Chapter	Term	Definition
17	activity-based costing	(ABC) A costing system for situations where overhead is high and/or a variety of products are produced; costs are traced to activities and then activities are allocated to production
17	B2B	(Business to Business) A system that enables data interchange between companies; sometimes sufficiently robust to permit automatic inventory replenishment, etc.
17	budget	A planning tool that outlines the financial plans for an organization; there are various types of budgets -- operating, capital, and financial
17	CFM	Certified Financial Manager; a professional designation of competency in the field of financial management that is issued by the Institute of Management Accountants
17	CMA	Certified Management Accountant; a professional designation of competency in the field of management accounting that is issued by the Institute of Management Accountants
17	controller	The primary person responsible for the cost and managerial accounting functions
17	conversion cost	Cost components need to change raw materials to finished goods, specifically direct labor and manufacturing overhead
17	cost accounting	The process by which an organization's cost is collected, assigned, and interpreted
17	cost of goods manufactured	The amount of cost attributable to goods reaching the end of production; beginning work in process (wip) + (direct materials, direct labor, manufacturing overhead) - ending wip
17	direct labor	Gross wages paid to those who physically and directly work on the goods being produced
17	direct material	The costs of all materials that are an integral part of a finished product and that have a physical presence that is readily traced to that finished product
17	ERP	(Enterprise Resource Package) Comprehensive database software that tracks an almost endless array of business and accounting data
17	finished goods	Finished goods represent the cost of completed products awaiting sale to a customer
17	IMA	Institute of Management Accountants; a professional association for management accountants that sponsors the CMA and CFM designations
17	inventoriable cost	product costs that attach to inventory
17	job costing method	A costing approach whereby actual labor and material is tracked for each job or product
17	M2M	(Machine to Machine) enables connected devices to communicate with each other
17	manufacturing overhead	all costs of manufacturing other than direct materials and direct labor (also called factory overhead)
17	period cost	A cost not attributable to the acquisition or manufacture of inventory; expensed as incurred
17	prime cost	Product costs that are direct in nature; direct materials and direct labor
17	process costing methods	A product costing method particularly well suited to situations where production occurs in a continuous process; costs are pooled and assigned to aggregate output
17	product cost	Costs that attach to a product; the summation of direct materials, direct labor, and factory overhead
17	raw materials	the components that will be used in manufacturing units that are not yet started -- also known as direct materials
17	RFID	(radio frequency identification) Micro processes embedded in inventory that emit radio frequency signals that enable a computer to automatically track inventory
17	scorecards (balanced)	A system for evaluating elements that are important to the organization and under the control of an employee holding that position
17	SG&A	Selling, general, and administrative costs; the period costs of the business
17	standards	Benchmarks against which actual productive activity is compared
17	theory of constraints	(TOC) Efficiency is improved by seeking out and eliminating constraints within the organization
17	total quality management	(TQM) A process for continuous improvement by focusing on customer service and systematic problem solving via teams made up of front-line employees
17	variances	Deviations from the norm that may provide warning signs of situations requiring corrective action by managers
17	work in process	Goods that are in production but not yet complete; an accumulation of monies spent on direct material, direct labor, and applied manufacturing overhead
18	break-even point	The level of activity where revenues equal total expenses, producing a zero net income; also the point where the contribution margin is said to cover fixed costs
18	committed fixed cost	Costs that arise from an organization's commitment to engage in operations; unavoidable elements like depreciation, rent, insurance, property taxes
18	contribution margin	Revenues minus all variable expenses, whether related to production or selling and administration (do not to be confuse with gross profit)
18	cost-volume-profit analysis	(CVP) Analysis focusing on the interplay of pricing, volume, variable and fixed costs, and product mix
18	discretionary fixed cost	Fixed cost resulting from yearly spending decisions; proper planning can result in avoidance of these costs as necessary (e.g., advertising and training)
18	economies of scale	Efficiencies associated with increases in volume
18	fixed cost	A total cost that is the same regardless of volume; total cost is constant and per unit cost decreases with volume increases
18	high-low method	A simple means for separating costs into fixed and variable components, based upon the difference between costs at the highest and lowest observed levels of activity
18	method of least squares	A complex means for separating costs into fixed and variable components, based upon minimizing the variances between all observations and the resulting assumed cost function
18	mixed costs	A cost that has both fixed and variable components
18	relevant range	The level of activity for which assumptions underlying CVP are expected to hold true
18	scattergraph	A simplistic mapping of observed data points, where a line is "visually" drawn to represent the estimated cost function
18	step cost	A cost function that is fixed over a range, and then increases by a measured step to a new level at the next higher increment of activity
18	target income	A level of income that is to be obtained; CVP projects activity levels necessary to achieve this benchmark
18	variable cost	A per unit cost that is the same regardless of volume; total variable cost increases with volume increases
19	capacity utilization	The degree to which an organization's output capabilities are being deployed or utilized
19	cost driver	The factor that is viewed as causing costs to be incurred within an organization
19	database	An information storehouse, usually electronic, that can be queried to extract data meeting certain parameters.  Enables singular data entry and multiple data output.
19	direct costs	A cost easily traced to a specific job; generally direct material and direct labor
19	indirect costs	A cost not easily traced to a specific job; generally categorized as factory or manufacturing overhead
19	job cost sheet	A document representing a compilation of cost data for a specific job
19	just in time inventory	Raw materials are received from supplies just as they are needed in the production process
19	Kaizen	Japanese term used to describe a blitz like approach to study processes and install efficiency within an organization
19	Kanban	Japanese term which means some form of signal that a particular inventory is ready for replenishment
19	lean manufacturing	Indicative of an environment where waste has been trimmed; entails a focus on standardization, speed, and quality, without compromising responsiveness to customer demand
19	materials requisition form	Form showing what material has been removed from the raw materials stock and put into production
19	overapplied overhead	Applied overhead exceeds the actual amount; usually viewed as a favorable outcome, because less has spent than anticipated for the level of achieved production
19	overhead application rate	A rate used to apply manufacturing overhead to output; estimated factory overhead for a period divided by the estimated application base
19	Six Sigma	A trademarked quality management system developed by Motorola; driven by pursuit of statistical results that reflect near perfection in production and processing
19	transfer pricing	The system of setting prices at which goods are exchanged between affiliated units; usually involving cross-border transactions
19	underapplied overhead	Applied overhead is less than the actual amount;  usually viewed as a unfavorable outcome, because more has spent than anticipated for the level of achieved production
20	ABC/activity based costing	Alternative costing method for strategic management; divides production into activities, defines costs for activities, and allocates costs to objects based on activity consumption
20	activity	An event that gives rise to the consumption of resources
20	activity cost pool	The costs assigned to a particular activity
20	activity driver	Event that causes consumption of an activity
20	batch-level activity	Activities that relate to each batch of production; independent of the number of units within that batch
20	cost object	The output for which costing information is to be determined under ABC; can be product or service related, or customer, market, etc.
20	cost of production report	A report used in a process costing environment to tabulate the costs incurred within a particular stage/department
20	customer-level activity	Activities that relate to each customer; independent of the volume of goods and services provided to the specific customer
20	entity-sustaining activity	Activities that relate to an entity's ability to operate; independent of business volume
20	equivalent units	A measure of physical units expressed in terms of finished units
20	FIFO process costing	A process costing technique where the beginning inventory is presumed to be the first units completed in the subsequent period's processing
20	market-level activity	Activities that relate to the number of markets in which an entity operates; independent of the number of products, customers, etc.
20	process costing	Process costing is a method to allocate the total costs of production to homogenous units produced via a continuous process that usually involves multiple steps or departments
20	product-level activity	Activities that relate to the number of products produced; independent of the number or units produced
20	resource	The elements consumed by activities and cost objects
20	resource driver	The concept that activities create the need for resources which will be consumed in the production process
20	unit-level activity	Activities that relate to the number of units of output; each additional unit of production requires another activity
20	weighted-average process costing	A process costing technique where all units of production are assigned the same cost; determined by blending of current period costs with beginning inventory cost
21	bottom-up participative budget	An budget approach driven by the direct participation of lower-level employees
21	budget committee	A group of senior managers from each business unit charged with leading the budget preparation and review process
21	budget slack	The influence of behavior to "pad" a budget via misstating expected revenues and/or expenses; to create more favorable budget vs. actual performance appraisals
21	cash budget	An essential budget component detailing planned cash receipts, disbursements, and financing actions
21	continuous budget	A budget that is constantly updated; as one month/quarter is completed another is added to the set the projections
21	direct labor budget	A budget that details expected direct labor needs, along with the related costs of labor
21	direct material purchases budget	A budget that details expected direct material purchases, along with the related cash payments
21	encumbrance	A budgetary restriction occurring in advance of a related expenditure
21	factory overhead budget	A budget that details the anticipated factory overhead, including calculations related to the allocation of such amounts
21	flexible budget	A budget that covers a range of potential outcomes by relating expense levels to the potential revenues
21	incremental budgeting	A budgeting approach where the prior year experience sets a base line for a new budget; changes are made based on new information but the base need not be rejustified in detail
21	master budget	Also known as the comprehensive budget; an integrated set of articulated budgets relating to numerous operational subcomponents (labor, material, overhead, SG&A, etc.)
21	pro forma financial statements	"As if"  budgeted financial statements
21	production budget	A budget that details planned levels of production; takes into account sales and inventory build/decline
21	sales budget	A budget that details anticipated sales levels
21	SG&A budget	A budget that details anticipated selling, general, and administrative costs
21	static budget	A budget that does not anticipate alternative outcomes; estimated sales and expenses are fixed and establish the relevant benchmarks
21	top-down mandated budget	A budget approach where upper level management establishes parameters under which the budget is to be prepared
21	zero-based budgeting	A budget approach where each expenditure item must be justified for each new budget period
22	achievable standards	A standard that takes into account normal spoilage and inefficiency; intended to allow workers to reach the established benchmarks
22	balanced scorecard	A set of performance measures that are congruent with assessing improvement in financial, customer, and business process outcomes
22	centralized decision making	A business style where top leaders make and direct most important decisions
22	common fixed costs	Fixed costs that  are incurred to support more than one business unit
22	cost center	An area of responsibility under the control of a manager who is responsible for costs incurred within the unit; the unit generally has little revenue function
22	decentralized decision making	A business style where top leaders concentrates on strategy, and leaves day-to-day operation and decision-making tasks to lower-level personnel
22	direct labor efficiency variance	A variance comparing standard hours of direct labor to the actual hours worked; measured at the standard rate per hour [(standard hours - actual hours) X standard rate]
22	direct labor rate variance	A variance that reveals the difference between the standard rate and actual rate for the actual labor hours worked [(standard rate - actual rate) X actual hours]
22	fixed overhead spending variance	A fixed overhead variance that compares actual fixed overhead to the budgeted fixed overhead
22	fixed overhead volume variance	A fixed overhead variance that compares the budgeted fixed overhead to the fixed overhead that is applied to production based on standard fixed overhead per unit of output
22	ideal standards	A standard that could only be achieved under perfect operating conditions; such standards are rarely expected to be achieved
22	investment center	A evaluative unit where managers are accountable for cost and profit outcomes, including consideration of the amount of capital that is deployed to achieve those outcomes
22	management by exception	A management focus of attention on areas where corrective measures appear necessary
22	materials price variance	A variance that reveals the difference between standard price for materials purchased and amounts actually paid for those materials [(standard price - actual price) X actual quantity].
22	materials quantity variance	A variance comparing standard quantity to actual quantity of materials; variation is measured at the standard price per unit [(standard quantity - actual quantity) X standard price]
22	profit center	Business unit that has control over both costs and revenues and is therefore evaluated on the profit outcomes
22	responsibility center	The part of an organization under the control of a manager
22	return on investment	ROI: A model consisting of a margin component (Operating Income/Sales) and turnover component (Sales/Average Assets); reduces to Operating Income/Average Assets
22	standard cost	A measure of what costs should be incurred to achieve the observed output
22	traceable fixed costs	Fixed costs that would not exist if the unit under evaluation ceased to exist
22	variable overhead efficiency variance	A variance that reflects the level of efficiency associated with the application of variable overhead to production
22	variable overhead spending variance	A variance that reflects the difference between actual variable overhead and standard variable overhead associated with the actual units of the application base
23	absorption costing	Also known as full costing -- a costing method where inventory absorbs direct costs and variable and fixed factory overhead
23	contribution income statement	An internal report that identifies each segment's controllable elements; the contribution margin, controllable fixed costs, uncontrollable fixed costs, and segment margin
23	dashboard	Customized business software that delivers key real time business data in an easily monitored layout
23	direct method/allocating service cost	An allocation process whereby service department costs are assigned directly to productive departments (compare to step method)
23	residual income	An internal assessment technique that adjusts income for a presumed cost of capital (or other threshold rate of return); operating income - (operating assets X cost of capital)
23	segment	A business unit for which separate financial information is evaluated by an operating decision maker who allocates resources and judges performance of the unit
23	step method/allocating service cost	An allocation process whereby some service department costs may be assigned to other service departments as part of a sequential methodology
23	variable costing	A costing method where inventory absorbs direct costs and variable factory overhead; the income statement identifies the contribution margin
24	accounting rate of return	A project evaluation tool that focuses on accounting income rather than cash flows; average annual increase in income by the amount of initial investment.
24	annuity	Level streams of payments; with each payment being the same, and occurring at a regular interval
24	annuity due	Also known as an annuity in advance; involves a level stream of payments, with the payments being made at the beginning of each time period
24	capital expenditure decision	Also known as capital budgeting; planning and decision making related to longer term projects and expenditures
24	future value	Or "compound interest;" amount that a current payment (or stream of payments) will grow in time; includes interest on previous interest based on frequency of compounding
24	internal rate of return	Also known as time-adjusted rate of return or IRR; discount rate causing present value of cash inflows to equal present value of the cash outflows
24	net present value	Or NPV, a method of evaluating capital projects that uses a predetermined interest rate to determine the present value of an investment's cash net cash inflows and outflows
24	opportunity cost	The cost of a foregone alternative; may include lost revenue
24	ordinary annuity	Also known as an annuity in arrears; involves a level stream of payments, with the payments being made at the end of each time period
24	outsourcing	Utilization of independent parties to manufacture products (sometimes known as make-or-buy) or manage data processing, tech support, payroll services, etc.
24	payback	Easy method for evaluating capital projects; calculated by dividing the initial investment by the annual cash inflow
24	present value	Also known as discounting; determines the current worth of cash to be received in the future
24	relevant cost	Items where future costs and revenues are expected to differ for the alternative decisions under consideration
24	special order	A customer order that is outside of the normal pricing and terms
24	sunk cost	Historical amount expended on a project or object; not relevant to current decisions or future actions
24	time value of money	Conceptual notion holding that money to be received sooner is worth more than money to be received later