Key terms Flashcards
(36 cards)
Benefit cost analysis:
measures the effects of a plan by comparing its expected benefits and costs, which can be quantitative and qualitative.
Competitive advantage
is expressed in euros, dollars or another currency (financial information) or in other quantities relating to size, frequency, and so on (non-financial information).
Cost management:
measures whether the performance of current operations is consistent with expectations.
Qualitative information
is descriptive, expressed in words instead of numbers, and based on characteristics or perceptions, such as relative desirability, rather than quantities.
Quantitative information:
is expressed in euros, dollars or another currency (financial information) or in other quantities relating to size, frequency, and so on (non-financial information).
Accrual cost:
1 – a measure of the value of resources used, when reporting results of operations or estimating long-run costs. 2 – a short cut for the complete cost implications of the opportunity cost of picking up or delivering fabric is the accounting or accrual cost, which is an average cost.
Administrative costs:
costs incurred to manage the organization and provide staff support, including executive and clerical salaries; costs for legal, computing and accounting services; and building space for administrative personnel.
Cash or out-of-pocket cost
1 – the incremental money price paid, when deciding whether it is worthwhile to buy incremental resources needed now. 2 – the incremental cost paid by cash or credit to achieve a particular purpose.
Committed costs:
costs incurred because of policies or contractual obligations.
Conversion cost:
when all of labor cost is a small part of total manufacturing costs, some companies include labor with overhead and term the total indirect cost they call them conversion costs.
Cost:
sacrifice made, measured by the value of the resources given up, to achieve a particular purpose.
Cost of sales:
the costs of products sold in the period of sales
Direct cost:
the costs of resources that are physically observed being used to create specific products.
Fixed cost:
expenses that are not dependent on the level of goods or services produced by the
business.
Indirect cost
costs that cannot be feasibly traced to object, such as products.
Indirect labor cost:
the wages of production employees who do not work directly on the product yet are required for the manufacturing facility’s operation. These employees include supervisors, maintenance workers, purchasing managers and material-handling employees.
Indirect material cost:
all materials that either (1) are not a part of the finished product but are necessary to manufacture it or (2) are part of the finished product but are insignificant in cost.
Manufacturing overhead cost
an indirect cost that includes resources necessary for the manufacturing process, but which cannot be easily traced to specific units of product. Manufacturing over- head includes indirect material, indirect labor and other manufacturing costs that are shared resources for multiple products or cannot be traced.
Sunk cost:
a cost that has already been incurred and cannot be recovered. Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken.
Period cost
1 – for external reporting purposes, any cost that is not a product cost. 2 – non-
manufacturing costs that are expressed in the period incurred for external reporting purposes.
Product cost:
a cost assigned to goods that were either purchased or manufactured for resale. Product cost is the historical cost of the inventory of manufactured or purchased goods until the goods are sold.
Account analysis:
Cost estimates are based on a review of each activity account making up the total cost being analyzed. The account analysis method follows three steps:
- Identify the objects for which costs need to be estimated.
- Gather cost and cost-driver amounts for each cost account for each time period.
- Compute the average cost-driver rate for each cost account.
Engineering estimate:
Analysts make engineering estimates of costs, first by measuring the work involved in the activities that go into a product and then by assigning a cost to each of those activities
High – low method:
estimates a cost function using only the costs at the highest and lowest level of workload and output. The high-low method is a simple ‘back of the envelope’ way to get estimates of the slope and intercept of a straight line using just two points of data. The high-low method has generally been replaced by the use of spread- sheets and regression analysis.
