Ch#
Ch# |Term |Definition |Sound | |
|1 |Attention directing |Management accountant’s function that involves | |
| | |clarifying and sorting out situations requiring | |
| | |management attention from those which do not. | |
|1 |Budget |The quantitative expression of a plan of action and | |
| | |an aid to the coordination and implementation of the | |
| | |plan. | |
|1 |Certified Management |The professional designation for management | |
| |Accountant (CMA) |accountants in Canada. | |
|1 |Chief financial officer |The senior officer responsible for oversight of the | |
| |(CFO), finance director |financial operations of an organization. | |
|1 |Control |Covers both the action that implements the planning | |
| | |decision and the performance evaluation of the | |
| | |personnel and operations. | |
|1 |Controller |The financial executive primarily responsible for | |
| | |both management and financial accounting. | |
|1 |Cost accounting |Measures and reports financial and other information | |
| | |related to the organization’s acquisition or | |
| | |consumption of resources; it provides information for| |
| | |both management accounting and financial accounting. | |
|1 |Cost management |Actions undertaken by managers to satisfy customers | |
| | |while continually reducing and controlling costs. | |
|1 |Cost-benefit approach |Primary criterion for choosing among alternative | |
| | |accounting systems, which is how each system achieves| |
| | |organizational goals relative to the cost of those | |
| | |systems. | |
|1 |Financial accounting |Focuses on external reporting that is guided by | |
| | |generally accepted accounting principles. | |
|1 |Line management |Managers directly responsible for attaining the | |
| | |objectives of the organization. | |
|1 |Management accounting |Measures and reports financial information and other | |
| | |types of information to assist managers in fulfilling| |
| | |the goals of the organization. | |
|1 |Management by exception |The practice of concentrating on areas that are not | |
| | |operating as expected and placing less attention on | |
| | |areas operating as expected. | |
|1 |Planning |Choosing goals, predicting results under various ways| |
| | |of achieving those goals, and then deciding how to | |
| | |attain the desired goals. | |
|1 |Problem solving |Management accountant’s function that involves | |
| | |comparative analysis to identify the best | |
| | |alternatives in relation to the organization’s goals.| |
|1 |Scorekeeping |Management accountant’s function that involves | |
| | |accumulating data and reporting reliable results to | |
| | |all levels of management. | |
|1 |Society of Management |The largest association of management accountants in | |
| |Accountants of Canada (SMAC) |Canada. | |
|1 |Staff management |Managers who provide advice and assistance to line | |
| | |management. | |
|1 |Strategic management |Requires that managers coordinate cost reduction | |
| | |throughout the organization in order to provide the | |
| | |appropriate goods, with appropriate features, at the | |
| | |appropriate price to ensure the long-run | |
| | |profitability of the organization. | |
|1 |Strategy |Describes one of two ways organizations choose to | |
| | |compete in the long term. Managers may match the | |
| | |appropriate quality of goods or services to the price| |
| | |customers are willing to pay; or, managers may choose| |
| | |to innovate and produce unique products for which | |
| | |customers will pay a higher price. | |
|1 |Value chain |The sequence of business functions in which customer | |
| | |usefulness is added to the products or services. | |
|1 |Variance |Difference between an actual result and a budgeted | |
| | |amount when that budgeted amount is a financial | |
| | |variable reported by the accounting system. | |
|2 |Actual costs |Costs incurred (historical costs), as distinguished | |
| | |from budgeted or forecasted costs. | |
|2 |Budgeted costs |Costs that are a management estimate of probable | |
| | |future costs in contrast to actual costs that have | |
| | |already been incurred (historical). | |
|2 |Conversion costs |All manufacturing costs other than direct materials | |
| | |costs. | |
|2 |Cost accumulation |The collection of cost data in some organized way | |
| | |through an accounting system. | |
|2 |Cost allocation |The assigning of indirect costs to the chosen cost | |
| | |object. | |
|2 |Cost assignment |General term that encompasses both (1) tracing | |
| | |accumulated costs to a cost object and (2) allocating| |
| | |accumulated costs to a cost object. | |
|2 |Cost driver |Any factor that affects total costs. That is, a | |
| | |change in the level of the cost driver will cause a | |
| | |change in the level of the total cost of a related | |
| | |cost object. | |
|2 |Cost object |Anything for which a separate measurement of costs is| |
| | |desired. | |
|2 |Cost of goods sold (COGS) |Includes all manufacturing costs incurred to produce | |
| | |the goods sold. | |
|2 |Cost tracing |The assigning of direct costs to the chosen cost | |
| | |object. | |
|2 |Cost |Resource sacrificed or forgone to achieve a specific | |
| | |objective. | |
|2 |Costs of goods manufactured |All costs incurred to produce finished goods during a| |
| |(COGM) |specified accounting period, irrespective of the time| |
| | |period when production began. | |
|2 |Direct costs of a cost |Costs that are related to the particular cost object | |
| |object |and can be traced to it in an economically feasible | |
| | |way. | |
|2 |Direct manufacturing labour |Compensation of all manufacturing labour specifically| |
| |(DL) costs |identified with the cost object (units finished or in| |
| | |process) and that can be traced to the cost object in| |
| | |an economically feasible way. This text uses the term| |
| | |direct manufacturing labour because labour used in | |
| | |other business functions of the value chain can also | |
| | |be traced directly to cost objects. For example, if | |
| | |the salaries of salespeople can be traced to specific| |
| | |customers, then these salaries will be direct costs | |
| | |and they can be termed direct marketing labour. | |
|2 |Direct materials (DM) costs |The acquisition costs of all materials that | |
| | |eventually become part of the cost object (units | |
| | |finished or in process) and that can be traced to | |
| | |that cost object in an economically feasible way. | |
|2 |Direct materials inventory |Direct materials in stock and awaiting use in the | |
| |(DM) |manufacturing process. | |
|2 |Finished-goods inventory (FG)|Goods fully completed but not yet sold. | |
|2 |Fixed cost |Cost that does not change in total despite changes in| |
| | |a cost driver. | |
|2 |Idle time |Unproductive time caused by lack of orders, machine | |
| | |breakdowns, material shortages, poor scheduling, and | |
| | |so on. | |
|2 |Indirect costs of a cost |Costs that are related to the particular cost object | |
| |object |but cannot be traced to it in an economically | |
| | |feasible way. | |
|2 |Indirect manufacturing costs |All manufacturing costs considered part of the cost | |
| |(manufacturing overhead |object (units finished or in process) but that cannot| |
| |costs, factory overhead |be individually traced to that cost object in an | |
| |costs) |economically feasible way. | |
|2 |Inventoriable costs |All costs of a product that are regarded as an | |
| | |inventory asset when they are incurred and then | |
| | |become a cost of goods sold when the product is sold.| |
| | |These are assets and have value as long as the | |
| | |company owns them. When product is sold from finished| |
| | |goods inventory, its cost is transferred from the | |
| | |balance sheet to the income statement as cost of | |
| | |goods sold (COGS). | |
|2 |Manufacturing-sector company |A company that provides to its customers tangible | |
| | |products that have been converted to a different form| |
| | |from that of the products purchased from suppliers. | |
|2 |Merchandising-sector company |A company that provides its customers with tangible | |
| | |products it has previously purchased in the same | |
| | |basic form from suppliers. | |
|2 |Operating income |Operating income is the total revenues from | |
| | |operations minus total costs from operations | |
| | |(excluding interest expense and income taxes) | |
| | |including costs of goods sold. | |
|2 |Overtime premium |Wages paid to all workers in excess of their | |
| | |straight-time wage rates. | |
|2 |Period costs (operating |All costs associated with generating revenues, other | |
| |costs) |than cost of goods sold. | |
|2 |Prime costs |All direct manufacturing costs. | |
|2 |Product cost |Sum of the costs assigned to a product for a specific| |
| | |purpose. | |
|2 |Relevant range |Range of the cost driver in which a specific | |
| | |relationship between cost and driver is valid. | |
|2 |Revenues |Inflows of assets received from customers in payment | |
| | |for products or services provided by the | |
| | |organization. | |
|2 |Service-sector company |A company that provides services or intangible | |
| | |products to their customers—for example, legal advice| |
| | |or an audit. | |
|2 |Unit cost (average cost) |Computed by dividing some total cost (the numerator) | |
| | |by some number of units (the denominator). | |
|2 |Value-added activities |Activities that customers perceive as adding value to| |
| | |the products or services they purchase. | |
|2 |Variable cost |Cost that changes in total in proportion to changes | |
| | |in a cost driver. | |
|2 |Work-in-process inventory |Goods partially worked on but not yet fully | |
| |(work-in-progress inventory, |completed. | |
| |WIP) | | |
|2 |Breakeven point |Quantity of output at which total revenues and total | |
| | |costs are equal; that is, where the operating income | |
| | |is zero. | |
|3 |Choice criterion |Objective that can be quantified in a decision model.| |
|3 |Contribution income statement|Income statement that groups line items by | |
| | |cost-behaviour pattern to highlight the contribution | |
| | |margin. | |
|3 |Contribution margin |Contribution margin per unit divided by selling | |
| |percentage (contribution |price, or total contribution margin divided by total | |
| |margin ratio) |revenues. | |
|3 |Contribution margin |Revenues minus all costs of the output (a product or | |
| | |service) that vary with respect to the number of | |
| | |output units. | |
|3 |Cost-volume-profit (CVP) |Examines the behaviour of total revenues, total | |
| | |costs, and operating income as changes occur in the | |
| | |output level, selling price, variable costs per unit,| |
| | |or fixed costs; a single revenue driver and a single | |
| | |cost driver are used in this analysis. | |
|3 |Decision model |Formal model for making a choice under uncertainty, | |
| | |frequently involving both quantitative and | |
| | |qualitative analysis. | |
|3 |Decision table |Summary of the contemplated actions, events, | |
| | |outcomes, and probabilities of events in a decision. | |
|3 |Degree of operating leverage |Contribution margin divided by operating income. | |
|3 |Events |Possible occurrences in a decision model. | |
|3 |Expected value (expected |Weighted average of the outcomes of a decision with | |
| |monetary value) |the probability of each outcome serving as the | |
| | |weight. | |
|3 |Gross margin percentage |Gross margin divided by revenues. | |
|3 |Gross margin |Revenues minus cost of goods sold. | |
|3 |Margin of safety |Excess of budgeted revenues over the breakeven | |
| | |revenues. | |
|3 |Net income |Operating income plus nonoperating revenues (such as | |
| | |interest revenue) minus nonoperating costs (such as | |
| | |interest cost) minus income taxes. | |
|3 |Operating income |Total revenues from operations minus total costs from| |
| | |operations (excluding interest and income tax | |
| | |expenses) including cost of goods sold. | |
|3 |Operating leverage |Describes the effects that fixed costs have on | |
| | |changes in operating income as changes occur in units| |
| | |sold and hence in contribution margin. | |
|3 |Outcomes |Predicted consequences of the various possible | |
| | |combinations of actions and events in a decision | |
| | |model. | |
|3 |Probability distribution |Describes the likelihood (or probability) of each of | |
| | |the mutually exclusive and collectively exhaustive | |
| | |sets of events. | |
|3 |Probability |Likelihood or chance of occurrence of an event. | |
|3 |PV graph |Shows the impact on operating income of changes in | |
| | |the output level. | |
|3 |Revenue driver |Any factor that affects revenues. | |
|3 |Revenue mix (sales mix) |The relative contribution of quantities of products | |
| | |or services that constitutes total revenues. | |
|3 |Sensitivity analysis |A what-if technique that examines how a result will | |
| | |change if the original predicted data are not | |
| | |achieved or if an underlying assumption changes. | |
|3 |Uncertainty |The probability (p) that the actual future outcome | |
| | |will equal the estimated, predicted outcome. If | |
| | |managers are certain, then the probability is 100% or| |
| | |(p) = 1 that the actual future outcome will equal the| |
| | |estimated future outcome. If they are not certain, | |
| | |then the probability is less than 100% or (p)‹1. A | |
| | |simple technique to represent this situation is to | |
| | |multiply all the estimates about which managers are | |
| | |uncertain by the value of p(x). The effect is to | |
| | |lower the dollar value of the estimated amounts. For | |
| | |example, if managers were only 80% certain that the | |
| | |future price would be $200, then they would use 0.8 x| |
| | |$200 = $160 in their sensitivity analyses. This could| |
| | |apply to both variable and fixed costs as well. | |
|3 |Variable-cost percentage |Total variable costs (with respect to units of | |
| | |output) divided by revenues. | |
|4 |Actual costing |A costing method that traces direct costs to a cost | |
| | |object by using the actual direct-cost rate(s) times | |
| | |the actual quantity of the direct-cost input(s) and | |
| | |allocates indirect costs based on the actual | |
| | |indirect-cost rate(s) times the actual quantity of | |
| | |the cost-allocation base. | |
|4 |Adjusted allocation rate |The adjusted allocation rate approach “corrects” all | |
| |approach |manufacturing overhead (MOH) entries in the general | |
| | |and subsidiary ledgers to what they would have been | |
| | |if accountants had had a crystal ball and perfectly | |
| | |forecasted actual MOH costs and the actual quantity | |
| | |of the allocation base used. The feasibility of | |
| | |implementing the adjusted allocation rate approach | |
| | |increases as technology decreases information | |
| | |processing costs. | |
|4 |Cost application base |This factor always links the indirect cost or | |
| | |indirect cost pool to either a single job or | |
| | |customer. | |
|4 |Cost pool |A grouping of individual costs. | |
|4 |Cost-allocation base |A factor that systematically links an indirect cost | |
| | |or indirect cost pool to the same cost object. It is | |
| | |the common denominator used to allocate the indirect | |
| | |cost pool. | |
|4 |Job cost record (job cost |Source document that records and accumulates all the | |
| |sheet) |costs assigned to a specific job. | |
|4 |Job-costing system |A method to estimate the cost of a product or service| |
| | |using the cost application base to consistently | |
| | |assign indirect cost pools to either a distinct unit | |
| | |or a set of units of a product or service, referred | |
| | |to as a job. | |
|4 |Labour time record |Record used to charge departments and job cost | |
| | |records for labour time used on a specific job. | |
|4 |Manufacturing overhead |All manufacturing costs that are assigned to a | |
| |allocated |product (or service) using a cost-allocation base | |
| | |because they cannot be traced to a product (or | |
| | |service) in an economically feasible way. | |
|4 |Materials requisition record |Form used to charge departments and job cost records | |
| | |for the cost of the materials used on a specific job.| |
|4 |Normal costing |A costing method that traces direct costs to a cost | |
| | |object by using the actual direct-cost rate(s) times | |
| | |the actual quantity of the direct-cost input and | |
| | |allocates indirect costs based on the budgeted | |
| | |indirect-cost rate(s) times the actual quantity of | |
| | |the cost-allocation base. | |
|4 |Overallocated indirect costs |These occur when the allocated amount of indirect | |
| |(overapplied indirect costs, |costs in an accounting period is greater than the | |
| |overabsorbed indirect costs) |actual (incurred) amount in that period. | |
|4 |Process-costing system |A method to estimate the cost of the total output | |
| | |produced during a specified time period by | |
| | |calculating the average accumulated prime and | |
| | |conversion costs incurred per unit and assigning | |
| | |these unit costs to both finished and work-in-process| |
| | |units. | |
|4 |Proration |The spreading of underallocated or overallocated | |
| | |overhead over ending inventories and cost of goods | |
| | |sold. | |
|4 |Responsibility centre |A part, segment, or subunit of an organization whose | |
| | |manager is accountable for a specified set of | |
| | |activities. | |
|4 |Source documents |The original records that support journal entries in | |
| | |an accounting system. | |
|4 |Underallocated indirect costs|These occur when the allocated amount of indirect | |
| |(underapplied indirect costs,|costs in an accounting period is less than the actual| |
| |underabsorbed indirect costs)|(incurred) amount in that period. | |
|5 |Activity-based costing (ABC) |Approach to costing that focuses on activities as the| |
| | |fundamental cost objects. It uses the cost of these | |
| | |activities as the basis for assigning costs to other | |
| | |cost objects such as products, services, or | |
| | |customers. | |
|5 |Activity-based management |Describes management decisions that use | |
| |(ABM) |activity-based costing information to improve | |
| | |operations and processes, satisfy customers, and | |
| | |generate profits. | |
|5 |Activity |An event, task, or unit of work with a specified | |
| | |purpose. | |
|5 |Batch-level costs |The costs of resources sacrificed on activities that | |
| | |are related to a group of units of products or | |
| | |services rather than to each individual unit of | |
| | |product or service. | |
|5 |Cost hierarchy |Categorization of costs into different cost pools | |
| | |based on different classes of cost drivers or | |
| | |different degrees of difficulty in determining | |
| | |cause-and-effect (or benefits-received) | |
| | |relationships. | |
|5 |Facility-sustaining costs |The costs of resources sacrificed on activities that | |
| | |cannot be traced to specific products or services but| |
| | |support the organization as a whole. | |
|5 |Output unit-level costs |The costs of resources sacrificed on activities | |
| | |performed on each individual unit of product or | |
| | |service. | |
|5 |Product cost |Costing outcome wherein at least one miscosted | |
| |cross-subsidization |product results in the miscosting of other products | |
| | |in the organization. | |
|5 |Product overcosting |Occurs when a product consumes a relatively low level| |
| | |of resources but is reported to have a relatively | |
| | |high total cost. | |
|5 |Product undercosting |Occurs when a product consumes a relatively high | |
| | |level of resources but is reported to have a | |
| | |relatively low total cost. | |
|5 |Product-sustaining costs |The costs of resources sacrificed on activities | |
| |(service-sustaining costs) |undertaken to support specific products (or | |
| | |services). | |
|5 |Refined costing system |Costing system that results in a better measure of | |
| | |the nonuniformity in the use of resources by jobs, | |
| | |products, and customers. | |
|5 |Traditional costing, cost |A simple costing approach that uses broad averages to| |
| |smoothing (peanut butter |assign (spread or smooth out) uniformly the cost of | |
| |costing) |resources to cost objects (such as products, | |
| | |services, or customers) when the individual products,| |
| | |services, or customers in fact use those resources in| |
| | |a nonuniform way. | |
|6 |Activity-based budgeting |Approach to budgeting that focuses on the costs of | |
| | |activities necessary to produce and sell products and| |
| | |services. | |
|6 |Cash budget |Schedule of expected cash receipts and disbursements.| |
|6 |Controllability |The degree of influence that a specific manager has | |
| | |over costs, revenues, or other items in question. | |
|6 |Controllable cost |Any cost that is primarily subject to the influence | |
| | |of a given manager of a given responsibility centre | |
| | |for a given time span. | |
|6 |Cost centre |A responsibility centre in which a manager is | |
| | |accountable for costs only. | |
|6 |Financial budget |That part of the master budget that comprises the | |
| | |capital budget, cash budget, budgeted balance sheet, | |
| | |and budgeted statement of cash flows. | |
|6 |Financial planning models |Mathematical representations of the relationships | |
| | |among all operating activities, financial activities,| |
| | |and financial statements. | |
|6 |Investment centre |A responsibility centre in which a manager is | |
| | |accountable for investments, revenues, and costs. | |
|6 |Kaizen budgeting |Budgetary approach that explicitly incorporates | |
| | |continuous improvement during the budget period into | |
| | |the resultant budget numbers. | |
|6 |Master budget |Budget that summarizes the financial projections of | |
| | |all the organization’s individual budgets. It | |
| | |describes the financial plans for all value-chain | |
| | |functions. | |
|6 |Operating budget |The budgeted income statement and its supporting | |
| | |schedules. | |
|6 |Organizational structure |The arrangement of lines of responsibility within the| |
| | |entity. | |
|6 |Padding (budgetary slack) |The practice of underestimating budgeted revenues (or| |
| | |overestimating budgeted costs) to make budgeted | |
| | |targets more easily achievable. | |
|6 |Pro forma statements |Budgeted financial statements of an organization. | |
|6 |Profit centre |A responsibility centre in which a manager is | |
| | |accountable for revenues and costs. | |
|6 |Responsibility accounting |System that measures the plans (by budgets) and | |
| | |actions (by actual results) of each responsibility | |
| | |centre. | |
|6 |Revenue centre |A responsibility centre in which a manager is | |
| | |accountable for revenues only. | |
|6 |Rolling budget |Budget or plan that is always available for a | |
| | |specified future period by adding a month, quarter, | |
| | |or year in the future as the month, quarter, or year | |
| | |just ended is dropped. | |
|6 |Self-liquidating cycle (cash |The movement of cash to inventories to receivables | |
| |cycle, operating cycle, |and back to cash. | |
| |working capital cycle) | | |
|6 |Strategic analysis |Considers how an organization best combines its own | |
| | |capabilities with the opportunities in the | |
| | |marketplace to accomplish its overall objectives. | |
|7 |Benchmarking |The continual process of measuring products, | |
| | |services, or activities against the best levels of | |
| | |performance. | |
|7 |Continuous improvement |Budgeted cost that is successively reduced over | |
| |budgeted costs |succeeding time periods. | |
|7 |Effectiveness |The degree to which a predetermined objective or | |
| | |target is met. | |
|7 |Efficiency variance (input- |The difference between the actual quantity of input | |
| |efficiency variance, usage |used (such as square metres of materials) and the | |
| |variance) |budgeted quantity of input that should have been | |
| | |used, multiplied by the budgeted price. | |
|7 |Efficiency |The relative amount of inputs used to achieve a given| |
| | |level of output. | |
|7 |Favourable variance |Variance that increases operating income relative to | |
| | |the budgeted amount. Denoted “F.” | |
|7 |Flexible budget |A budget developed using budgeted revenues or cost | |
| | |amounts; when variances are computed, the budgeted | |
| | |amounts are adjusted (flexed) to recognize the actual| |
| | |level of output and the actual quantities of the | |
| | |revenue and cost drivers. | |
|7 |Flexible-budget variance |Difference between the actual result and the | |
| | |flexible-budget amount for the actual output | |
| | |achieved. | |
|7 |Price variance (input-price |The difference between actual price and budgeted | |
| |variance, rate variance) |price multiplied by the actual quantity of input in | |
| | |question. | |
|7 |Sales-volume variance |Difference between the flexible-budget amount and the| |
| | |static-budget amount sold; unit selling prices, unit | |
| | |variable costs, and fixed costs are held constant. | |
|7 |Selling-price variance |Flexible budget variance that pertains to revenues; | |
| | |arises solely from differences between the actual | |
| | |selling price and the budgeted selling price. | |
|7 |Standard cost |Carefully predetermined cost. Standard costs can | |
| | |relate to units of inputs or units of outputs. | |
|7 |Standard input |Carefully predetermined quantity of inputs (such as | |
| | |kilograms of materials or hours of labour time) | |
| | |required for one unit of output. | |
|7 |Standard |Carefully predetermined amount; usually expressed on | |
| | |a per-unit basis. | |
|7 |Static budget |Budget that is based on one level of output; when | |
| | |variances are computed at the end of the period, no | |
| | |adjustment is made to the budgeted amounts. | |
|7 |Unfavourable variance |Variance that decreases operating income relative to | |
| | |the budgeted amount. Denoted “U.” | |
|8 |Combined-variance analysis |Approach to overhead-variance analysis that combines | |
| | |variable-cost and fixed cost variances. | |
|8 |Denominator level (production|Quantity of the allocation base used to allocate | |
| |denominator level, production|fixed overhead costs to a cost object. | |
| |denominator volume) | | |
|8 |Non-value-added cost |A cost that, if eliminated, would not reduce the | |
| | |value customers obtain from using the product or | |
| | |service. | |
|8 |Production-volume variance |Difference between budgeted fixed overhead and the | |
| |(denominator-level variance, |fixed overhead allocated. Fixed overhead is allocated| |
| |output-level overhead |based on the budgeted fixed overhead rate times the | |
| |variance) |budgeted quantity of the fixed overhead allocation | |
| | |base for the actual output units achieved. | |
|8 |Value-added cost |A cost that, if eliminated, would reduce the value | |
| | |customers obtain from using the product or service. | |
|8 |Variable overhead efficiency |The difference between the actual quantities used and| |
| |variance |budgeted quantities allowed of the variable overhead | |
| | |cost-allocation base for the actual output units | |
| | |achieved times the budgeted variable overhead cost | |
| | |allocation rate. | |
|8 |Variable overhead spending |The difference between the actual variable overhead | |
| |variance |cost per unit of the cost allocation base and | |
| | |budgeted variable overhead cost per unit of the | |
| | |cost-allocation base multiplied by the actual | |
| | |quantity of the variable overhead allocation base | |
| | |used for the actual output units achieved. | |
|9 |Absorption costing |Inventory costing method in which all manufacturing | |
| | |costs are included as inventoriable costs. All non- | |
| | |manufacturing costs are classified as costs of the | |
| | |period in which they are incurred. | |
|9 |Direct costing (variable |Inventory costing method in which all variable | |
| |costing) |manufacturing costs are included as inventoriable | |
| | |costs. All fixed manufacturing costs are excluded | |
| | |from inventoriable costs; they are costs of the | |
| | |period in which they are incurred. | |
|9 |Downward demand spiral |Progressive reduction in demand for a company’s | |
| | |products and services. This arises when a company | |
| | |utilizes fixed cost based on the quantity of sales. | |
| | |As sales decrease, the unitized fixed cost rate | |
| | |increases. Thus an increased fixed manufacturing rate| |
| | |is allocated to each unit of output, leading | |
| | |companies to raise their unit sales price. | |
|9 |Master-budget capacity |The capacity concept based on the anticipated level | |
| |utilization |of capacity utilization for the coming budget period.| |
|9 |Normal capacity utilization |The capacity concept based on the level of capacity | |
| | |utilization that satisfies average customer demand | |
| | |over a period (say, two or three years) that includes| |
| | |seasonal, cyclical, or other trend factors. | |
|9 |Practical capacity |The capacity concept that reduces theoretical | |
| | |capacity for unavoidable operating interruptions such| |
| | |as scheduled maintenance time, shutdowns for holidays| |
| | |and other days, and so on. | |
|9 |Theoretical capacity |The capacity concept based on the production of | |
| | |output at maximum efficiency all the time. | |
|9 |Throughput costing |Inventory costing method that treats all costs except| |
| |(super-variable costing) |those related to variable direct materials as costs | |
| | |of the accounting period in which they are incurred; | |
| | |only variable direct materials costs are | |
| | |inventoriable. | |
|9 |Variable costing (direct |Inventory costing method in which only variable | |
| |costing) |manufacturing costs are included as inventoriable | |
| | |costs. All fixed costs and all nonmanufacturing costs| |
| | |are excluded from inventoriable costs; they are costs| |
| | |of the period in which they are incurred. | |
|10 |Account analysis method |Approach to cost estimation that classifies cost | |
| | |accounts in the ledger as variable, fixed, or mixed | |
| | |with respect to the cost driver. Typically, | |
| | |qualitative rather than quantitative analysis is used| |
| | |in making these classification decisions. | |
|10 |Autocorrelation (serial |The time dependence of the current value of a data | |
| |correlation) |point for a variable on some previous value for the | |
| | |same variable. | |
|10 |Coefficient of determination |Measures the percentage of variation in a dependent | |
| |(r2) |variable explained by one or more independent | |
| | |variables. | |
|10 |Conference method |Approach to cost estimation that develops cost | |
| | |estimates based on analysis and opinions gathered | |
| | |from various departments of an organization. | |
|10 |Confidence level |The probability that a statement made by managers | |
| | |about b is correct. | |
|10 |Constant (intercept) |The component of total costs that, within the | |
| | |relevant range, does not vary with changes in the | |
| | |level of the cost driver. | |
|10 |Correlation |Arises when at least two independent variables in a | |
| | |multiple linear regression explain part of the same | |
| | |change in the dependent variable. | |
|10 |Cost estimation |The measurement of past cost relationships. | |
|10 |Cost functions |Describe how costs change as their cost drivers | |
| | |change. | |
|10 |Cost prediction |Forecast of future costs. | |
|10 |Critical value |A benchmark value for the t-statistic indicating | |
| | |whether or not changes to b have power significantly | |
| | |different from zero (random effect) to explain the | |
| | |corresponding changes in the dependent variable. | |
|10 |Cumulative average time |Learning curve model in which the cumulative average | |
| |learning model |time per unit declines by a constant percentage each | |
| | |time the cumulative quantity of units produced | |
| | |doubles. | |
|10 |Degrees of freedom (d.f.) |The number of data points in a sample that are free | |
| | |to vary. | |
|10 |Dependent variable |The cost variable to be predicted in a cost | |
| | |estimation or prediction model. | |
|10 |Durbin-Watson statistic d |Tests for the presence of serial correlation among | |
| | |residuals of a linear regression model using ordinary| |
| | |least squares (OLS). | |
|10 |Experience curve |Function that shows how full product costs per unit | |
| | |(including manufacturing, marketing, distribution, | |
| | |and so on) decline as units of output increase. | |
|10 |Goodness of fit |Measures how well the predicted values of the cost, | |
| | |y, match the actual cost observations, Y. | |
|10 |Heteroskedasticity |Describes the presence of non-constant variance among| |
| | |the residuals of a linear regression model using | |
| | |ordinary least squares. | |
|10 |High-low method |Method used to estimate a cost function that entails | |
| | |using only the highest and lowest observed values of | |
| | |the cost driver within the relevant range. | |
|10 |Constant |Means that the size of the error terms or residuals | |
| |variance(homoskedasticity) |does not depend on the value of the independent | |
| | |variable. | |
|10 |Incremental unit time |Learning curve model in which the incremental unit | |
| |learning model |time (the time needed to produce the last unit) | |
| | |declines by a constant percentage each time the | |
| | |cumulative quantity of units produced doubles. | |
|10 |Independent variable |Reliably explains, at least in part, the changes in | |
| | |the dependent variable. | |
|10 |Industrial engineering method|Approach to cost estimation that first analyzes the | |
| |(work measurement method) |relationship between inputs and outputs in physical | |
| | |terms. | |
|10 |Learning curve |Function that shows how labour-hours per unit decline| |
| | |as units of production increase. | |
|10 |Linear cost function |Cost function in which the graph of total costs | |
| | |versus a single cost driver forms a straight line | |
| | |within the relevant range. | |
|10 |Linear regression analysis |A formal statistical analysis that assumes, among | |
| | |other things, a linear relationship exists between | |
| | |the change in the dependent and independent | |
| | |variable(s). | |
|10 |Linearity |A common assumption that changes in the value of the | |
| | |independent variable can explain changes in the | |
| | |dependent variable and are best graphed as a linear | |
| | |relationship. | |
|10 |Mixed cost (semivariable |A cost that has both fixed and variable elements. | |
| |cost) | | |
|10 |Multicollinearity |Exists when two or more independent variables in a | |
| | |regression model are highly correlated. | |
|10 |Multiple regression |Regression model that uses more than one independent | |
| | |variable to estimate the dependent variable. | |
|10 |Nonlinear cost function |Cost function in which the graph of total costs in | |
| | |relation to a single cost driver does not form a | |
| | |straight line within the relevant range. | |
|10 |Normality |Means the assumption is that the calculated values of| |
| | |the residuals are distributed normally around the | |
| | |regression line. | |
|10 |Null hypothesis (H0) |A statement to be rejected if an analysis of the data| |
| | |fails a specified statistical test. | |
|10 |p values |Show the level of statistical significance of the | |
| | |coefficient(s) of the independent variable(s). | |
|10 |Parameters |Parameters describe populations whereas statistics | |
| | |describe samples. | |
|10 |Residual term (disturbance |The difference between the actual and the predicted | |
| |term, error term) |amount of a dependent variable (such as a cost) in a | |
| | |regression model. | |
|10 |Residual |The difference between the predicted and actual value| |
| | |of the dependent variable, for example cost. | |
|10 |Significance |Measures the probability that an appropriate analysis| |
| | |of the data permits the conclusion to reject the null| |
| | |hypothesis, although some probability of error | |
| | |remains. | |
|10 |Simple regression |Regression model that uses only one independent | |
| | |variable to estimate the dependent variable. | |
|10 |Slope coefficient |Coefficient term in a cost estimation model that | |
| | |indicates how much total costs change for each unit | |
| | |change in the cost driver within the relevant range. | |
|10 |Specification analysis |Testing of the assumptions of regression analysis. | |
|10 |Standard error of the |Regression statistic that indicates how much the | |
| |estimated coefficient |estimated value is likely to be affected by random | |
| | |factors. | |
|10 |Statistically significant |Refers to the results of an appropriate statistical | |
| | |test that permits the conclusion to reject the null | |
| | |hypothesis, although there remains some probability | |
| | |of error, usually either 0.05 (5%) or 0.01 (1%). | |
|10 |Step cost function |A cost function in which the cost is constant over | |
| | |various ranges of the cost driver, but the cost | |
| | |increases by discrete amounts (that is, in steps) as | |
| | |the cost driver moves from one range to the next. | |
|10 |Student t-statistic |A ratio of how large the estimated value of a | |
| | |coefficient is relative to its standard error. | |
|11 |Book value |The original cost minus accumulated amortization of | |
| | |an asset. | |
|11 |Business function costs |The sum of all the costs in a particular business | |
| | |function. | |
|11 |Constraint |A mathematical inequality or equality that must be | |
| | |satisfied by the variables in a mathematical model. | |
|11 |Differential cost (net |Difference in total cost between two alternatives. | |
| |relevant cost) | | |
|11 |Differential revenue |The difference between the total revenue of two or | |
| | |more alternatives. | |
|11 |Full product costs |The sum of all the costs in all the business | |
| | |functions: R&D, design, production, marketing, | |
| | |distribution, and customer service. | |
|11 |Incremental costs (outlay |Additional costs to obtain an additional quantity | |
| |costs, out-of-pocket costs) |over and above existing or planned quantities of a | |
| | |cost object. | |
|11 |Incremental revenue |Added or unexpected revenue arising if a specified, | |
| | |previously unplanned alternative is chosen. | |
|11 |Insourcing |Process of producing goods or providing services | |
| | |within the firm rather than purchasing those same | |
| | |goods or services from outside vendors. | |
|11 |Make/buy decisions |Decisions about whether a producer of goods or | |
| | |services will produce goods or services within the | |
| | |firm or purchase them from outside vendors. | |
|11 |Objective function |Expresses the objective to be maximized (for example,| |
| | |operating income) or minimized (for example, | |
| | |operating costs) in a decision model (for example, a | |
| | |linear programming model). | |
|11 |Opportunity cost |The contribution to income that is forgone (rejected)| |
| | |by not using a limited resource in its best | |
| | |alternative use. | |
|11 |Outsourcing |Process of purchasing goods and services from outside| |
| | |vendors rather than producing the same goods or | |
| | |providing the same services within the firm. | |
|11 |Qualitative factors |Outcomes that cannot be measured in numerical terms. | |
|11 |Quantitative factors |Outcomes that are measured in numerical terms. | |
|11 |Relevant costs |Expected future costs that differ across alternative | |
| | |courses of action. | |
|11 |Relevant revenues |Expected future revenues that differ across | |
| | |alternative courses of action. | |
|11 |Sunk costs |Past costs that are unavoidable because they cannot | |
| | |be changed no matter what action is taken. | |
|12 |Collusive pricing |Companies in an industry conspiring in their pricing | |
| | |and output decisions to achieve a price above the | |
| | |competitive price. | |
|12 |Cost incurrence |Occurs when are source is sacrificed or used up. | |
|12 |Customer life cycle costs |Focuses on the total costs to a customer of acquiring| |
| | |and using a product or service until it is replaced. | |
|12 |Dumping |Under Canadian laws, occurs when a non-Canadian | |
| | |company sells a product in Canada at a price below | |
| | |the market value in the home country and this action | |
| | |materially injures or threatens to materially injure | |
| | |an industry in Canada. | |
|12 |Life cycle budgeting |Budgeting that incorporates the revenues and costs | |
| | |attributable to each product from its initial R&D to | |
| | |its final customer servicing and support in the | |
| | |marketplace. | |
|12 |Life cycle costing |System that tracks and accumulates the actual costs | |
| | |attributable to each product from start to finish. | |
|12 |Locked-in costs (designed-in |Costs that have not yet been incurred but that will | |
| |costs) |be incurred in the future on the basis of decisions | |
| | |that have already been made. | |
|12 |Peak-load pricing |Practice of charging a higher price for the same | |
| | |product or service when demand approaches physical | |
| | |capacity limits. | |
|12 |Predatory pricing |Occurs when a company deliberately prices below its | |
| | |costs in an effort to drive out competitors and | |
| | |restrict supply, and then raises prices rather than | |
| | |enlarge demand or meet competition. | |
|12 |Price discrimination |Practice of charging some customers a higher price | |
| | |than is charged to other customers. | |
|12 |Product life cycle |Spans the time from initial R&D to the time at which | |
| | |support to customers is withdrawn. | |
|12 |Target cost per unit |Estimated long-run cost per unit of a product (or | |
| | |service) that when sold at the target price enables | |
| | |the company to achieve the targeted income per unit. | |
| | |Derived by subtracting the target operating income | |
| | |per unit from the target price. | |
|12 |Target operating income per |Operating income that a company wants to earn on each| |
| |unit |unit of a product (or service) sold. | |
|12 |Target price |Estimated price for a product (or service) that | |
| | |potential customers will be willing to pay. | |
|12 |Target rate of return on |The target operating income that an organization must| |
| |investment |earn divided by invested capital. | |
|12 |Value engineering |Systematic evaluation of all aspects of the | |
| | |value-chain business functions, with the objective of| |
| | |reducing costs while satisfying customer needs. | |
|12 |Value-added cost |A cost that customers perceive as adding value of | |
| | |usefulness to a product or service. | |
|13 |Balanced scorecard |The translation of an organization’s mission and | |
| | |strategy into a comprehensive set of performance | |
| | |measures that provide the framework for implementing | |
| | |its strategy. | |
|13 |Cost leadership |An organization’s ability to achieve low costs | |
| | |relative to competitors through productivity and | |
| | |efficiency improvements, elimination of waste, and | |
| | |tight cost control. | |
|13 |Discretionary costs |Costs that have no clearly measurable | |
| | |cause-and-effect relationship between output and | |
| | |resources used; they arise from periodic decisions | |
| | |regarding the maximum amount of costs to be incurred.| |
|13 |Downsizing (rightsizing) |An integrated approach to configure processes, | |
| | |products, and people to match costs to the activities| |
| | |needed to be performed to operate efficiently and | |
| | |effectively in the present and future. | |
|13 |Engineered costs |Costs that result from a clear cause-and-effect | |
| | |relationship between output (or cost driver) and the | |
| | |(direct or indirect) resources used to produce that | |
| | |output. | |
|13 |Infrastructure costs |Costs that arise from having property, plant, and | |
| | |equipment, and a functioning organization. | |
|13 |Partial productivity |The comparison of quantity of output produced with | |
| | |the quantity of an individual input used. | |
|13 |Product differentiation |An organization’s ability to offer products or | |
| | |services that are perceived by its customers as | |
| | |superior and unique relative to those of its | |
| | |competitors. | |
|13 |Productivity |The measurement of the relationship between actual | |
| | |inputs used and actual outputs produced. | |
|13 |Reengineering |The fundamental rethinking and redesign of business | |
| | |processes to achieve improvements in critical | |
| | |measures of performance. | |
|13 |Strategy |The matching of an organization’s capabilities with | |
| | |opportunities in the marketplace in order to | |
| | |accomplish its overall objectives. | |
|13 |Total factor productivity |The ratio of the quantity of output produced to the | |
| |(TFP) |costs of all inputs used, where the inputs are | |
| | |combined on the basis of current period prices. | |
|14 |Allowable cost |A cost that the parties to a contract agree to | |
| | |include in the costs to be reimbursed. | |
|14 |Common cost |The cost of operating a facility, operation, activity| |
| | |area, or like cost object that is shared by two or | |
| | |more users. | |
|14 |Complete reciprocated cost |The actual cost incurred by the service department | |
| |(artificial costs) |plus a part of the costs of the other support | |
| | |departments that provide services to it; always | |
| | |larger than the actual cost. | |
|14 |Direct allocation method |Method of support cost allocation that ignores any | |
| |(direct method) |service rendered by one support department to | |
| | |another; it allocates each support department’s total| |
| | |costs directly to the operating departments. | |
|14 |Dual-rate cost-allocation |Allocation method that first classifies costs in the | |
| |method |cost pool into two pools (typically into a variable | |
| | |cost pool and a fixed-cost pool). Each subpool has a | |
| | |different allocation rate or a different allocation | |
| | |base. | |
|14 |Homogeneous cost pool |A cost pool in which all the activities whose costs | |
| | |are included in the pool have the same or a similar | |
| | |cause-and-effect relationship or benefits-received | |
| | |relationship between the cost allocator and the costs| |
| | |of the activity. | |
|14 |Incremental cost-allocation |Cost allocation method requiring that one user be | |
| |method |viewed as the primary party and the second user be | |
| | |viewed as the incremental party. | |
|14 |Operating or core department |A department that adds value to a product or service | |
| |(production department) |that is observable by a customer. | |
|14 |Reciprocal allocation method |Method of support cost allocation that explicitly | |
| | |includes the mutual services rendered among all | |
| | |support departments. | |
|14 |Single-rate cost-allocation |Allocation method that pools all costs in one cost | |
| |method |pool and allocates them to cost objects using the | |
| | |same rate per unit of the single allocation base. | |
|14 |Stand-alone cost allocation |Cost allocation method that allocates the common cost| |
| |method |on the basis of each user’s percentage of the total | |
| | |of the individual stand-alone costs. | |
|14 |Step-down allocation method |Method of support cost allocation that allows for | |
| |(step allocation method, |partial recognition of services rendered by support | |
| |sequential allocation method)|departments to other support departments. | |
|14 |Support department (service |A department that provides the services that maintain| |
| |department) |other internal departments (operating departments and| |
| | |other support departments) in the organization. | |
|15 |Byproduct |Product from a joint process that has a low sales | |
| | |value compared with the sales value of the main or | |
| | |joint product(s). | |
|15 |Constant gross margin |Joint cost allocation method that allocates joint | |
| |percentage NRV method |costs in such a way that the overall gross margin | |
| | |percentage is identical for all the individual | |
| | |products. | |
|15 |Estimated net realizable |Joint cost allocation method that allocates joint | |
| |value (NRV) method |costs on the basis of the relative estimated net | |
| | |realizable value (expected final sales value in the | |
| | |ordinary course of business minus the expected | |
| | |separable costs of production and marketing of the | |
| | |total production of the period). | |
|15 |Joint cost |Cost of a single process that yields multiple | |
| | |products simultaneously. | |
|15 |Joint products |Products from a joint process that have relatively | |
| | |high sales value and are not separately identifiable | |
| | |as individual products until the splitoff point. | |
|15 |Main product |The one product with a relatively high sales value | |
| | |resulting from a process yielding two or more | |
| | |products. | |
|15 |Physical measure method |Joint cost allocation method that allocates joint | |
| | |costs on the basis of their relative proportions at | |
| | |the splitoff point, using a common physical measure | |
| | |such as weight or volume of the total production of | |
| | |each product. | |
|15 |Product |Any output sold to a customer that has a positive | |
| | |sales value (or an output used internally that | |
| | |enables an organization to avoid incurring costs). | |
|15 |Sales value at splitoff |Joint cost allocation method that allocates joint | |
| |method |costs on the basis of the relative sales value at the| |
| | |splitoff point of the total production in the | |
| | |accounting period of each product. | |
|15 |Scrap |Product that has a minimal (frequently zero) sales | |
| | |value. | |
|15 |Separable costs |Costs incurred beyond the splitoff point that are | |
| | |assignable to one or more individual products. | |
|15 |Splitoff point |Juncture in the process when one or more products in | |
| | |a joint cost setting become separately identifiable. | |
|16 |Bundled product |A package of two or more products or services, sold | |
| | |for a single price, whose individual components may | |
| | |be sold as separate items, each with its own | |
| | |stand-alone price. | |
|16 |Composite unit |A hypothetical unit with weights based on the mix of | |
| | |individual units. | |
|16 |Customer profitability |Examines how individual customers, or groupings of | |
| |analysis |customers, differ in their profitability. | |
|16 |Direct materials mix variance|The difference between two amounts: (1) the budgeted | |
| | |cost for the actual mix of the total quantity of | |
| | |direct materials used and (2) the budgeted cost of | |
| | |the budgeted mix of the actual total quantity of | |
| | |direct materials used. | |
|16 |Direct materials yield |The difference between (1) the budgeted cost of | |
| |variance |direct materials based on the actual total quantity | |
| | |of all direct materials inputs used and (2) the | |
| | |flexible-budget cost of direct materials based on the| |
| | |budgeted total quantity of direct materials inputs | |
| | |for the actual output. | |
|16 |Incremental |Revenue-allocation method that ranks the individual | |
| |revenue-allocation method |products in a bundle and then uses this ranking to | |
| | |allocate the bundled revenues to the individual | |
| | |products. | |
|16 |Market-share variance |The difference between (1) the budgeted amount at | |
| | |budgeted mix based on the actual market size in units| |
| | |and the actual market share and (2) the budgeted | |
| | |amount at budgeted mix based on actual market size in| |
| | |units and the budgeted market share. | |
|16 |Market-size variance |The difference between (1) the budgeted amount based | |
| | |on the actual market size in units and the budgeted | |
| | |market share and (2) the static budget amount based | |
| | |on the budgeted market size in units and the budgeted| |
| | |market share. | |
|16 |Price discounting |The reduction of selling prices below listed levels | |
| | |to encourage an increase in purchases by customers. | |
|16 |Revenue allocation |The assigning of revenues that are related, but not | |
| | |traceable to, individual products (services, | |
| | |customers, etc.) in an economically feasible | |
| | |(cost-effective) way. A revenue-allocation base is | |
| | |used to make this assignment. | |
|16 |Sales-mix variance |The difference between (1) the budgeted amount for | |
| | |the actual sales mix and (2) the budgeted amount if | |
| | |the budgeted sales mix had been unchanged. | |
|16 |Sales-quantity variance |The difference between (1) the budgeted amount based | |
| | |on actual quantities sold of all products and the | |
| | |budgeted mix and (2) the amount in the static budget | |
| | |(which is based on the budgeted quantities to be sold| |
| | |of all products and the budgeted mix). | |
|16 |Stand-alone |Revenue-allocation method that uses product-specific | |
| |revenue-allocation method |information pertaining to products in the bundle to | |
| | |determine the weights used to allocate the bundled | |
| | |revenues to those individual products. | |
|17 |Equivalent units |Measure of the output in terms of the physical | |
| | |quantities of each of the inputs (factors of | |
| | |production) that have been consumed when producing | |
| | |the units; it is the physical quantities of inputs | |
| | |necessary to produce output of one fully complete | |
| | |unit. | |
|17 |First-in, first-out (FIFO) |Method of process costing that assigns the cost of | |
| |process-costing method |the earliest equivalent units available (starting | |
| | |with the equivalent units in beginning | |
| | |work-in-process inventory) to units completed and | |
| | |transferred out, and the cost of the most recent | |
| | |equivalent units worked on during the period to | |
| | |ending work-in-process inventory. | |
|17 |Hybrid-costing system |A costing system that blends characteristics from | |
| | |both job-costing systems and process-costing systems.| |
|17 |Operation-costing system |Hybrid-costing system applied to batches of similar | |
| | |products. Each batch of products is often a variation| |
| | |on a single design and proceeds through a sequence of| |
| | |selected (though not necessarily the same) activities| |
| | |or operations. Within each operation all product | |
| | |units use identical amounts of the operation’s | |
| | |resources. | |
|17 |Operation |A standardized method or technique that is performed | |
| | |repetitively regardless of the distinguishing | |
| | |features of the finished good. | |
|17 |Transferred-in costs |Costs incurred in a previous department that are | |
| |(previous department costs) |carried forward as part of the product’s cost as it | |
| | |moves to a subsequent department for processing. | |
|17 |Weighted-average |Method of process costing that assigns the average | |
| |process-costing method |equivalent unit cost of all work done to date | |
| | |(regardless of when it was done) to equivalent units | |
| | |completed and transferred out and to equivalent units| |
| | |in ending inventory. | |
|18 |Abnormal spoilage |Spoilage not expected to arise under efficient | |
| | |operating conditions; it is not an inherent part of | |
| | |the chosen production process. | |
|18 |Inspection point |The stage of the production process at which products| |
| | |are examined to determine if they are of acceptable | |
| | |quality. | |
|18 |Normal spoilage |Spoilage that arises under efficient operating | |
| | |conditions; it is an inherent result of the | |
| | |particular production process. | |
|18 |Reworked units |Unacceptable units of production that are | |
| | |subsequently reworked and sold as acceptable finished| |
| | |goods. | |
|18 |Scrap |Residual material remaining after production. | |
|18 |Spoilage |Unacceptable units of production that are discarded | |
| | |or sold for net disposal proceeds. | |
|19 |Appraisal costs |Costs incurred to detect which of the individual | |
| | |units or products do not conform to specifications. | |
|19 |Average waiting time |The average amount of time that an order will wait in| |
| | |line before it is set up and processed. | |
|19 |Bottleneck |An operation where the work required approaches or | |
| | |exceeds the available capacity. | |
|19 |Cause-and-effect diagram |Diagram that identifies the potential causes of | |
| |(fishbone diagram) |failures or defects. Four major categories of | |
| | |potential causes of failure are identified: human | |
| | |factors, methods and design factors, machine-related | |
| | |factors, and materials and components factors. | |
|19 |Conformance quality |The performance of a product or service according to | |
| | |design and production specifications. | |
|19 |Control chart |Graph of a series of successive observations of a | |
| | |particular step, procedure, or operation taken at | |
| | |regular time intervals. Each observation is plotted | |
| | |relative to specified ranges that represent the | |
| | |expected distribution. | |
|19 |Costs of design quality |Costs incurred to prevent, or arising from, low | |
| | |quality of design. | |
|19 |Costs of quality (COQ) |Costs incurred to prevent or rectify the production | |
| | |of a low-quality product. | |
|19 |Customer response time |Amount of time between when a customer places an | |
| | |order for a product or requests a service and when | |
| | |the product or service is delivered to the customer. | |
|19 |External failure costs |Costs incurred to detect a nonconforming product | |
| | |after it is shipped to customers. | |
|19 |Internal failure costs |Costs incurred to detect a nonconforming product | |
| | |before it is shipped to customers. | |
|19 |Manufacturing lead time |Time between when an order is ready to start on the | |
| |(manufacturing cycle time) |production line (ready to be set up) and when it | |
| | |becomes a finished good. | |
|19 |On-time performance |Situations in which the product or service is | |
| | |actually delivered at the time it is scheduled to be | |
| | |delivered. | |
|19 |Operating costs |All operating costs (except direct materials) | |
| | |incurred to earn throughput contribution; include | |
| | |salaries and wages, rent, utilities, and | |
| | |amortization. | |
|19 |Pareto diagram |Diagram that indicates how frequently each type of | |
| | |failure (defect) occurs. | |
|19 |Prevention costs |Costs incurred to preclude the production of products| |
| | |that do not conform to specifications. | |
|19 |Theory of constraints (TOC) |Describes methods to maximize operating income when | |
| | |faced with some bottleneck and some nonbottleneck | |
| | |operations. | |
|19 |Throughput contribution |Revenues minus all variable direct materials costs. | |
|19 |Time driver |Any factor where change in the factor causes a change| |
| | |in the speed with which an activity is undertaken. | |
|20 |Backflush costing |Costing system that delays recording changes in the | |
| | |status of a product being produced until unspoiled | |
| | |good finished units appear; it then uses normal or | |
| | |standard costs to work backward to flush out | |
| | |manufacturing costs for the units produced. | |
|20 |Carrying costs |Costs that arise when a business holds inventories of| |
| | |goods for sale. | |
|20 |Economic order quantity (EOQ)|Decision model that calculates the optimal quantity | |
| | |of inventory to order. Simplest model incorporates | |
| | |only ordering costs and carrying costs. | |
|20 |Inventory management |The planning, organizing, and control of activities | |
| | |focused on the flow of materials into, through, and | |
| | |from the organization. | |
|20 |Just-in-time (JIT) production|Production system in which each component on a | |
| |(lean production) |production line is produced immediately as needed by | |
| | |the next step in the production line. | |
|20 |Just-in-time (JIT) |The purchase of goods or materials such that delivery| |
| |purchasing |immediately precedes demand or use. | |
|20 |Manufacturing cells |Grouping of all the different types of equipment used| |
| | |to manufacture a given product. | |
|20 |Materials requirements |A push-through system that manufactures finished | |
| |planning (MRP) |goods for inventory on the basis of demand forecasts.| |
|20 |Ordering costs |Costs of preparing and issuing a purchase order. | |
|20 |Purchase order lead time |Amount of time between the placement of an order and | |
| | |its delivery. | |
|20 |Purchasing costs |Cost of goods acquired from suppliers, including | |
| | |freight and transportation costs. | |
|20 |Reorder point |The quantity level of the inventory on hand that | |
| | |triggers a new order. | |
|20 |Safety stock |Inventory held at all times regardless of inventory | |
| | |ordered using EOQ. It is a buffer against unexpected | |
| | |increases in demand or lead time and unexpected | |
| | |unavailability of stock from suppliers. | |
|20 |Sequential tracking |Product costing method in which the accounting system| |
| |(synchronous tracking) |entries occur in the same order as actual purchases | |
| | |and production. | |
|20 |Stockout costs |Arises when a supplier runs out of a particular item | |
| | |for which there is customer demand. | |
|20 |Trigger point |A stage in the cycle going from purchase of direct | |
| | |materials (Stage A) to sale of finished goods (Stage | |
| | |D ) at which journal entries are made in the | |
| | |accounting system. | |
|21 |Accrual accounting rate of |Accounting measure of income divided by an accounting| |
| |return (AARR) (accounting |measure of investment. | |
| |rate of return, return on | | |
| |investment, ROI) | | |
|21 |Capital budgeting |The process of making long-term planning decisions | |
| | |for investments. | |
|21 |Discounted cash flow (DCF) |Capital budgeting method that measures the cash | |
| | |inflows and outflows of a project as if they occurred| |
| | |at a single point in time so that they can be | |
| | |compared in an appropriate way. | |
|21 |Internal rate of return (IRR)|Discount rate at which the present value of expected | |
| |(time-adjusted rate of |cash inflows from a project equals the present value | |
| |return) |of expected cash outflows of the project. The IRR is | |
| | |the discount rate that makes NPV = $0. | |
|21 |Investment projects |Investments and financial outcomes from those | |
| |(investment programs) |investments (realized over a number of years). | |
|21 |Net present value (NPV) |Discounted cash flow method that calculates the | |
| |method |expected net monetary gain or loss from a project by | |
| | |discounting all expected future cash inflows and | |
| | |outflows to the present point in time, using the | |
| | |required rate of return. | |
|21 |Payback method |Capital budgeting method that measures the time it | |
| | |will take to recoup, in the form of net cash inflows,| |
| | |the net initial investment in a project. | |
|21 |Required rate of return (RRR)|The minimum acceptable rate of return on an | |
| |(discount rate, hurdle rate, |investment; the return that the organization could | |
| |opportunity cost of capital) |expect to receive elsewhere for an investment of | |
| | |comparable risk. | |
|22 |Capital cost allowance (CCA) |The legally mandatory income tax counterpart to | |
| | |annual amortization expense in financial reporting. | |
|22 |Cumulative eligible capital |The balance remaining after deducting CECA; the | |
| |(CEC) |equivalent of UCC for tangible assets. | |
|22 |Cumulative eligible capital |The statutory annual deduction permitted on | |
| |amount (CECA) |intangible assets; the equivalent of CCA for tangible| |
| | |assets. | |
|22 |Differential approach |Approach to decision making and capital budgeting | |
| | |that analyzes only those future cash outflows and | |
| | |inflows that differ among alternatives. | |
|22 |Eligible capital property |75% of the acquisition cost of an intangible asset, | |
| | |and the basis for the annual deduction permitted by | |
| | |the income tax act. | |
|22 |Excess present value index |Capital budgeting measure in which the total present | |
| | |value of future net cash inflows of a project is | |
| | |divided by the total present value of the net initial| |
| | |investment. | |
|22 |Half-year rule |The assumption, in calculating capital cost | |
| | |allowance, that all net additions to a company’s | |
| | |assets are purchased in the middle of the year, so | |
| | |that only half the applicable capital cost allowance | |
| | |rate is allowed in the first year. | |
|22 |Inflation |The decline in the general purchasing power of the | |
| | |monetary unit. | |
|22 |Marginal income tax rate |The tax rate paid on any additional amounts of pretax| |
| | |income. | |
|22 |Net addition |The difference between the purchase price of the new | |
| | |equipment and the proceeds of disposition of the old | |
| | |equipment. When the purchase price exceeds the | |
| | |proceeds of disposition, the half-year rule applies | |
| | |when calculating the lost tax shield; otherwise, the | |
| | |half-year rule does not apply. | |
|22 |Nominal rate of return |Rate of return required to cover investment risk and | |
| | |the anticipated decline due to inflation in the | |
| | |general purchasing power of the cash that the | |
| | |investment generates. | |
|22 |Real rate of return |The rate of return required to cover only investment | |
| | |risk. | |
|22 |Tax shield formula |A formula for calculating the tax savings from | |
| | |deducting capital cost allowance. | |
|22 |Total-project approach |Approach to decision making that incorporates all | |
| | |relevant revenues and relevant costs under each | |
| | |alternative. In capital budgeting decisions, | |
| | |calculates the present value of all future cash | |
| | |inflows and outflows under each alternative | |
| | |separately. | |
|22 |Unamortized capital cost |The result of subtracting the capital cost allowance | |
| |(UCC) |from the capital expenditure or its amortized | |
| | |balance. | |
|23 |Arm’s length transaction |Sales between a corporation and a nonrelated party. | |
|23 |Autonomy |The degree of freedom to make decisions. | |
|23 |Comparable uncontrolled price|The CRA compares the transfer price to arm’s length | |
| |method (CUP) |prices for similar transactions to ensure it falls in| |
| | |the two mid-quartiles of the price range. | |
|23 |Cost plus method (CPM) |The CRA compares the overall financial profitability | |
| | |of the related parties. | |
|23 |Decentralization |The freedom of managers at lower levels (subunits) of| |
| | |the organization to make decisions. | |
|23 |Dual pricing |Approach to transfer pricing using two separate | |
| | |transfer pricing methods to price each interdivision | |
| | |transaction. | |
|23 |Effort |Exertion toward a goal. | |
|23 |Goal-congruence |Exists when individuals and groups work toward the | |
| | |organization goals that top management desires at the| |
| | |same time as they work towards their own goals. | |
|23 |Intermediate product |Product transferred from one subunit to another | |
| | |subunit of the organization. This product may be | |
| | |processed further and sold to an external customer. | |
|23 |International financial |Country having a tax treaty with Canada and a much | |
| |centre |lower corporate income tax rate. | |
|23 |Management control system |Means of gathering and using information to aid and | |
| | |coordinate the process of making planning and control| |
| | |decisions throughout the organization and to guide | |
| | |employee behaviour. | |
|23 |Motivation |The desire to attain a selected goal (the | |
| | |goal-congruence aspect) combined with the resulting | |
| | |drive or pursuit toward that goal (the effort | |
| | |aspect). | |
|23 |Perfectly competitive market |Exists when there is a homogeneous product with | |
| | |equivalent buying and selling prices and no | |
| | |individual buyers or sellers can affect those prices | |
| | |by their own actions. | |
|23 |Profit split method (PSM) |The CRA evaluates the relative value added of the | |
| | |contribution made by the value-added functions of | |
| | |each related party. | |
|23 |Related parties |Two subunits of the same corporation. | |
|23 |Resale price method (RPM) |The CRA compares the transfer price to arm’s length | |
| | |prices for similar finished goods to ensure it falls | |
| | |in the two mid-quartiles of the price range. | |
|23 |Suboptimal decision making |Decisions in which the benefit to one subunit is more| |
| |(goal-incongruent, |than offset by the costs or loss of benefits to the | |
| |dysfunctional decision |organization as a whole. | |
| |making) | | |
|23 |Tax haven |Country having no tax treaty with Canada with which | |
| | |it shares information. | |
|23 |Transactional net margin |The basis for evaluation is the corporate ROA. | |
| |method (TNMM) | | |
|23 |Transfer price |Price one subunit (segment, department, division, | |
| | |etc.) of an organization charges for a product or | |
| | |service supplied to another subunit of the same | |
| | |organization. | |
|24 |Belief systems |Articulate the mission, purpose, and core values of a| |
| | |company. | |
|24 |Boundary systems |Describe the standards of behaviour and codes of | |
| | |conduct for all employees. | |
|24 |Current cost |Asset measure based on the cost of purchasing an | |
| | |asset today identical to the one currently held. It | |
| | |is the cost of purchasing the services provided by | |
| | |that asset if an identical asset cannot currently be | |
| | |purchased. | |
|24 |Diagnostic control systems |A set of measures to help diagnose if a company is | |
| | |performing to expectations. | |
|24 |Dow Jones Sustainability |A measure of environmental performance comparing | |
| |World Index (DJSI World) |companies and ranking companies worldwide. | |
|24 |Economic value added (EVA®) |After-tax operating income minus the (after-tax) | |
| | |weighted average cost of capital multiplied by total | |
| | |assets minus current liabilities. | |
|24 |Imputed costs |Costs recognized in particular situations that are | |
| | |not regularly recognized by accrual accounting | |
| | |procedures. | |
|24 |Interactive control systems |Formal information systems to focus managers’ | |
| | |attention and learning on key strategic issues. | |
|24 |Intrinsic motivation |The desire to achieve self-satisfaction from good | |
| | |performance, regardless of external rewards. | |
|24 |Investment |Resources or assets used to generate income. | |
|24 |Moral hazard |Describes contexts in which an employee prefers to | |
| | |exert less effort (or report distorted information) | |
| | |than the effort (or information) desired by the owner| |
| | |because the employee’s effort (or information) cannot| |
| | |be accurately monitored and enforced. | |
|24 |Residual income |Income minus a required dollar return on the | |
| | |investment. | |
|24 |Return on investment (ROI) |An accounting measure of income divided by an | |
| | |accounting measure of investment. | |
|24 |Return on sales (ROS) |Income-to-revenue sales ratio. | |
|24 |Sarbanes-Oxley Act |U.S. law requiring appropriate governance and | |
| | |internal control processes as specified in the Act. | |
|24 |Sullivan Principles |Support economic, social, and political justice by | |
| | |companies where they do business. | |
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