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Managerial Acctng

Exam 1: Ch. 14, 17, 18

TermDefinition
plantwide overhead rate method uses one overhead rate to allocate overhead costs
cost object product, process, department, or customer to which costs are assigned
departmental overhead rate method uses a different overhead rate for each department
activity-based costing (ABC) cost allocation method that focuses on activities performed; traces costs to activities and then assigns them to cost objects
activity an event that causes the consumption of overhead resources in an entity.
activity cost pool temporary account that accumulates costs a company incurs to support an activity.
activity cost driver variable that causes an activity’s cost to go up or down; a causal factor.
unit level activities activities that arise as a result of the total volume of goods and services that are produced, and that are performed each time a unit is produced
batch level activities activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch; the amount of resources used depends on the number of batches run rather than on the number of units in the batch.
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.
facility level activities activities that relate to overall production and cannot be traced to specific products; costs associated with these activities pertain to a plant’s general manufacturing process
activity-based management (ABM) approach that uses the link between activities and costs for better management decisions.
value-added activities activities that add value to products or services
supply chain management the coordination and control of goods, services, and information as they move from suppliers to consumers
customer support activity rate budgeted customer support cost/budgeted technician miles
plantwide overhead rate budgeted overhead cost/budgeted allocation base
allocated overhead plantwide rate allocated cost per unit = plantwide overhead rate x DLH used
departmental overhead rate budgeted departmental overhead cost/budgeted departmental allocation base
activity rate budgeted activity cost/budgeted activity usage
allocate overhead activity rate allocated cost = actual activity usage x activity rate
cost-volume-profit (CVP) analysis planning method that includes predicting the volume of activity, the costs incurred, sales earned, and profits received.
fixed costs do not change when the volume of activity changes (within a relevant range)
variable costs change in proportion to changes in volume of activity.
economies of scale drop in unit costs as production increases
mixed costs cost that includes both fixed and variable costs.
step-wise cost cost that remains fixed over limited ranges of volumes but changes by a lump sum when volume changes occur outside these limited ranges
relevant range of operations company’s normal operating range; excludes extremely high and low volumes not likely to occur
scatter diagram graph used to display data about past cost behavior and sales as points on a diagram
estimated line of cost behavior line drawn on a graph to visually fit the relation between cost and sales
high-low method procedure that yields an estimated line of cost behavior by using the costs associated with the highest and lowest sales volume.
least-squares regression statistical method for deriving an estimated line of cost behavior that is more precise than the high-low method and the scatter diagram
contribution margin selling price minus variable cost; measures how revenues cover variable costs; the remainder (or contribution) is for fixed costs and any resulting income
contribution margin per unit amount that the sale of one unit contributes toward recovering fixed costs and earning profit; defined as sales price per unit minus variable costs per unit.
contribution margin ratio product’s contribution margin divided by its sale price.
break-even point output level at which sales equal fixed plus variable costs; where income equals zero
cost-volume-profit (CVP) chart graphic representation of cost-volume-profit relations
margin of safety excess of expected sales over the level of break-even sales.
dollar sales at target income fixed costs + target income/contribution margin ratio
unit sales at target income fixed costs + target income/contribution margin per unit
sales mix ratio of sales volumes for the various products sold by a company
weighted average contribution margin per unit the contribution margin per composite unit for a company that provides multiple goods or services; also called contribution margin per composite unit
degree of operating leverage (DOL) ratio of contribution margin divided by pretax income; used to assess the effect on income of changes in sales
variable costing income statement an income statement in which costs are classified as variable or fixed; also called contribution margin income statement
variable costing costing method that includes only variable manufacturing costs (direct materials, direct labor, and variable manufacturing overhead) in unit product costs; also called direct or marginal costing
absorption costing costing method that assigns both variable and fixed manufacturing costs to products; this method is required under U.S. GAAP; also called full costing
break even point per unit fixed costs / contribution margin per unit
break even point in dollars fixed costs/contribution margin ratio
margin of safety (dollars) expected sales - break even sales
margin of safety (percent) expected sales - break even sales/expected sales
Created by: ryanriggs18
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