23 terms

Final Exam

Job Order Costing
used by companies that manufacture a variety of products (in batches or jobs) from a common factor or process. Costs per unit of production are determined through the use of separate job cost records which accumulate the costs incurred in the production of each job.
Process Costing
used by companies that continuously manufacture the same product using the same process or procedures over an extended period of time; typically large numbers of standardized producst. The cost per unit of production is determined by dividing the total costs associated with the factory or manufacturing process for a period by the numer of units produced over that same period.
Variable Costs
costs that vary in total with changes in volume but are the same per unit (i.e. if you buy more, the price is lowered); examples: direct labor, sales commissions
Relevant Range
the anticipated range of operating volume for a period of time. In CVP analysis, variable costs are assumed to be the same on a per unit basis within the relevant range.
Fixed Costs
costs that remain constant in total with changes in volume. Fixed costs calculated on a per unit basis change with any changes in volume
Stepped Costs
costs that change in total in a start step fashion with changes in volume of activity. In CVP analysis these costs are assumed to be either fixed or variable within the relevant range of productions and are treated as such
Mixed Costs
costs that contain both fixed and variable components. In CVP, the fixed and variable components are broken out using either a scattergraph or a high/low approach
Non-routine business decisions
decisions that are rare or unusual; they don't happen on a regular basis (i.e. make or buy decision; sell new product, etc)
Relevant Costs
future costs that are different among decision options
Direct Costs
differentiating costs associated with a specific decision option; they are ALWAYS relevant
Sunk Costs
unrecoverable past costs; already spent and should not be taken into account when making a decision (i.e. the decision to buy a new computer, the cost off your old one is a sunk cost if its not re-sellable)
Opportunity Cost
a forgone revenue under a decision option (i.e. if you buy a car, then your opportunity cost is the lost revenue you won't mak by investing that money)
Managerial Accounting
provides information designed primarily for use by a company's officers, managers, and employees to improve the business operations; no standardized info requirements; typically more detailed info; not subject to independent audit; commonly includes budgetary info and forecasts; tends to be different from business to business based on management needs
Financial Accounting
provides information designed primarily for users who are not involved in the day to day management of the business (i.e. providers of capital; government regulators); provides info through general purpose financial statements prepared in accordance with GAAP; subject to independent audit
Product Costs
cost associated with the goods or services offered to customers; the cost of inventory purchased for resale; includes: direct material costs, direct labor costs, and manufacturing overhead costs
Period Costs
all other costs of operating business; generally referred to as "operating expenses" or "selling and admin expenses"; selling and admin costs
Cost-Volume-Profit Analysis (CVP Analysis)
understanding how your costs behave with changes in volume allows management to understand the effect on profits given changes in volume
Strategic Planning
decisions regarding such long-range questions as which products to make and sell, how to market the products and how to finance the resources necessary to achieve the organization's goals
Capital budgeting
planning for the acquisition of operational or long-term assets such as property, plan, and equipment
Operational Budgeting
detailed plains of immediate goals for prospective sales, production, expenses, cash flows, and financial statement results
Relevant costs and revenues
cost or revenues which should affect our decision
Differential costs and revenues
future costs and revenues that vary among decision alternatives
Joint Costs
common costs in the production of two products at different grades