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and reducing costs.
Relevant costs: Future costs that change across alternatives.
Standard quantity of materials allowed: The quantity of materials that should have been used to produce the actual output (Unit materials standard 3 Actual output).
Velocity: The number of units that can be produced in a given period of time (e.g., output per hour).
Decision making: The process of choosing among competing alternatives.
Variable overhead efficiency variance: The difference between the actual direct labor hours used and the standard hours allowed multiplied by the standard variable overhead rate.
Labor rate variance (LRV): The difference between the actual hourly rate paid and the standard hourly rate multiplied by the actual hours worked.
Budget director: The individual responsible for coordination and directing the overall budgeting process.
Direct materials purchases budget: A budget that outlines the expected usage of materials production and purchases of the direct materials required.
Independent variable: A variable whose value does not depend on the value of another variable.
Activity output: The result or product of an activity.
Indirect method: A method that computes operating cash flows by adjusting net income for items that do not affect cash flows.
Treasurer: The individual responsible for the finance function; raises capital and manages cash and investments.
Economic value added (EVA): A performance measure that is calculated by taking the after-tax operating profit minus the total annual cost of capital.
Applied overhead: Overhead assigned to production using predetermined rates.
Current ratio: A measure of the ability of a company to pay its short-term liabilities out of short-term assets.
Materials requisition form: A source document that records the type, quantity, and unit price of the direct materials issued to each job.
Assigning costs: The way that a cost is linked to some cost object.
Parallel processing: A processing pattern in which two or more sequential processes are required to produce a finished good.
Ethical behavior: Choosing actions that are right, proper, and just.
Mixed costs: Costs that have both a fixed and a variable component.
Postsales service process: A process that provides critical and responsive service to customers after the product or service has been delivered.
FIFO costing method: A process-costing method that separates units in beginning inventory from those produced during the current period. Unit costs include only current-period costs and production.
Consumption ratio: The proportion of an overhead activity consumed by a product.
Certified Internal Auditor (CIA): The CIA has passed a comprehensive examination designed to ensure technical competence and has two years' experience.
Non-unit-level activity drivers: Factors that measure the consumption of non-unit-level activities by products and other cost objects.
Overhead: A category in which all product costs, other than direct materials and direct labor, are placed.
Activity drivers: Factors that measure the consumption of activities by products and other cost objects.
Failure activities: Activities performed by an organization or its customers in response to poor quality (poor quality does exist).
Price (rate) variance: The difference between standard price and actual price multiplied by the actual quantity of inputs used.
Committed fixed cost: A fixed cost that cannot be easily changed.
Direct materials: Materials that are a part of the final product and can be directly traced to the goods or services being produced.
Prevention costs: Cost incurred to prevent defects in products or services being produced.
Budgets: Plans of action expressed in financial terms.
Ecoefficiency: A view of environmental management maintaining that organizations can produce more useful goods and services while simultaneously reducing negative environmental impacts, resource consumption, and costs.
Materials price variance (MPV): The difference between the actual price paid per unit of materials and the standard price allowed per unit multiplied by the actual quantity of materials purchased.
Return on investment (ROI): The ratio of operating income to average operating assets.
Target cost: The difference between the sales price needed to achieve a projected market share and the desired per-unit profit.
Fixed overhead spending variance: The difference between actual fixed overhead and applied fixed overhead.
Cost-volume-profit graph: A graph that depicts the relationships among costs, volume, and profits. It consists of a total revenue line and a total cost line.
Non-value-added activities: All activities other than those that are absolutely essential to remain in business.
Activity analysis: The process of identifying, describing, and evaluating the activities an organization performs.
Make-or-buy decisions: Relevant costing analyses that focus on whether a component should be made internally or purchased externally.
Constraints: Mathematical expressions that express resource limitations.
Production report: A document that summarizes the manufacturing activity that takes place in a process department for a given period of time.
Variable cost ratio: Variable costs divided by sales revenues. It is the proportion of each sales dollar needed to cover variable costs.
Internal business process perspective: A Balanced Scorecard viewpoint that describes the internal processes needed to provide value for customers and owners.
Labor efficiency variance (LEV): The difference between the actual direct labor hours used and the standard direct labor hours allowed multiplied by the standard hourly wage rate.
Ideal standards: Standards that reflect perfect operating conditions.
Environmental internal failure costs: Costs incurred after contaminants are produced but before they are introduced into the environment.
Revenue center: A segment of the business that is evaluated on the basis of sales.
Stockout costs: The costs of insufficient inventory.
Cost of goods sold: The total product cost of goods sold during the period.
Absorption costing: A product-costing method that assigns all manufacturing costs to units of product: direct materials, direct labor, variable overhead, and fixed overhead.
Innovation process: A process that anticipates the emerging and potential needs of customers and creates new products and services to satisfy those needs.
Activity-based budget: A budget that requires three steps: (1) the activities within an organization must be identified, (2) the demand for each activity's output must be estimated, and (3) the cost of resources required to produce this activity output must be assessed.
Control costs: Costs incurred from performing control activities.
Internal rate of return: The rate of return that equates the present value of a project's cash inflows with the present value of its cash outflows (i.e., it sets the NPV equal to zero). Also, the rate of return being earned on funds that remain internally invested in a project.
Cost of goods sold budget: The estimated costs for the units sold.
Certified Management Accountant (CMA): A certified management accountant has passed a rigorous qualifying examination, met an experience requirement, and participates in continuing education.
Continuous budget: A moving 12-month budget with a future month added as the current month expires.
Planning: A management activity that involves the detailed formulation of action to achieve a particular end.
Actual cost system: An approach that assigns actual costs of direct materials, direct labor, and overhead to products.
Financial accounting: A type of accounting that is primarily concerned with producing information for external users.
Direct method: A method that allocates service costs directly to producing departments. This method ignores any interactions that may exist among support departments.
Activity output measure: The number of times an activity is performed. It is the quantifiable measure of the output.
Operating budgets: Budgets associated with the income-producing activities of an organization.
Cash equivalents: Highly liquid investments such as Treasury bills, money market funds, and commercial paper.
Split-off point: The point at which products become distinguishable after passing through a common process.
Standard cost sheet: A listing of the standard costs and standard quantities of direct materials, direct labor, and overhead that should apply to a single product.
Non-value-added costs: Costs that are caused either by non-value-added activities or by the inefficient performance of value-added activities.
Cash budget: A detailed plan that outlines all sources and uses of cash.
Transferred-in costs: Costs transferred from a prior process to a subsequent process.
Activity-based management: A system wide, integrated approach that focuses management's attention on activities with the objective of improving customer value and the profit achieved by providing this value. It includes driver analysis, activity analysis, and performance evaluation, and draws on activity-based costing as a major source of information.
Responsibility center: A segment of the business whose manager is accountable for specified sets of activities.
Indirect costs: Costs that cannot be easily and accurately traced to a cost object.
Job-order costing system: A costing system in which costs are collected and assigned to units of production for each individual job.
Margin of safety: The units sold, or expected to be sold, or sales revenue earned, or expected to be earned, above the break-even volume.
Investment center: A division of a company that is evaluated on the basis of return on investment.
Underapplied overhead: The amount by which actual overhead exceeds applied overhead.
Price-earnings ratio: The price-earnings ratio is found by dividing the market price per share by the earnings per share.
Sales budget: A budget that describes expected sales in units and dollars for the coming period.
Unit-level activities: Activities that are performed each time a unit is produced.
Prime cost: The sum of direct materials cost and direct labor cost.
Activity flexible budgeting: Predicting what activity costs will be as activity usage changes.
Common fixed expenses: Fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment.
Departmental overhead rate: Estimated overhead for a single department divided by the estimated activity level for that same department.
Variable cost: A cost that increases as output increases and decreases as output decreases.
Transfer price: The price charged for goods transferred from one division to another.
Physical flow schedule: A schedule that reconciles units to account for with units accounted for. The physical units are not adjusted for percent of completion.
Sarbanes-Oxley Act (SOX): Passed in 2002 in response to revelations of misconduct and fraud by several well-known firms, this legislation established stronger governmental control and regulation of public companies in the United States, from enhanced oversight (PCAOB), to increased auditor independence and tightened regulation of corporate governance.
Controller: The chief accounting officer in an organization.
Societal costs: (See Unrealized external failure costs.)
Product (manufacturing) costs: Costs associated with the manufacture of goods or the provision of services. Product costs include: direct materials, direct labor, and overhead.
Activity selection: The process of choosing among sets of activities caused by competing strategies.
Equivalent units of output: Complete units that could have been produced given the total amount of manufacturing effort expended during the period.
Fixed overhead volume variance: The difference between budgeted fixed overhead and applied fixed overhead; it is a measure of capacity utilization.
Operating leverage: The use of fixed costs to extract higher percentage changes in profits as sales activity changes. Leverage is achieved by increasing fixed costs while lowering variable costs.
Normal cost of goods sold: The cost of goods sold before adjustment for any overhead variance.
Nondiscounting models: Capital investment models that identify criteria for accepting or rejecting projects without considering the time value of money.
Service organization: An organization that produces intangible products.
Unrealized external failure costs: Environmental costs caused by an organization but paid for by society.
Resource drivers: Factors that measure the consumption of resources by activities.
Postpurchase costs: The costs of using, maintaining, and disposing of the product.
Direct fixed expenses: Fixed costs that are directly traceable to a given segment and, consequently, disappear if the segment is eliminated.
Cost: The amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.
Payback period: The time required for a project to return its investment.
Return on stockholders' equity: A measure that can be used to compare against other return measures (e.g., preferred dividend rates and bond rates). It is computed by dividing net income less preferred dividends by the average common stockholders' equity.
Control: The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance.
Sequential (or step) method: A method that allocates service costs to user departments in a sequential manner. It gives partial consideration to interactions among support departments.
Weighted average costing method: A process-costing method that combines beginning inventory costs with current-period costs to compute unit costs. Costs and output from the current period and the previous period are averaged to compute unit costs.
Relevant range: The range of output over which an assumed cost relationship is valid for the normal operations of a firm.
Testable strategy: A set of linked objectives aimed at an overall goal that can be restated into a sequence of cause-and-effect hypotheses.
Debt ratio: The ratio that measures the percentage of a company's risk as the percentage of its assets financed by creditors increases. It is computed by dividing a company's total liabilities by its total assets.
Coefficient of determination (R2): The percentage of total variability in a dependent variable that is explained by an independent variable. It assumes a value between 0 and 1.
Strategy: The process of choosing a business's market and customer segments, identifying its critical internal business processes, and selecting the individual and organizational capabilities needed to meet internal, customer, and financial objectives.
Mutually exclusive projects: Projects that, if accepted, preclude the acceptance of competing projects.
Direct labor: The labor that can be directly traced to the goods or services being produced.
Price standards: The price that should be paid per unit of input.
Times-interest-earned ratio: A leverage ratio that uses the income statement to assess a company's ability to service its debt. It is computed by dividing net income before taxes and interest by interest expense.
Pseudoparticipation: A budgetary system in which top management solicits inputs from lower-level managers and then ignores those inputs. Thus, in reality, budgets are dictated from above.
Common costs: The costs of resources used in the output of two or more services or products.
Driver analysis: The effort expended to identify those factors that are the root causes of activity costs.
Control limits: The maximum allowable deviation from a standard.
Costs of quality: Costs incurred because poor quality may exist or because poor quality does exist.
Slope: The variable cost per unit of activity usage.
Cost center: A division of a company that is evaluated on the basis of cost.
Kaizen standard: An interim standard that reflects the planned improvement for a coming period.
Gross margin: The difference between sales revenue and cost of goods sold.
Activity sharing: Increasing the efficiency of necessary activities by using economies of scale.
Financing activities: Those activities that raise (provide) cash from (to) creditors and owners.
Accounting rate of return: The rate of return obtained by dividing the average accounting net income by the original investment (or by average investment).
Quantity standards: The quantity of input allowed per unit of output.
Sunk costs: Costs for which the outlay has already been made and that cannot be affected by a future decision.
Private costs: Environmental costs that an organization has to pay.
Sustainable development: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Static budget: A budget for a particular level of activity.
Balanced Scorecard: A strategic management system that defines a strategic-based responsibility accounting system. The Balanced Scorecard translates an organization's mission and strategy into operational objectives and performance measures for four different perspectives: the financial perspective, the customer perspective, the internal business process perspective, and the learning and growth (infrastructure) perspective.
Noncash investing and financing activities: Investing and financing activities that take place without affecting cash.
Job-order cost sheet: A subsidiary account to the work-in-process account on which the total costs of materials, labor, and overhead for a single job are accumulated.
Financial perspective: A Balanced Scorecard viewpoint that describes the financial consequences of actions taken in the other three perspectives.
Opportunity cost: The benefit given up or sacrificed when one alternative is chosen over another.
Monetary incentives: The use of economic rewards to motivate managers.
Activity dictionary: A list of activities described by specific attributes such as name, definition, classification as primary or secondary, and activity driver.
Net present value: The difference between the present value of a project's cash inflows and the present value of its cash outflows.
Ending finished goods inventory budget: A budget that describes planned ending inventory of finished goods in units and dollars.
Direct costs: Costs that can be easily and accurately traced to a cost object.
Activity reduction: Decreasing the time and resources required by an activity.
Controllable costs: Costs that managers have the power to influence.
Cycle time: The length of time required to produce one unit of a product.
Inventory turnover ratio: A ratio that is computed by dividing the cost of goods sold by the average inventory.
Unit-level activity drivers: Factors that measure the consumption of unit-level activities by products and other cost objects.
Break-even point: The point where total sales revenue equals total cost; at this point, neither profit nor loss is earned.
Environmental prevention costs: Costs incurred to prevent damage to the environment.
External failure costs: Costs incurred because products fail to conform to requirements after being sold to outside parties.
Decentralization: The granting of decision-making freedom to lower operating levels.
Horizontal analysis: Also called trend analysis, this type of analysis expresses a line item as a percentage of some prior-period amount.
Flexible budget: A budget that can specify costs for a range of activity.
Defective product: A product or service that does not conform to specifications.
Quick or acid-test ratio: A measure of liquidity that compares only the most liquid assets to current liabilities.
Segment: A subunit of a company of sufficient importance to warrant the production of performance reports.
Liquidity ratios: Ratios that measure the ability of a company to meet its current obligations.
Budget committee: A committee responsible for setting budgetary policies and goals, reviewing and approving the budget, and resolving any differences that may arise in the budgetary process.
Future value: The value that will accumulate by the end of an investment's life if the investment earns a specified compounded return.
Reciprocal method: A method that simultaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments.
Certified Public Accountant (CPA): A certified accountant who is permitted (by law) to serve as an external auditor. CPAs must pass a national examination and be licensed by the state in which they practice.
Dividend payout ratio: A ratio that is computed by dividing the total common dividends by the earnings available to common stockholders.
Profitability ratios: Ratios that measure the earning ability of a company. These ratios allow investors, creditors, and managers to evaluate the extent to which invested funds are being used efficiently.
Period costs: Costs that are expensed in the period in which they are incurred; they are not inventoried.
Contribution margin ratio: Contribution margin divided by sales revenue. It is the proportion of each sales dollar available to cover fixed costs and provide for profit.
Dysfunctional behavior: Individual behavior that conflicts with the goals of the organization.
Goal congruence: The alignment of a manager's personal goals with those of the organization.
Usage (efficiency) variance: The difference between standard quantities and actual quantities multiplied by standard price.
Sell-or-process-further decision: Relevant costing analysis that focuses on whether a product should be processed beyond the split-off point.
Differential cost: The difference in total cost between the alternatives in a decision.
Special-order decisions: Relevant costing analyses that focus on whether a specially priced order should be accepted or rejected.
Customer perspective: A Balanced Scorecard viewpoint that defines the customer and market segments in which the business will compete.
Myopic behavior: Managerial actions that improve budgetary performance in the short run at the expense of the long-run welfare of the organization.
Variable overhead spending variance: The difference between the actual variable overhead and the budgeted variable overhead based on actual hours used to produce the actual output.
Overhead budget: A budget that reveals the planned expenditures for all indirect manufacturing items.
Discretionary fixed costs: Fixed costs that can be changed relatively easily at management discretion.
Contribution margin: Sales revenue minus total variable cost or price minus unit variable cost.
Budgetary slack: The process of padding the budget by overestimating costs and underestimating revenues.
Cost of goods manufactured: The total product cost of goods completed during the current period.
Variable costing: A product-costing method that assigns only variable manufacturing costs to production: direct materials, direct labor, and variable overhead. Fixed overhead is treated as a period cost.
Profit center: A division of a company that is evaluated on the basis of operating income or profit.
Dependent variable: A variable whose value depends on the value of another variable.
Manufacturing Cycle Efficiency (MCE): Measured as value-added time divided by total time. The result tells the company what percentage of total time spent is devoted to actual production.
Activity elimination: The process of eliminating non-value-added activities.
Operating assets: Assets used to generate operating income, consisting usually of cash, inventories, receivables, and property, plant, and equipment. Average operating assets are found by adding together beginning operating assets and ending operating assets, and dividing the result by 2.
Zero defects: A quality performance standard that requires all products and services to be produced and delivered according to specifications.
Environmental external failure costs: Costs incurred after contaminants are introduced into the environment.
Customer value: Realization less sacrifice, where realization is what the customer receives and sacrifice is what is given up.

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Deck Info

Number of cards 323