Flashcards
BUS 371 Chapter 1 Key Terms
Cards in this deck (39)
- 1Activity baseA measure of whatever causes the incurrence of a variable cost. For example, the total cost of surgical gloves in a hospital will increase as the number of surgeries increases. Therefore, the number of surgeries is the activity base that explains the total cost of surgical gloves.
- 2Administrative costsAll executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.
- 3Committed fixed costsInvestments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes.
- 4Common costA cost that is incurred to support a number of cost objects but that cannot be traced to them individually. For example, the 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.
- 5Contribution approachAn 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
- 6Contribution marginThe amount remaining from sales revenues after all variable expenses have been deducted.
- 7Conversion costDirect labor cost plus manufacturing overhead cost.
- 8Cost behaviorThe way in which a cost reacts to changes in the level of activity.
- 9Cost objectAnything for which cost data are desired. Examples of cost objects are products, customers, geographic regions, and parts of the organization such as departments or divisions.
- 10Cost structureThe relative proportion of fixed, variable, and mixed costs in an organization.
- 11Differential costA future cost that differs between any two alternatives.
- 12Differential revenueFuture revenue that differs between any two alternatives.
- 13Direct costA cost that can be easily and conveniently traced to a specified cost object.
- 14Direct laborFactory labor costs that can be easily traced to individual units of product. Also called touch labor.
- 15Direct materialsMaterials that become an integral part of a finished product and whose costs can be conveniently traced to it.
- 16Discretionary fixed costsThose fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
- 17Financial accountingThe phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators.
- 18Fixed costA 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.
- 19Finished goodsUnits of product that have been completed but not yet sold to customers.
- 20Incremental costAn increase in cost between two alternatives.
- 21Indirect costA cost that cannot be easily and conveniently traced to a specified cost object.
- 22Indirect laborThe labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.
- 23Indirect materialsSmall 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.
- 24Inventoriable costsSynonym for product costs.
- 25Managerial accountingThe phase of accounting that is concerned with providing information to managers for use within the organization.
- 26Manufacturing overheadAll manufacturing costs except direct materials and direct labor.
- 27Mixed costA cost that contains both variable and fixed cost elements.
- 28Opportunity costThe potential benefit that is given up when one alternative is selected over another.
- 29Period costsCosts that are taken directly to the income statement as expenses in the period in which they are incurred or accrued.
- 30Prime costDirect materials cost plus direct labor cost.
- 31Product costsAll 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. Also see Inventoriable costs.
- 32Raw materialsAny materials that go into the final product.
- 33Relevant benefitA benefitthat should be considered when making decisions.
- 34Relevant costA cost that should be considered when making decisions.
- 35Relevant rangeThe range of activity within which assumptions about variable and fixed cost behavior are valid.
- 36Selling costsAll costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer.
- 37Sunk costA cost that has already been incurred and that cannot be changed by any decision made now or in the future.
- 38Variable costA cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.
- 39Work in processUnits of product that are only partially complete and will require further work before they are ready for sale to the customer.