Managerial Accounting Chapters 5-8

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Absorption costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects

Bill of materials

A document that shows the quantity of each type of direct material required to make a product

Cost driver

A factor, such as machine-hours, beds occupied, computer times, or flight-hours, that causes overhead costs

Job cost sheet

A form prepared for a job that records the materials, labor, and manufacturing overhead costs charged to that job

Job-order costing

A costing system used in situations where many different products, jobs, or services are produced each period

Materials requisition form

A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of these materials

Multiple predetermined overhead rate

A costing system with multiple overhead costs pools and a different POHR for each cost pool, rather than a single POHR for the entire company

Normal cost system

A costing system in which overhead costs are applied to a job by multiplying a POHR by the actual amount of the allocation base incurred by the job

Overapplied overhead

The amount by which overhead cost applied to jobs exceeds the amount of overhead cost actually incurred during a period

Overhead application

The process of charging manufacturing overhead cost to job cost sheets

Plantwide overhead rate

A single POHR that is used throughout a plant

Predetermined overhead rate (POHR)

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period

Process costing

A costing system used in situations where a single, homogeneous product (such as cement or flour) is produced for long periods of time

Time ticket

A document that is used to record the amount of time an employee spends on various activities

Underapplied overhead

The amount by which overhead cost actually incurred exceeds the amount of overhead cost applied to jobs during a period

Variable costing

A costing method that includes only variable manufacturing costs - direct materials, direct labor, and variable manufacturing overhead - in unit product costs

Action analysis report

A report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity

Activity

An event that causes the consumption of overhead resources in an organization

Activity-based costing (ABC)

A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs

Activity-based management (ABM)

A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects

Activity cost pool

A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system

Activity measure

An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool

Batch-level activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch

Benchmarking

A systematic approach to identifying the activities with the greatest potential for improvement

Customer-level activities

Activities that are carried out to support customers but that are not related to any specific product

Duration driver

A measure of the amount of time required to perform an activity

First-stage allocation

The process by which overhead costs are assigned to activity cost pools in an activity-based costing system

Organization-sustaining activities

Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made

Product-level activities

Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run

Second-stage allocation

The process by which activity rates are used to apply costs to products and customers in activity-based costing

Transaction driver

A simple count of the number of times an activity occurs

Unit-level activities

Activities that are performed each time a unit is produced

Budget

A quantitative plan for acquiring and using resources over a specified time period

Budget committee

A group of key managers who are responsible for overall budgeting policy and for coordinating the preparation of the budget

Cash budget

A detailed plan showing how cash resourced will be acquired and used over a specific time period

Continuous budget (perpetual budget)

A 12-month budget that rolls forward one month as the current month is completed

Control

Those steps taken by management to increase the likelihood that all parts of the organization are working together to achieve the goals set down at the planning stage

Direct labor budget

A detailed plan that shows the direct labor-hours required to fulfill the production budget

Direct materials budget

A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

Ending finished goods inventory budget

A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet

Manufacturing overhead budget

A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period

Master budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet

Merchandise purchases budget

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period

Planning

Developing goals and preparing budgets to achieve these goals

Production budget

A detailed plan showing the number of units that must be purchased during a period in order to satisfy both sales and inventory needs

Responsibility accounting

A system of accountability in which managers are held responsible for those items of revenue and cost - and only those items - over which they can exert significant control. The managers are held responsible for differences between budgeted and actual results.

Sales budget

A detailed schedule showing expected sales expressed in both dollars and units

Self-imposed budget (participative budget)

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement.

Selling and administrative expense budget

A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period

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