Activity-Based Costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.
An activity dictionary is a comprehensive listing of all activities included in an organization's activity-based costing (ABC) system. It provides precise definitions to help managers calculate the costs for each activity, thereby aiding in cost management and control.
Activity-Based Budgeting (ABB) is a budgeting method where budgets are prepared by identifying and analyzing activities that incur costs in an organization and then allocating resources based on the anticipated performance and necessity of those activities.
Activity-Based Budgeting (ABB) is a budgeting method that allocates resources based on activities that incur costs in an organization, primarily used to refine budgeting accuracy and analyze performance.
Actual cost refers to the tangible expenditure incurred in carrying out specific activities of an organization, as opposed to budgeted or standard costs. It represents the real outlay of funds, including invoices paid, wages, materials, and other expenses.
Alternative costs are the costs that would apply if an alternative set of assumptions were adopted, and they represent the benefits foregone when a second-ranked alternative is compared to the chosen alternative.
Attainable standard refers to a cost or income standard set at a level that is achievable by operators under realistic conditions during the relevant cost period.
The Average Cost Curve (ACC) in the long run represents the average cost per unit of output, taking into account the optimal production technology and scale. It is crucial for understanding economies of scale and business optimization.
Avoidable costs are expenses that can be eliminated if a particular decision or course of action is taken, such as ceasing production of a specific product. They are crucial in determining the financial impact of business decisions.
A breakeven chart (or breakeven graph) is a visual tool used to depict the relationship between an organization's total costs—comprising fixed and variable costs—and its sales revenue across different levels of activity. The intersection point of these curves shows the breakeven point, where total costs equal total revenue.
Budget slack refers to the excess funds that managers intentionally create by overestimating costs or underestimating revenues in budget preparation, often aiming to meet performance evaluations or safeguard against uncertainties.
A cost included in a budget representing the expected expenses to be incurred by a budget center, cost center, cost unit, product, process, or job.
Consumer-driven healthcare (CDHC) encompasses a variety of health insurance plan designs aimed at providing insurance protection while encouraging participants to be cost-conscious about their healthcare choices.
Cost accumulation is the systematic process of gathering costs associated with production activities, allowing businesses to determine the total cost required to manufacture products in an organized manner.
Cost control accounts, also known as cost ledger control accounts, are essential for capturing and managing all costs associated with a company's production processes.
A cost object is any item for which a separate measurement of costs is desired, including products, services, customers, or specific operations.
An essential metric in accounting, Cost of Goods Sold (COGS) represents the direct costs associated with the production of goods sold by a company. This value is critical in determining the business's gross profit and provides insights into the efficiency and cost management of production processes.
A cost overrun occurs when the actual cost of a project exceeds the project budget, requiring additional funding to cover the shortfall. This situation necessitates revisiting financial planning and resource allocation.
A cost pool is an accounting term referring to a grouping of individual costs typically by department or service center. These groupings are used to allocate and better manage indirect costs.
Cost tracing refers to the process of directly associating costs with specific cost objects such as projects, departments, or products, ensuring more accurate tracking of financial performance.
Cost-Volume-Profit (CVP) analysis is a method used by businesses to understand the inter-relationships between cost, volume, and profit. It helps in decision-making by determining the break-even point, analyzing the profit potential of a company, and evaluating the impact of different levels of sales and production.
A method of pricing a product in which the same product is supplied to different customers, or different market segments, at different prices. This approach is based on the principle that to achieve maximum market penetration, the price charged should be what a particular market will bear.
Direct Materials Quantity Variance measures the efficiency of material usage by comparing the actual quantity used to the standard quantity expected for the output achieved.
An Expense Budget outlines the estimated costs that are expected to be incurred by an organization or individual over a specified future period. It serves as a financial plan, helping to allocate resources efficiently and set spending limits to achieve financial goals.
In activity-based costing, a facility-sustaining activity is an activity that is performed to sustain the organization as a whole. Examples of such activities include security, safety, maintenance, and plant management. These costs cannot be directly traced to specific products.
Financial control encompasses actions taken by the management of an organization to ensure that costs incurred and revenues generated are at acceptable levels. It involves the provision of financial information to management by accountants and utilizes techniques such as budgetary control and standard costing to highlight and analyze variances.
In the operation of a business, fixed expenses are those that remain constant regardless of production or sales levels. These are crucial for budgeting and financial planning, and they contrast with variable expenses, which fluctuate with the level of production or sales.
Fixed overhead costs are the elements of the indirect costs of an organization's product that, in total, remain unchanged irrespective of changes in the levels of production or sales. Examples include administrative salaries, sales personnel salaries, and factory rent.
Full absorption costing, also known as absorption costing, is a method of accounting that captures all direct and indirect manufacturing expenses when determining the cost of the final product.
An ideal standard in standard costing represents a cost, income, or performance benchmark set to be achieved only under the most favorable conditions. It contrasts with expected standards, which are more attainable.
Government effort to control wages, prices, and costs by imposing wage and price controls, typically in response to unacceptable levels of inflation.
In manufacturing, an indirect cost refers to expenses that cannot be directly attributed to specific products. Examples include electricity, hazard insurance on the factory building, and real estate taxes.
Integrated accounts refer to a comprehensive set of accounting records that seamlessly combines both financial accounting and cost accounting into a single coherent system. This integration eliminates the need for reconciling separate financial and cost records, ensuring consistency, accuracy, and efficiency in data management.
A job ticket, also known as a job card, is a document used in manufacturing and service industries to track the working hours, materials used, and the progress of a job or a service request. It provides detailed instructions and specifications necessary to complete a job efficiently and accurately.
The common cost incurred in a production process that results in multiple products, typically allocated based on relative selling prices.
Kaizen Costing is a technique for reducing and managing costs during the manufacturing process. It involves making continuous improvements to processes through small incremental changes, with the active contribution of all employees.
Life-cycle costing is a comprehensive approach to determining the total costs of a fixed asset, accounting for not just acquisition costs but also operational and maintenance expenses over its lifetime.
Managed care is a health care delivery system organized to manage cost, utilization, and quality. Managed Care Plans are a type of health insurance they have contracts with health care providers and medical facilities to provide care for members at reduced costs.
Managed costs are specific expenses that a company can control or influence through internal decisions, strategic planning, and efficient resource management. Careful handling of managed costs can significantly impact a company's operational efficiency and overall profitability.
A graphical depiction representing the marginal cost experienced by a producer at various levels of production.
Market-based transfer prices align internal transactional prices with prevailing market prices to mitigate bias and ensure fairness within an organization’s various divisions.
Marketing Cost Variance refers to the difference between the budgeted marketing costs and the actual marketing costs incurred during a specific period. This metric helps evaluate the efficiency of marketing expenditure and can be either favorable or unfavorable.
The net cost refers to the gross costs of purchasing an asset minus any income received. It provides a monetary value that represents the true cost to the buyer after accounting for rebates, subsidies, or incomes.
In accounting, a normal standard represents an average standard that is used in standard costing. It is set to be applied over a future period during which conditions are expected to remain relatively stable.
Operating costing, also known as service costing, is a cost management technique employed to ascertain the cost of delivering services within an organization or to the public. It is particularly applicable in industries engaged in continuous operations, such as electricity generation, transportation, and healthcare.
Overheads, also known as burden in the USA, refer to the ongoing business expenses not directly attributed to creating a product or service. Understanding overheads is crucial for accurate financial reporting and cost management.
Period costs are expenses that are incurred over a specific period of time and are not directly tied to a specific product or production activity. These costs are typically fixed, such as rent, insurance, and business rates.
A pivotal area within an organization where production activities are conducted, focusing on tracking and managing production-related expenses.
Production Cost Variance in standard costing measures the difference between standard costs and actual costs for production. Understanding this variance helps in identifying efficiency levels and cost management effectiveness.
Items of expenditure incurred in carrying out the publicity function in an organization. Publicity costs might include the publicity manager's salary, advertising costs, promotions, and point-of-sale material.
Relevant income, also known as relevant revenue, refers to the revenue that changes as a result of a proposed business decision. Revenues that remain unchanged by the decision are considered irrelevant to the decision-making process.
A responsibility centre is a designated section within an organization where costs and income are tracked and assigned to a specific manager. This assignment ensures accountability and efficient financial management.
An expense containing both fixed and variable cost elements, impacting overall costs depending on the level of business activity.
Costs associated with establishing a new manufacturing procedure. Setup costs include design costs, acquisition and location of machinery, and employee hiring and training.
Standard costing involves assigning a predetermined cost to products or services, which serves as a benchmark for measuring performance and cost control.
Standard costing is a cost accounting system that uses predetermined costs and income benchmarks for products and operations, comparing them with actual results to establish variances.
In standard costing, a standard fixed overhead cost is derived from the standard time allowed for the performance of an operation or the production of a product and the standard fixed overhead absorption rate per unit of time for that operation or product.
The total of all the standard cost allowances for the actual level of activity achieved by an organization. It serves as a benchmark guide to manage and control the costs within an organization.
Understand the concept of Standard Purchase Price, a predetermined price set for each commodity of direct material for a specified period, used in a system of standard costing.
In the context of standard costing systems, standard time refers to the time allowed to carry out a production task. It can be expressed either as the standard time allowed or in terms of standard hours representing the output achieved.
An item of expenditure that increases in total as activity rises but in a stepped, rather than a linear, function.
A surcharge is an additional fee or levy added to an existing charge, cost, or tax. It is commonly applied to manage varying expenses or to cover costs that aren't accounted for in the primary charge.
A strategic method for pricing products or services based on the price customers are willing to pay, ensuring both market competitiveness and profitability.
The Throughput Accounting Ratio (TAR) is a key metric in Throughput Accounting, used to assess the value that an investment or business decision will create relative to its costs.
Total cost of production is a term used to refer to the overall expense incurred by a company to manufacture a product or provide a service. It includes both fixed and variable costs.
The Total Standard Cost is the sum of the Total Standard Production Cost and the Standard Cost Allowance for non-production overhead, which provides a comprehensive measure of the standard expenses incurred during the production process.
Total Standard Profit represents the difference between the sales at standard selling prices and the standard overhead cost of these sales. It is used to evaluate the performance of a business against its predefined cost and sales benchmarks.
Unfavourable variance, also known as adverse variance, indicates that actual financial performance is worse than the budgeted expectation, resulting in lower profits or higher costs than anticipated.
The Unit Standard Selling Price is a predefined rate at which a product or service is intended to be sold, expressed on a per-unit basis.
The Variable Cost Ratio measures the ratio of variable costs to sales revenue, expressed as a percentage. It provides insight into the relationship between production costs and sales, crucial for cost management and pricing strategies.
Variance Analysis identifies the deviations in financial performance by analyzing the differences between planned financial outcomes and actual results, helping organizations make informed decisions and improve their operations.
Volume variances refer to the differences between the actual volume of sales or production and the expected (budgeted or planned) volume. These variances can be further divided into specific categories like fixed overhead volume variance and sales margin volume variance.
