Definitions

Question 1

associating costs with the type of activity for which that cost is incurred

Answer 1

Classification by Function

Question 2

task performed each time a batch is processed. Volume measure at batch level – depend on # of batches processed, rather than # of units produced. Activity measure # of: PO’s, production orders, setups, material moves.

Answer 2

BATCH LEVEL ACTIVITY

Question 2

increase total sales or decrease the break-even point or both. To decrease break-even point either decrease fixed expenses or increase unit CM. To increase unit CM must either increase selling price or decrease variable cost per unit

Answer 2

HOW CAN THE MARGIN OF SAFETY BE INCREASED?

Question 3

Marketing selling and administration

Answer 3

period cost

Question 3

a segment whose manager is responsible for meeting revenue targets and is considered to have the authority to strongly influence (if not control) revenues.

Answer 3

REVENUE CENTRE

Question 4

2 step system - cost are assigned to products on the basis of activities they consume.

Answer 4

ACB COSTING

Question 4

the price charged when one segment of an organization provides goods or services to another part of the organization

Answer 4

TRANSFER PRICE

Question 5

Manufacturing/nonmanufacturing or product/period

Answer 5

Classification by function

Question 6

small batches or custom production; large variety of different products. E.g. custom homes, auto repair shops, greeting cards, services-accounting, legal, advertising.

Answer 6

JOB ORDER COSTING

Question 7

a cost that differs between 2 alternatives. can be fixed or variable

Answer 7

differential costs

Question 7

costing method. Includes both fixed and variable (fully absorbs overhead costs). Includes: DM, DL and V/F MOH as part unit/product. An “average” cost.

Answer 7

FULL ABSORPTION COSTING

Question 8

Total cost increases as activity increases

Answer 8

Variable Cost

Question 8

those labor hours that can be easily traced to individual units of product

Answer 8

DL

Question 8

investment in long term assets & basic org. structure of a firm.

Answer 8

Committed Fixed Cost

Question 8

the net operating income that an investment centre earns above the required return on its operating assets

Answer 8

RESIDUAL INCOME (RI)

Question 9

Uses only two data points to estimate VC and can produce inaccurate results

Answer 9

High-Low method

Question 9

a segment of an organization whose manager is responsible and accountable for costs, revenues, profits, or investments

Answer 9

RESPONSIBIITY CENTRE

Question 11

per unit cost decrease with increases in activity

Answer 11

Fixed Cost

Question 12

product costing includes: DM, DL and allocated MOH using a predetermined overhead rate = Estimated total MOH/Estimated total allocation rate.

Answer 12

NORMAL COSTING SYSTEM

Question 13

in manufacturing also considered a product/ conversion cost

Answer 13

Indirect cost

Question 14

A cost that has already been incurred and cannot be changed by any decision made now or in the future

Answer 14

Sunk cost

Question 15

amount remaining from sales revenue after all variable costs deducted. to cover fixed cost and earn a profit

Answer 15

Contribution Margin

Question 15

costing method that includes only variable portion of MOH. DM, DL and variable MOH are included as part of the finished unit of product.

Answer 15

VAIABLE COSTING

Question 15

actual overhead costs allocated to units. Actual costs not know until period end (not timely). Unit cost of the same product can fluctuate.

Answer 15

ACTUAL COSTING

Question 16

an individual unit within an organization whose manager has the responsibility to carry out its activities

Answer 16

SEGMENT

Question 17

the profit generated per dollar invested in operating assets. ROI = NOI/AOA OR MARGIN X TURN OVER = NOI/SALES X SALES/AOA

Answer 17

RETURN ON INVESTMENTS (ROI)

Question 18

Total cost remains constant within a relevant range

Answer 18

Fixed Cost

Question 18

the amount available to cover fixed expenses and earn a profit

Answer 18

CONTRIBUTION MARGIN

Question 19

arise from annual decisions to spend in certain fixed cost areas.

Answer 19

Discretionary Fixed Cost

Question 20

varies in response to more than a unit change in activity

Answer 20

Step VC

Question 21

objective and precise and takes all data points into account R2 - variation explained by cost driver. higher the R the more reliable

Answer 21

Least square regression method

Question 22

the relative proportion of fixed, variable and mixed costs in an organization

Answer 22

cost structure

Question 24

Unit Cost is constant

Answer 24

Variable cost

Question 24

uses all data points and visual inspection. Is not precise or duplicable

Answer 24

scattergraph method

Question 25

all costs involved in acquiring or making a product

Answer 25

product cost

Question 25

activity that relates to specific products (testing/design) and carried out regardless of #of batches or units produced. Depend on the # of different Products a firm produces. Activity measure: test time, design time, # part types.

Answer 25

PRODUCT LEVEL ACTIVITY

Question 27

materials used in the finished product that can be easily and economically traced directly to the product. Raw materials

Answer 27

DM

Question 27

a method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit

Answer 27

CM METHOD

Question 29

only "relevant costs are considered in making decisions

Answer 29

cost classification by relevance

Question 30

a volume measure (resources consumed vary in direct proportion to # of units produced); an activity is performed each time a unit is produced. Activity measure: mhrs, DLhrs, #units.

Answer 30

UNIT LEVEL ACTIVITY

Question 30

Income before income and taxes – also referred to as EBIT earnings before interest and taxes

Answer 30

NOI

Question 31

a fixed cost that supports more than one business segment but is not traceable to any one segment.

Answer 31

COMMON FIXED EXPENSE/COST

Question 32

cannot be easily be easily or economically traced to a costing object

Answer 32

Indirect Cost

Question 33

a segment where the manager is responsible for costs but not revenues, profit or investments. Service units accounting, IT, HR, general admin.

Answer 33

COST CENTRE

Question 34

used to apply MOH costs to products. Ideally it should be a cost driver of the overhead cost. DL hours, machine hours.

Answer 34

ALLOCATION BASE

Question 35

a first step at improving, same limitations as plant wide allocations but at a departmental level

Answer 35

LIMITATIONS OF DEAPARTMENT OVERHEAD ALLOCATION (RATES)

Question 37

Held on the BS and expensed to match the revenue generated from sale

Answer 37

product cost

Question 38

a measure of management’s ability to control operating expenses in relation to sales. Margin = NOI/AOA

Answer 38

MARGIN

Question 39

a multi-dimensional performance measurement system, which contains measure along at least dimensions: financial; customer, internal business processes; learning & developement

Answer 39

BALANCED SCORECARD

Question 39

an organization where decision making is made by a single managers or a small management team

Answer 39

CENTRALIZED ORGANIZATION

Question 40

classifying as variable or fixed to assist in in managers predictions

Answer 40

Cost classification by behavior

Question 41

cash, accounts receivable, inventory, pp&e, and all other assets held for productive use in an organization

Answer 41

OPERATING ASSETS

Question 43

on the differences between alternatives arte relevant

Answer 43

Differential Costs

Question 44

cost object - department, division, product, product line, customer, territory

Answer 44

Cost classification by traceability

Question 45

Income before income and taxes – also referred to as EBIT earnings before interest and taxes

Answer 45

NET OPERATING INCOME

Question 46

a measure of whatever causes the incurrence of a variable cost

Answer 46

activity base

Question 48

shows the financial positions of a company at a specific point in time

Answer 48

balance sheet

Question 49

varies in direct proportion with output/activity

Answer 49

true VC

Question 50

sales generated for each dollar invested in operating assets. TO = SALES/AOA

Answer 50

TURNOVER

Question 52

MOH

Answer 52

Indirect Cost

Question 53

refers to the relative proportion of fixed and variable costs in an organization. Cost structure impacts profit stability – the higher the proportion of fixed costs the higher the DOL which increases income volatility.

Answer 53

COST STRUCTURE

Question 54

#units, #batches, #products do not cause these costs to occur. These are the general plant organizational structure cost (insurance, tax, amort, plant mgmt salaries). Activity measure: arbitrary usually DLhrs.

Answer 54

FACILITY LEVEL/SUSTAINING ACTIVITY

Question 55

A cost that is never relevant

Answer 55

Sunk Cost

Question 56

a fixed cost incurred because of the existence of a particular business segment (a FC that can be directly traced to an individual segment)

Answer 56

TRACEABLE FIXED EXPENSES/COST

Question 58

shows the firms earnings over a period of time (usually quarterly or annually)

Answer 58

income statement

Question 60

Cost object - department, division, product, product line, customer, territory

Answer 60

cost classification by traceability

Question 61

M, DM, DL, MOH

Answer 61

product cost

Question 63

inventoriable cost

Answer 63

Product Cost

Question 65

Expensed on the IS in the period incurred

Answer 65

period cost

Question 65

does not capture difference in consumption of MOH resources; relies on volume based allocation bases (eg DL hours); may lead to cost distortions and inappropriate pricing.

Answer 65

LIMITATIONS OF PLANT WIDE ALLOCATION OVERHEAD ALLOCATION

Question 67

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

Answer 67

Variable Cost

Question 68

difficult to adjust in short term, will impair profitability or long-term goals

Answer 68

Committed Fixed Cost

Question 70

is the range of activity within which the assumptions made about cost behavior are valid

Answer 70

relevant range

Question 71

Inventoriable accts: DM, WIP, FG

Answer 71

Balance sheedt

Question 72

an average cost based on a certain volume.

Answer 72

Unitized Fixed Costs

Question 73

a tool that helps managers understand the interrelationships between cost, volume, and profit

Answer 73

CVP ANALYSIS

Question 74

a measure, at a given level of sales, of how a % change in sales volume will affect profits. DOL = CM$/Net Income$

Answer 74

DOL (DEGREE OF OPERATING LEVERAGE)

Question 75

an organizational segment whose manager is responsible for the segment’s profitability and has the authority to strongly influence both cost and revenues

Answer 75

PROFIT CENTRE

Question 76

has a significant impact on decision making and planning

Answer 76

Cost Structure

Question 77

relevant costs: differential and opportunity Non-relevant costs: sunk costs

Answer 77

cost classification by relevance

Question 79

an organization where decision making is not confined to a few top executives but, rather, is spread throughout the organization

Answer 79

DECENTRALIZED ORGANIZATION

Question 81

VC = Change in cost/change in activity FC = total cost - VC element Y = a + bx Y = TMC; a = TFC; b = unit variable cost; x = activity level

Answer 81

Mixed Cost Formulas

Question 82

continuous flow (gasoline, cement) of homogeneous units results in average costing. Large batch (new auto’s) “discrete process” with distinct units.

Answer 82

PROCESS COSTING

Question 83

a measure of how sensitive net income is to a given % change in sales. OL = CM$/Net income$

Answer 83

Operating leverage

Question 84

a segment manager who is responsible and accountable for costs, revenues, profits, or investments

Answer 84

RESPONSIBILITY CENTRE

Question 85

all costs not included in product costs

Answer 85

period cost

Question 87

the level of sales at which profit is zero. The break-even point can also be defined as the point where total sales equals total expenses or as the point where total contribution margin equal total fixed expenses

Answer 87

BREAK EVEN POINT

Question 88

the net operating profit after tax that an investment centre earns above the cost of capital. Similiar to residual income.

Answer 88

ECONOMIC VALUE ADDED

Question 89

A cost that can be easily and economically traced to a cost object (direct or indirect)

Answer 89

Cost classification by tracibility

Question 90

the excess of budgeted (or actual) sales over the break-even volume of sales

Answer 90

MARGIN OF SAFETY

Question 91

(full costing)

Answer 91

FULL ABSORPTION COSTING

Question 92

all cost associated with manufacturing except DM, DL, Indirect Labor

Answer 92

MOH

Question 93

the costs incurred to generate particular revenue should be recognized as an expense in the same period that the revenue is recognized

Answer 93

accrual accounting and matching principle