Ch. 2-4 Flashcards
Terms, Formulas, and Processes
Fixed Costs
Costs that are unchanging regardless of changes in the cost driver (E.g. Real Estate Insurance, Property Taxes, Executive Salaries)
Mixed Costs
A cost that contains elements of both fixed and variable cost behavior
Variable Costs
A cost that change based directly with the cost driver
Step Costs
A cost that changes abruptly at different intervals of activity because the resources and their costs come in indivisible chunks
Two rules of thumb when analyzing cost behavior:
- Total fixed costs remain unchanged regardless of changes in cost-driver activity level.
- The Per-Unit variable cost remains unchanged regardless of changes in cost-driver activity level
Committed Fixed Costs
Costs arising from the possession of facilities, equipment, and a basic organization (e.g. Depreciation, mortgage payments, property taxes)
Discretionary fixed costs
Costs determined by management as part of the periodic planning process in order to meet the organization’s goals. They have no obvious relationship with levels of capacity or output activity (e.g. Advertising and promotion, employee training, management salaries, R&D)
Activity Based Managemen
Uses activity based cost information to improve the operations of the organization through decision making, planning and control purposes
Benchmarking
The continuous process of comparing products, services, and activities against the best industry standards
Cost Pool
A group of individual costs that a company allocates to cost objects using a single cost-allocation base. (e.g. all indirect production costs in a single cost pool)
Cost Driver
A measure of activities that requires the use of resources and thereby cause costs.
Resources Driver
A measure of quantity of resource consumed or required by an activity
Value-Added Activity
An activity that cannot be eliminated without affecting a product’s value to the customer
