Accounting 2 Test 1 Flashcards
Financial Accounting
Concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators.
Managerial Accounting
Concerned with providing information to managers for use within the organization.
Segment
Part or activity of an organization about which managers would like cost, revenue, or profit data. Ex. product geographic territories, divisions, plants, and departments.
Planning
Involves establishing goals and specifying how to achieve them.
Controlling
Involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.
Decision Making
Involves selecting a course of action from competing alternatives.
Three Vital Activities of Managers
Planning, Controlling, and Decision Making
Budget
Detailed plan for the future that is usually expressed in formal quantitative terms.
Performance Report
Compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance. Also used to evaluate and reward employees.
Strategy
Game plan that enables a company to attract customers by distinguishing itself from competitors.
Enterprise Risk Management
Process used by a company to identify risks and develop responses to them that enable it to be reasonably assured of meeting its goals.
Corporate Social Responsibility
Concept whereby organizations consider the needs of all stakeholders when making decisions. Extends beyond legal compliance.
Business Process
Series of steps that are followed in order to carry out some task in a business.
Value Chain
Consists of major business functions that add value to a company’s products and services.
Lean Production
Management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in reponse to customer orders.
Account Analysis
Method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.
Activity Base
Measure of whatever causes the incurrence of a variable cost. Ex. Total cost of x-ray film in a hospital will increase as the number of x-rays taken increases. Therefore, the number of x-rays is the activity base that explains the total cost of x-ray film.
Administrative Costs
All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.
Committed Fixed Costs
Investments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes.
Common Cost
Cost that is incurred to support a number of cost objects but that cannot be traced to them individually. Ex. Wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot’s wage is caused by any one passenger taking the flight.
Contribution Approach
Income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.
Contribution Margin
Amount remaining from sales revenues after all variable expenses have been deducted.
Conversion Cost
Direct labor cost plus manufacturing overhead cost.
Cost Behavior
Way in which a cost reacts to changes in the level of activity.
Cost Object
Anything for which cost data are desired. Examples of cost objects are products, customers, jobs, and parts of the organization such as departments or divisions
Cost Structure
Relative proportion of fixed, variable, and mixed costs in an organization.
Dependent Variable
Variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y=a+bX.
Differential Cost
Difference in revenue between two alternatives.
Differential Revenue
Difference in revenue between two alternatives.
Direct Cost
Cost that can be easily and conveniently traced to a specified cost object.
Direct Labor
Factory labor costs that can be easily traced to individual units of product. Also called touch labor.
Direct Materials
Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.
Discretionary Fixed Costs
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
Engineering Approach
Detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs.
Fixed Cost
Cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.
High-low Method
Method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels.
Incremental Cost
Increase in cost between two alternations See also differential cost.
Independent Variable
Variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y=a+bX.
Indirect Cost
Cost that cannot be easily and conveniently traced to a specified cost object.
Indirect Labor
Labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.
Indirect Materials
Small items of material such as flue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.
Inventoriable Costs
Synonym for product costs.
Linear Cost Behavior
Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.
Manufacturing Overhead
All manufacturing costs except direct materials and direct labor.
Mixed Cost
Cost that contains both variable and fixed cost elements.
Opportunity Cost
Potential benefit that is given up when one alternative is selected over another.
Period Costs
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.
Prime Cost
Direct materials cost plus direct labor cost.
Product Costs
All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.
Raw Materials
Any materials that go into the final product.
Relevant Range
Range of activity within which assumptions about variable and fixed cost behavior are valid.
Selling Costs
All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer.
Sunk Cost
Cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Variable Cost
Cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.
Absorption Costing
Costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.
Allocation Base
Measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
Bill of Materials
Document that shows the quantity of each type of direct material required to make a product.
Cost Driver
Factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.
Cost of Goods Manufactured
Manufacturing costs associated with the goods that were finished during the period.
Finished Goods
Units of product that have been completed but not yet sold to customers.
Job Cost Sheet
Form that records the materials, labor, and manufacturing overhead costs charged to a job.
Job-Order Costing
Costing system used in situations where many different products, jobs, or services are produced each period.
Materials Requisition Form
Document that specifies the type of quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.
Multiple Predetermined Overhead Rates
Costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool.
Normal Cost System
Costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.
Overapplied Overhead
Credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process exceeds the amount of overhead cost actually incurred during a period.
Overhead Application
Process of charging manufacturing overhead cost to job cost sheets and to the Work in Process account.
Plantwide Overhead Rate
Single predetermined overhead rate that is used throughout a plant.
Predetermined Overhead Rate
Rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.
Raw Materials
Any materials that go into the final product.
Schedule of Cost of Goods Manufactured
Schedule that contains three elements of product costs - direct materials, direct labor, and manufacturing overhead - and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods.
Schedule of Cost of Goods Sold
Schedule that contains three elements of product costs - direct materials, direct labor, and manufacturing overhead - and that summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.
Time Ticket
Document that is used to record the amount of time an employee spends on various activities.
Underapplied Overhead
Debit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost actually incurred exceeds the amount of overhead cost applied to Work in Process during a period.
Work in Process
Unites of product that are only partially complete and will require further work before they are ready for sale to the consumer.
