Chapter 1 Flashcards
A 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.
ACCOUNT ANALYSIS
A measure of whatever causes the incurrence of a variable cost. For example, the 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.
ACTIVITY BASE
All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.
ADMINISTRATIVE 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.
COMMITTED FIXED COSTS
A cost that is incurred to support a number of cost objects but that cannot be traced to them individually.
COMMON COST
An income statement format that organizes costs by their behavior. Costs are separated into variable & fixed categories rather than being separated into product & period costs for external reporting purposes.
CONTRIBUTION APPROACH
The amount remaining from sales revenues after all variable expenses have been deducted.
CONTRIBUTION MARGIN
Direct labor cost plus manufacturing overhead cost.
CONVERSION COST
The way in which a cost reacts to changes in the level of activity.
COST BEHAVIOR
Anything for which cost data are desired.
COST OBJECT
The relative proportion of fixed, variable, and mixed costs in an organization.
COST STRUCTURE
A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y in the equation Y = x + bX
DEPENDENT VARIABLE
A difference in cost between two alternatives.
DIFFERENTIAL COST
A cost that can easily and conveniently be traced to a specified cost object.
DIRECT COST
Factory labor costs that can be easily traced to individual units of product (a.k.a. touch labor).
DIRECT LABOR
Materials that become an integral part of a finished product and whose cots can be conveniently traced to it.
DIRECT MATERIALS
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
DISCRETIONARY FIXED COSTS
A 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.
ENGINEERING APPROACH
A 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.
FIXED COST
A method of separating a mixed cost into its fixed & variable elements by analyzing the change in cost between the high and low activity levels.
HIGH-LOW METHOD
An increase in cost between two alternatives.
INCREMENTAL COST
A decrease in cost between two alternatives.
DECREMENTAL COST
A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X in the equation Y = a + bX.
INDEPENDENT VARIABLE
A cost that cannot be easily and conveniently traced to a specified cost object.
INDIRECT COST
The labor cost of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.
INDIRECT LABOR
Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.
INDIRECT MATERIALS
Synonym for product costs.
INVENTORIABLE COSTS
A method of separating a mixed cost into its fixed & variable elements by fitting a regression line that minimizes the sum of the squared errors.
LEAST-SQUARES REGRESSION METHOD
Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.
LINEAR COST BEHAVIOR
All manufacturing costs except direct materials and direct labor.
MANUFACTURING OVERHEAD
A cost that contains both variable and fixed cost elements.
MIXED COST
The potential benefit that is given up when one alternative is selected over another.
OPPORTUNITY COST
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.
PERIOD COSTS
Direct materials cost plus direct labor cost.
PRIME COST
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.
PRODUCT COSTS
Any materials that go into the final product
RAW MATERIALS
The range of activity within which assumptions about variable and fixed cost behavior are valid.
RELEVANT RANGE
All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer.
SELLING COSTS
A cost that has already been incurred and that cannot be changed by any decision made now or in the future.
SUNK COST
A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.
VARIABLE COST
