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ACCT 2123: EXAM 1
Cost Object |
Anything for which cost data are desired - including products, customers, jobs, and organizational subunits
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Direct Cost |
Cost that can be easily and conveniently traced to a specified cost object
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Indirect Cost |
Cost that cannot be easily and conveniently traced to a specified cost object
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Common Cost |
Cost that is incurred to support a number of cost objects but cannot be traced to them individually
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Raw Materials |
Materials that go into the final product
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Direct Materials |
Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product
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Indirect Materials |
Materials that are included as part of manufacturing overhead
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Direct Labor |
Consists of labor costs that can be easily traced to individual units of product
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Indirect Labor |
Labor costs that cannot be physically traced to particular products, or that can be traced only at great cost and inconvenience
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Manufacturing Overhead |
Includes all manufacturing costs except direct materials and direct labor
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Selling Costs |
All costs that are incurred to secure customer orders and get the finished product to the customer
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Administrative Costs |
All costs associated with the general management of an organization rather than with manufacturing or selling
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Sunk Cost |
Cost that has already been incurred and that cannot be changed by any decision made now or in the future
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Product Cost |
All costs involved in acquiring or making a product
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Period Cost |
All the costs that are not product costs (Sales commissions, advertising, executive salaries, public relations, and rental costs of administrative offices)
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Prime Cost |
The sum of direct materials cost and direct labor cost
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Conversion Cost |
The sum of direct labor cost and manufacturing overhead cost
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Variable Cost |
Varies, in total, in direct proportion to changes in the level of activity
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Activity Base |
Measure of whatever causes the incurrence of a variable cost
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Fixed Cost |
Cost that remains constant, in total, regardless of changes in the level of activity
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Committed Fixed Cost |
Represent organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes
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Discretionary Fixed Cost |
Arise from annual decisions by management to spend on certain fixed cost items
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Mixed Cost |
Contains both variable and fixed cost elements
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Account Analysis |
Account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves
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Engineering Approach |
Cost analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods
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Dependent Variable |
The amount of cost incurred during a period depends on the level of activity for the period
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Independent Variable |
Causes variations in the cost
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High-Low Method |
Identifies the period with the lowest level of activity and the period with the highest level of activity
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Least-Squares Regression Method |
Uses all of the data to separate a mixed cost into its fixed and variable components
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Cost of Goods Sold |
Reports the product costs attached to the merchandise sold during the period
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Contribution Approach |
Provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, controlling, and decision making
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Contribution Margin |
Amount remaining from sales revenues after variable expenses have been deducted
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Differential Cost |
Difference in costs between any two alternatives
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Differential Revenue |
Difference in revenues between any two alternatives
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Opportunity Cost |
Potential benefit that is given up when one alternative is selected over another
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Quality of Conformance |
Product that meets or exceeds its design specifications and is free of defects that make its appearance or degrade its performance
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Quality Cost |
Refers to all of the costs that are incurred to prevent defects or that result from defects in products
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Prevention Cost |
Support activités whose purpose is to reduce the number of defects
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Quality Circles |
Consist of small groups of employees that meet on a regular basis to discuss ways to improve quality
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Statistical Process Control |
Technique that is used to detect whether a process is in or out of control
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Appraisal Cost |
Incurred to identify defective products before the products are shipped to customers
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Internal Failure Cost |
Result from identifying defects before they are shipped to customers
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External Failure Cost |
Result when a defective product is delivered to a customer
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Quality Cost Report |
Details the prevention costs, appraisal costs, and costs of internal and external failures that arise from the company's current quality control efforts
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Absorption Costing |
All manufacturing costs, both fixed and variable, are assigned to units of products
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Job-Order Costing |
Used in situations where many different products, each with individual and unique features, are produced each period
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Bill of Materials |
Document that lists the type and quantity of each type of direct material needed to complete a unit of product
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Materials Requisition Form |
Document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials
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Job Cost Sheet |
Records the materials, labor, and manufacturing overhead costs charged to that job
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Time Ticket |
Hour-by-hour summary of the employee's activities throughout the day
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Allocation Base |
Measure such as direct labor hours or machine-hours that is used to assign overhead costs to products and services
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Predetermined Overhead Rate |
Computed by dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base
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Overhead Application |
The process of assigning overhead cost to jobs
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Normal Cost System |
Applies overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs
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Cost Driver |
Factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead cost
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Work in Process |
Consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
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Finished Goods |
Consist of completed units of product that have not yet been sold to customers
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Cost of Goods Manufactured |
Includes the manufacturing costs associated with the goods that were finished during the period
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Underapplied |
Accounting record where the overhead costs assigned for work in process does not reach the amount of actual overhead costs
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Overapplied |
Excess of overhead applied to work in process inventory over the amount of overhead actually incurred
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Plantwide Overhead Rate |
There is a single predetermined overhead rate for an entire factory
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Multiple Predetermined Overhead Rate |
System each production department may have its own predetermined overhead rate
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Activity-Based Absorption Costing |
Assigns all manufacturing overhead costs to products based on the activities performed to make those products
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Activity |
Event that causes the consumption of manufacturing overhead resources
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Activity Cost Pool |
Costs are accumulated that relate to a single activity
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Activity Measure |
Allocation base that is used as the denominator for an activity cost pool
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Batch-Level Activity |
Performed each time a batch is handled or processed, regardless of how many units are in the batch
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Product-Level Activity |
Relates to specific products and typically must be carried out regardless of how many batches are run or units of product are produced and sold
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Cost-Volume-Profit (CVP) Analysis |
Helps managers make many important decisions such as what products and services to offer, what prices to charge, what marketing strategy to use, and what cost structure to maintain
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CVP Five Factors |
1. Selling Prices
2. Sales Volume
3. Unit Variable Costs
4. Total Fixed Costs
5. Mix of products sold
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Break-Even Point |
The level of sales at which the profit is zero
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CVP Graph |
Where the relationships among revenue, cost, profit, and volume are illustrated
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Contribution Margin Ratio |
Contribution margin as a percentage of sales
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Variable Expense Ratio |
Ratio of variable expenses to sales
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Incremental Analysis |
Consider only the costs and revenues that will change if the new program is implemented
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Target Profit Analysis |
Estimates what sales volume is needed to achieve a specific target profit
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Margin of Safety |
The excess of budgeted or actual sales dollars over the break-even volume of sales dollars
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Operating Leverage |
Measure of how sensitive net operating income is to a given percentage change in dollar sales
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Degree of Operating Leverage |
Measure, at a given level of sales, of how a percentage change in sales volume will affect profits
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Sales Mix |
Refers to the relative proportions in which a company's products are sold
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