Chapter 2 - Terms 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.
Activity Base
All executive, organizational, and clerical costs associated with the general management of an organization rather that 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 and fixed categories rather than being separated into product and 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 + 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 casual factor
Dependent Variable
A difference in cost between two alternatives
Differential Cost
The difference in revenue between two alernatives
Differential Revenue
A cost that can be easily and conveniently traced to a specified cost object
Direct Labor
Materials that become an integral part of a finished product and whose costs 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 regardless of changes in the level of activity withing the relevant range
Fixed Cost
A 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
High-Low Method
An increase in cost between two alternatives
Incremental Cost
A variable that acts as a casual factor
Independent Variable
A cost that cannot be easily and conveniently traced to a specified cost object
Indirect Cost
The Labor costs 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 and 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 + Direct Labor Cost
Prime Cost
All costs that are involved in acquiring or making a product
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 direct proportion to changes in the level of activity
Variable Cost
