Absorption costing A product-costing method that assigns all manufacturing costs to a product: direct materials, direct labour, variable

overhead, and fixed overhead. Acceptable quality level (AQL) An approach to quality control that permits or allows defects to occur provided that they do not exceed a predetermined level. Activity-based budgeting system In activity-based budgeting, the workload (demand) for each activity is estimated and the resources required to sustain this workload are established. Activity-based control systems Control systems that focus on processes and use both financial and nonfinancial performance measures. Activity-based costing (ABC) A cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign costs to cost objects. Activity-based costing (ABC) system A cost system that first traces costs to activities and then traces costs from activities to products.

Activity-based management (ABM) accounting system An accounting system that emphasizes the use of activities for assigning and managing costs. Activity flexible budgeting The prediction of what activity costs will be as activity usage changes. Activity value analysis The process of identifying, describing, and evaluating the activities an organization performs. Activity volume variance The difference between the actual activity capacity acquired and the capacity that should be used. Actual costing An approach that assigns actual costs for direct materials, direct labour, and overhead to products. Administrative costs All costs associated with the general administration of the organization that cannot be reasonably assigned to either marketing or production.

Allocation Assignment of indirect costs to cost objects. Annuity A series of future cash flows. Applied overhead Overhead assigned to production using predetermined rates. Base period A prior period used to set the benchmark for measuring productivity changes. Benchmarking An approach that uses the best practices as the standard for evaluating activity performance. Bottom-up budgeting A participative budgeting process that allows managers considerable input into the budget levels and processes. Breakeven point The point where total sales revenue equals total costs; the point of zero profits. Budgets Plans of action expressed in financial terms.

Business excellence model A performance measurement framework that emphasizes total quality management and consists of nine dimensions: leadership, people management, policy and strategy, resources, processes, people satisfaction, customer satisfaction, impact on society, and business results. Capital budgeting The process of making capital investment decisions. Carrying costs The costs of holding inventory. Cash budget A detailed plan that outlines all sources and uses of cash. Centralized decision making A system in which decisions are made at the top level of an organization and local managers are given the charge to implement them. Committed fixed costs Costs incurred for the acquisition of long-term

activity capacity, usually as the result of strategic planning. Committed resources Resources that are purchased in advance of usage. These resources may or may not have unused (excess) capacity. Common costs The costs of resources used in the output of two or more services or products. Common fixed expenses Fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment. Consumption ratio The proportion of an overhead activity consumed by a product. Contribution margin Sales revenue minus total variable cost or price minus unit variable cost. Contribution margin ratio Contribution margin divided by sales revenue. It is the proportion of each sales dollar available to

cover fixed costs and provide for profit. Control The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance has deviated significantly from planned performance. Control costs Costs incurred from performing control activities. Controllable costs Costs that managers have the power to influence. Conversion cost The sum of direct labour cost and overhead cost. Cost The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization. Cost centre A responsibility centre in which a manager is responsible only for costs. Cost formula The linear function Y = F + VX, where Y = Total mixed cost, F = Fixed cost, V = Variable cost per unit of activity, and X = Activity level.

Cost measurement The act of determining the dollar amounts of direct materials, direct labour, and overhead used in production. Cost of goods manufactured The total cost of goods completed during the current period. Cost of goods sold The cost of direct materials, direct labour, and overhead attached to the units sold. Cost reconciliation The final section of the production report and the section that compares the costs to account for with the costs accounted for to ensure that they are equal. Cost-volume-profit graph A graph that depicts the relationships among costs, volume, and profits. It consists of a total revenue line and a total cost line. Customer value The difference between what a customer receives (customer realization) and what the customer gives up (customer sacrifice). Degree of operating leverage (DOL)

A measure of the sensitivity of profit change to changes in sales volume. It measures the percentage change in profits resulting from a percentage change in sales. Dependent variable A variable whose value depends on the value of another variable. For example, Y in the cost formula Y = F + VX depends on the value of X. Direct costs Costs that can be easily and accurately traced to a cost object. Direct fixed expenses Fixed costs that are directly traceable to a given segment and, consequently, disappear if the segment is eliminated. Direct labour Labour that is traceable to the goods or services being produced. Direct labour budget A budget showing the total direct labour hours needed and the associated cost for the number of units in the production budget. Direct materials Materials that are traceable to the goods or

services being produced. Direct materials purchases budget A budget that outlines the expected usage of materials for production and purchases of the direct materials required. Direct method A method that allocates service costs directly to producing departments. This method ignores any interactions that may exist among support departments. Direct tracing The process of identifying costs that are specifically or physically associated with a cost object. Discount rate The rate of return used to compute the present value of future cash flows. Discounting models Capital investment models that explicitly consider the time value of money in identifying criteria for accepting or rejecting proposed projects. Discretionary fixed costs Costs incurred for the acquisition of short-term

capacity or services, usually as the result of yearly planning. Double-loop feedback Information about both the effectiveness of strategy implementation and the validity of assumptions underlying the strategy. Driver analysis The effort expended to identify those factors that are the root causes of activity costs. Driver tracing The use of drivers to assign costs to cost objects. Drivers Factors that cause changes in resource usage, activity usage, costs, and revenues. Drum-buffer-rope (DBR) system The TOC (theory of constraints) inventory management system that relies on the drum beat of the major constrained resources, time buffers, and ropes to determine inventory levels. Drummer The major binding constraint in an organization.

Durability The length of time a product functions. Dysfunctional behaviour Individual behaviour that conflicts with the goals of the organization. Economic order quantity (EOQ) The amount that should be ordered (or produced) to minimize the total ordering (or setup) and carrying costs. Economic value added (EVA) A performance measure calculated by taking the after-tax operating profit minus the total annual cost of capital.

Ending finished goods inventory budget A budget that describes planned ending inventory of finished goods in units and dollars. Equivalent units of output Complete units that could have been produced given the total amount of manufacturing effort expended during the period.

External failure costs Costs incurred because products fail to conform to requirements after being sold to outside parties. External linkages The relationship of a firm's activities within its segment of the value chain with those activities of its suppliers and customers. External measures Measures that relate to customer and shareholder objectives. Failure costs The costs incurred by an organization because failure activities are performed. Favourable (F) variances Variances produced whenever the actual amounts are less than the budgeted or standard allowances. FIFO costing method A process-costing method that separates units in beginning inventory from those produced during the current period. Unit costs include only currentperiod costs and production. Financial accounting information system

An accounting information subsystem which is concerned mainly with producing outputs for external users and which uses well-specified economic events as inputs and processes that meet certain rules and conventions. Financial budgets The portions of the master budget that include the cash budget, the budgeted balance sheet, the budgeted statement of cash flows, and the capital budget. Fixed cost Costs that, in total, are constant within the relevant range as the activity output varies. Fixed overhead denominator variance The difference between budgeted fixed overhead and applied fixed overhead. Fixed overhead spending variance The difference between actual fixed overhead and applied fixed overhead. Flexible budget A budget that can specify costs for a range of activity. Flexible budget variance The sum of price variances and efficiency

variances in a performance report comparing actual costs to expected costs predicted by a flexible budget. Functional-based costing (FBC) An approach for assigning costs of shared resources to products and other cost objects using only production or unit-level drivers. Functional-based management (FBM) accounting system An accounting information system that emphasizes the use of functional organizational units to assign and manage costs.

Future value The value that will accumulate by the end of an investment's life if the investment earns a specified compounded return. High-low method A method for fitting a line to a set of data points using the high and low points in the data set. For a cost formula, the high and low points represent the high and low activity levels. This method is used to break out the fixed and variable components of

a mixed cost. Homogeneous cost pool A collection of overhead costs associated with activities that have the same process and the same level, and that can use the same activity driver to assign costs to products. Incentive compensation Monetary or nonmonetary rewards awarded to employees based on their meeting certain performance criteria. Incentives The positive or negative measures taken by an organization to induce a manager to exert effort toward achieving the organization's goals. Independent variable A variable whose value does not depend on the value of another variable. For example, in the cost formula Y = F + VX, the variable X is an independent variable. Indirect costs Costs that cannot be traced to a cost object. Industrial value chain The linked set of value-creating activities, from basic raw materials to end-use customers.

Input tradeoff efficiency The least-cost, technically efficient mix of outputs. Internal constraints Limiting factors found within the firm (such as machine time availability). Internal failure costs Costs incurred because products and services fail to conform to requirements, where lack of conformity is discovered prior to external sale. Internal linkages Relationships among activities within a firm's value chain. Internal measures Measures that relate to the processes and capabilities that create value for customers and shareholders. Internal rate of return (IRR) The rate of return that equates the present value of a project's cash inflows with the present value of its cash outflows (i.e., it sets the net present value equal to zero). Also, the rate of return being earned on funds that remain internally invested in a project.).

Inventory The money an organization spends in turning raw materials into throughput. Investment centre A responsibility centre in which a manager is responsible for revenues, costs, and investments. Job-order costing system A costing system in which costs are collected and assigned to units of production for each individual job. Joint products Products that are inseparable prior to a split-off point. All manufacturing costs up to the split-off point are joint costs. Kaizen costing Efforts to reduce the costs of existing products and processes. Kaizen standard An interim standard that reflects the planned improvement for a coming period. Kanban system

An information system that controls production on a demand-pull basis through the use of cards or markers. Labour efficiency variance The difference between the actual direct labour hours used and the standard direct labour hours allowed multiplied by the standard hourly wage rate. Labour rate variance The difference between the actual hourly rate paid and the standard hourly rate multiplied by the actual hours worked. Lag measures Outcome measures or measures of results from past efforts. Life cycle costs All costs that are associated with the product for its entire life cycle. Line positions Positions that have direct responsibility for the basic objectives of an organization. Make-or-buy decisions Relevant cost analyses that focus on whether a component should be made internally or purchased externally.

Management Accounting Guidelines A document published by CMA Canada to help management accountants fulfill their responsibilities; however, management accountants are under no obligation to follow any set of standards except as they relate to external reporting. Management accounting information system An information system that produces outputs using inputs as well as the processes needed to satisfy specific management objectives. Management control The process by which managers ensure that resources are obtained and used efficiently and effectively in accomplishing an organization's objectives. Management control systems Structures, resources, and processes that facilitate effective management control. Managerial motivation Drive and exertion of effort toward achieving an organization's objectives. Manufacturing cycle effectiveness (MCE) A measure of productive efficiency calculated as

follows: processing time/(processing time + move time + inspection time + waiting time). Margin The ratio of net operating income to sales. Margin of safety The units sold or expected to be sold or sales revenue earned or expected to be earned above the breakeven volume. Market share variance A difference in profit due to the difference between the budgeted market share and the actual market share. Marketing (selling) costs The costs necessary to market and distribute a product or service. Markup The percentage applied to a base cost; it includes desired profit and any costs not included in the base cost. Master budget The collection of all area and activity budgets representing a firm's comprehensive plan of

action. Materials purchase price variance The materials price variance based on materials purchased. Materials usage variance The difference between the direct materials actually used and the direct materials allowed for the actual output multiplied by the standard price. Maximum transfer price The transfer price that will make the buying division no worse off if an input is acquired internally. Measurement criteria Standards and benchmarks against which performance can be assessed. Method of least squares A statistical method to find a line that best fits a set of data. This method is used to break out the fixed and variable components of a mixed cost. Minimum transfer price The transfer price that will make the selling division no worse off if an output is sold

internally. Mixed cost A cost that has both a fixed and a variable component. Monetary compensation Salaries, wages, cash bonuses, and other monetary rewards paid to employees. Monetary incentives Economic rewards used to motivate managers. Myopic behaviour Managerial actions that improve budgetary performance in the short run at the expense of the long-run welfare of the program. Net income Operating income less income taxes. Net present value (NPV) The difference between the present value of a project's cash inflows and the present value of its cash outflows. Nondiscounting models Capital investment models that identify criteria for accepting or rejecting projects without considering

the time value of money. Noninventoriable (period) costs Costs that are expensed in the period in which they are incurred.

Nonmonetary compensation Benefits provided to employees in addition to monetary compensation, for example, prime office space, fancy titles, increased responsibilities and autonomy, the use of a company jet or car, expense accounts, awards, and club memberships. Nonunit-level activity drivers Factors that measure the consumption of nonunitlevel activities by products and other cost objects. Nonunit-level drivers Factors, other than the number of units produced, that measure the consumption of activities by cost objects. Nonvalue-added activities All activities other than those that are absolutely essential to remain in business. Nonvalue-added costs

Costs that are caused either by nonvalue-added activities or by the inefficient performance of value-added activities. Normal cost of goods sold The cost of goods sold before adjustment for any overhead variance. Normal costing An approach that assigns the actual costs for direct materials and direct labour to products but uses a predetermined rate to assign overhead costs. Objective function The function to be optimized, usually a profit function; thus, optimization usually means maximizing profits. Observable quality costs Quality costs that are available from an organization's accounting records. One-half rule The rule that restricts the amount of CCA that can be claimed in the year of acquisition to one-half of the CCA rate for the class. Operating assets Assets used to generate operating income, usually consisting of cash, inventories, receivables, property, plant, and equipment. Operating budgets

Budgets associated with the income-producing activities of an organization. Operating expenses The money an organization spends in turning inventories into throughput. Operating income Revenues minus expenses from the firm's normal operations. Income taxes are excluded. Operating leverage The use of fixed costs to extract higher percentage changes in profits as sales activity changes. Leverage is achieved by increasing fixed costs while lowering variable costs. Operation costing A hybrid costing method that assigns material costs to a product using a job-order approach and assigns conversion costs using a process approach. Operational productivity measure A measure that is expressed in physical terms. Opportunity cost The benefit sacrificed or forgone when one alternative is chosen over another. Opportunity cost approach A transfer pricing system that identifies the

minimum price that a selling division would be willing to accept and the maximum price that a buying division would be willing to pay. Optimal solution The feasible solution that produces the best value for the objective function (the largest value if seeking to maximize the objective function; the minimum otherwise). Ordering costs The costs of placing and receiving an order. Overapplied overhead The amount by which applied overhead exceeds actual overhead. Overhead All production costs other than direct materials and direct labour. Overhead budget A budget that reveals the planned expenditures for all indirect manufacturing items. Overhead variance The difference between actual overhead and applied overhead. Parallel processing

A processing pattern in which two or more sequential processes are required in order to produce a finished good. Partial productivity measurement A ratio that measures productive efficiency for one input. Participative budgeting An approach to budgeting that allows managers who will be held accountable for budgetary performance to participate in the budget's development. Payback period The time required for a project to return its investment. Performance The measure of how consistent and well a product functions. Performance drivers Factors that cause future performance, for example, employee training. Performance management Management processes concerned with the effective use of information provided by management control systems for strategic

planning, control, and decision making. Performance prism A strategic performance measurement framework that focuses on stakeholders and includes five elements: strategies, processes, capabilities, stakeholder satisfaction, and stakeholder contribution. Performance reports Reports that compare the actual data with planned data. Perishability One of the four qualities that distinguish services from products-the fact that services cannot be stored for future use by the consumer. Perquisites A type of fringe benefit over and above salary that is received by managers. Physical flow schedule A schedule that reconciles units to account for with units accounted for. The physical units are not adjusted for percent of completion. Planning Setting objectives and identifying methods of

achieving those objectives. Postpurchase costs The costs of using, maintaining, and disposing of a product. Postsales service process A process that provides critical and responsive service to customers after the product or service has been delivered. Practical activity capacity The activity output produced when the activity is performed efficiently. Practical capacity The efficient level of activity performance. Predatory pricing The practice of setting prices below cost for the purpose of injuring competitors and eliminating competition. Predetermined overhead rate An overhead rate computed using estimated data. Present value (PV) The current value of a future cash flow. It represents the amount that must be invested now if the future cash flow is to be received, assuming compounding at a given rate of interest.

Prevention costs Costs incurred to prevent defects in products or services being produced. Price gouging A subjective term referring to the practice of setting an "excessively" high price. Price (rate) variance The difference between the standard price and the actual price multiplied by the actual quantity of inputs used. Price-recovery component The difference between the total profit change and the profit-linked productivity change. Price standard The price that should be paid per unit of input. Primary activity An activity that is consumed by products or customers. Prime cost The sum of direct materials cost and direct labour cost. Process

A series of activities (operations) that are linked to perform a specific objective. Process-costing system A costing system that accumulates production costs by process or by department for a given period of time. Product cost A cost assignment method that satisfies a wellspecified managerial objective. Product diversity The situation present when products consume overhead in different proportions. Product-level (sustaining) activities Activities that are performed to enable the production of each different type of product. Product life cycle The time a product exists, from conception to abandonment. Production budget A budget that shows how many units must be produced to meet sales needs and satisfy ending inventory requirements. Production costs

Costs associated with the manufacture of goods or the provision of services. Production Kanban A card or marker that specifies the quantity that the Kanban system should produce. Production report A document that summarizes the manufacturing activity that takes place in a process department for a given period of time. Productivity The efficient production of output, using the least quantity of inputs possible. Productivity measurement The assessment of productivity changes. Profile measurement A series or vector of separate and distinct partial operational measures. Profit centre A responsibility centre in which a manager is responsible for both revenues and costs. Profit-linked productivity measurement The assessment of the amount of profit change

(from the base period to the current period) attributable to productivity changes. Profit-volume graph A graph that depicts the relationship between profits and sales volume. Profit volume variance (gross) Consists of a profit volume variance (net) and a sales mix variance. Profit volume variance (net) Measures the effect on profit of the difference in total sales volume between the budget and the actual volume, with other factors-including sales mix and contribution margin per unit-remaining constant. Pseudoparticipation A budgetary system in which top management solicits inputs from lower-level managers and then ignores those inputs. Thus, in reality, budgets are dictated from above. Quality of conformance Conforming to the design requirements of the product.

Quality product or service A product that meets or exceeds customer expectations. Quantity standard The quantity of input allowed per unit of output. Reciprocal method A method that simultaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments. Relevant costs Future costs that change across alternatives. Relevant range The range over which an assumed cost relationship is valid for the normal operations of a firm. Reliability The probability that the product or service will perform its intended function for a specified length of time. Reorder point The point in time at which a new order (or setup) should be initiated.

Residual income (RI) The difference between operating income and the minimum dollar return required on a company's operating assets. Resource drivers Factors that measure the consumption of resources by activities. Responsibility accounting A system that measures the results of each responsibility centre according to the information managers need in order to operate their centre. Responsibility centre A segment of the business whose manager is accountable for specified sets of activities. Return on investment (ROI) The ratio of operating income to average operating assets.

Revenue centre A responsibility centre in which a manager is responsible only for sales.

Ropes Actions taken to tie the rate at which raw material is released into the plant (at the first operation) to the production rate of the constrained resource. Safety stock Extra inventory carried to serve as insurance against fluctuations in demand. Sales budget A budget that describes expected sales in units and dollars for the coming period. Sales mix The relative combination of products (or services) being sold by an organization. Sales mix variance Measures the effect of the change from the budgeted sales mix. Sales price variance Measures the direct effect of the change in selling prices on profit. Scattergraph A plot of (X, Y) data points. For cost analysis, X is activity usage and Y is the associated cost at

that activity level. Scatterplot method A method of fitting a line to a set of data using two points that are selected by judgment. It is used to break out the fixed and variable components of a mixed cost. Secondary activity An activity that is consumed by primary activities and/or other secondary activities. Segment A subunit of a company that is sufficiently important to warrant the production of performance reports. Segment margin The contribution a segment makes to cover common fixed costs and variable costs and provide for profit after direct fixed costs and variable costs are deducted from the segment's sales revenue. Segmented reporting The preparation of financial performance reports for each segment of importance within a firm. Sell-or-process further decision

Relevant cost analysis that focuses on whether a product should be processed beyond the split-off point. Selling and administrative expenses budget A budget that outlines planned expenditures for nonmanufacturing activities. Sensitivity analysis The "what-if" process of altering certain key variables to assess the effect on the original outcome. Sequential (or step) method A method that allocates service costs to user departments in a sequential manner. It gives partial consideration to interactions among support departments. Sequential processing A processing pattern in which units pass from one process to another in a set order. Setup costs The cost of preparing equipment and facilities so that they can be used for production. Short run A period of time in which at least one cost is

fixed. Simplex method An algorithm that identifies the optimal solution for a linear programming problem. Single-loop feedback Information about the effectiveness of strategy implementation. Slope parameter The variable cost per unit of activity usage, represented by V in the cost formula Y = F + VX. Special-order decisions Relevant cost analyses that focus on whether a specially priced order should be accepted or rejected.

Split-off point The point at which products become distinguishable after passing through a common process. Standard cost per unit The per-unit cost that should be achieved given

materials, labour, and overhead standards. Standard cost sheet A listing of the standard costs and standard quantities of direct materials, direct labour, and overhead that should apply to a single product. Standard hours allowed The direct labour hours that should have been used to produce the actual output (Unit labour standard x Actual output). Standard quantity of materials allowed The quantity of materials that should have been used to produce the actual output (Unit materials standard x Actual output). Static budget A budget for a particular level of activity. Step cost A cost function in which cost is defined for ranges of activity use rather than point values. The function has the property of displaying constant cost over a range of activity use and then changing to a different cost level as a new range of activity use is undertaken.

Stock-out costs The costs of insufficient inventory. Strategic-based control systems Control systems that link an organization's mission and strategy with operational objectives and use multiple financial and nonfinancial measures to measure performance from different stakeholders' perspectives in a balanced manner. Strategic cost management The use of cost data to develop and identify superior strategies that will produce a competitive advantage. Strategic decision making Choosing among alternative strategies with the goal of selecting the strategy or strategies that provide a company with reasonable assurance for long-term growth and survival. Strategic performance measurement The assessment of the achievement of strategic performance objectives of organizations, organizational units, and programs. Strategic plan The long-term plan for future activities and

operations, usually involving at least five years. Strategy The process of choosing a business's market and customer segments, identifying its critical internal business processes, and selecting the individual and organizational capabilities needed to meet internal, customer, and financial objectives. Subjective measures Measures that are nonquantifiable and whose values are judgmental in nature. Sunk cost A cost for which the outlay has already been made and that cannot be affected by a future decision.

Supplies hose materials necessary for production that do not become part of the finished product or that are not used in providing a service. Supply chain All activities that are involved in the efficient and effective movement and transformation of raw materials, through the manufacturing process, into

final products to end users. Supply chain management The management of material flows beginning with suppliers and their upstream suppliers, moving through the transformation of materials into finished goods, to customers and their downstream customers. Support departments Units within an organization that provide essential support services for producing departments. Taguchi loss function A function that assumes that any variation from the target value of a quality characteristic causes hidden quality costs. Tangible products Goods that are produced by converting raw materials through the use of labour and capital inputs such as plant, land, and machinery. Target cost The difference between the sales price needed to achieve a projected market share and the desired per-unit profit.

Target costing A method of determining the cost of a product or service based on the price (target price) that customers are willing to pay. Technical efficiency The point at which, for any mix of inputs that will produce a given output, no more of any one input is used than is absolutely necessary. Testable strategy A set of linked objectives aimed at an overall goal that can be restated into a sequence of cause-andeffect hypotheses.

Throughput The rate at which an organization generates money through sales. Time buffer The inventory needed to keep the constrained resource busy for a specified time interval. Time ticket A source document by which direct labour costs are assigned to individual jobs.

Top-down budgeting A budgeting process in which budgets are set unilaterally by top management. Total preventive maintenance A program of preventive maintenance that has zero machine failures as its standard. Total product The complete range of tangible and intangible benefits that a customer receives from a purchased product.

Total productive efficiency The point at which technical and price efficiency are achieved. Total productivity measurement The assessment of productive efficiency for all inputs combined. Total profit variance The difference between actual and budgeted profit.

Total quality management An approach to quality in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products. Traceability The ability to assign a cost directly to a cost object in an economically feasible way using a causal relationship. Tracing Assigning costs to a cost object using an observable measure of the cost object's resource consumption. Transfer price The price charged for goods transferred from one division to another. Transfer pricing problem The problem of finding a transfer pricing system that simultaneously satisfies the three objectives of accurate performance evaluations, goal congruence, and autonomy. Transferred-in costs

Costs transferred from a prior process to a subsequent process. Treasurer The person responsible for the finance function. Specifically, the treasurer raises capital and manages cash and investments. Turnover The ratio of sales to average operating assets. Uncontrollable factors Factors that cannot be influenced by a manager during a given time period. Underapplied overhead The amount by which actual overhead exceeds applied overhead. Unfavourable (U) variances Variances produced whenever the actual input amounts are greater than the budgeted or standard allowances. Unit cost The total costs assigned to a product divided by the number of units produced of that product.

Unit-level activities Activities that are performed each time a unit is produced. Unit-level activity drivers Factors that measure the consumption of unit-level activities by products and other cost objects. Unit-level drivers See production drivers. Unused capacity variance The difference between acquired capacity (practical capacity) and actual capacity. Usage (efficiency) variance The difference between standard quantities and actual quantities multiplied by standard price. Value-added activities Activities that are necessary to achieve corporate objectives and remain in business. Value-added costs Costs caused by value-added activities. Value-added standard The optimal output level for an activity.

Value chain The set of activities required to design, develop, produce, market, and deliver products and services to customers; or, an interrelated set of activities that increases the usefulness or value of products or services to customers. Value chain analysis A strategic tool that can be used to understand an organization's competitive advantage and its relationships with suppliers, customers, and competitors. Variable activity rate The total variable activity cost divided by the amount of activity driver used. Variable budgets See flexible budget. Variable cost Costs that, in total, vary in direct proportion to changes in a cost driver. Variable costing A product-costing method that assigns only variable manufacturing costs-direct materials,

direct labour, and variable overhead-to production. Fixed overhead is treated as a period cost. Variable-cost ratio Variable costs divided by sales revenues. It is the proportion of each sales dollar needed to cover variable costs. Variable overhead efficiency variance Assuming that direct labour hours are used to apply overhead costs, the difference between the actual direct labour hours used and the standard hours allowed multiplied by the standard variable overhead rate. Variable overhead spending variance The difference between the actual variable overhead and the budgeted variable overhead based on the actual hours used to produce the actual output. Velocity The number of units that can be produced in a given period of time (e.g., output per hour). Vendor Kanbans Cards or markers that signal to a supplier the quantity of materials that need to be delivered and

the time of delivery. Weighted average costing method A process-costing method that combines beginning inventory costs with current-period costs to compute unit costs. Costs and output from the current period and the previous period are averaged to compute unit costs.

What-if analysis A method to deal with uncertainty where the assumptions on which the analysis is based are changed and their effect assessed (see sensitivity analysis). Whole life product cost The life-cycle cost of a product plus costs that consumers incur, including operation, support, maintenance, and disposal. Withdrawal Kanban A marker or card that specifies the quantity that a subsequent process should withdraw from a preceding process.

Work in process All partly completed units found in production at a given point in time. Work-in-process file A file that is the collection of all job-order cost sheets.

Contractor: A party who agrees to provide supplies or services in accordance with a valid and legal contract. A contractor executes the work. Contractee: A party who orders supplies or services in accordance with a valid and legal contract. A contractee gives the contract. Running Bill: It is a bill raised by the contractor for periodical payments. Retention Money: It refers to that part of the contract amount which is certified but not paid. Work Certified: It refers to that part of the running bill, which is

approved by the architect of the contractee. Work Uncertified: It refers to that part of the running bill, which is rejected by the architect of the contractee. It is always valued at cost. Basic Rate Concept: Basic Rate concept refers to the method in which a fixed rate is maintained for the raw materials throughout the contract irrespective of the fluctuations in the market price of the material. Escalation Clause: Escalation clause is a provision of a contract which calls for an increase in contract price in the event of an

increase in certain costs beyond a certain percentage and viceversa. Abnormal Loss: It is the part of the process loss caused due to abnormal circumstances in the factory. For Ex, labour strike, break down of machinery. It is avoidable and controllable by mgmt. Abnormal loss occurs in addition to normal loss. Normal loss: It is part of process cost which is caused under normal circumstances. It is inevitable. Example, weight loss, scrap loss, pilferage. Normal loss is calculated at a certain % of input in unit in respective process. It may have scrap value.

Process Costing Write a note on Inter process profits. While transferring the outputs of one process to another, the company might add some amount of profits to it. This is to get the actual cost of finished product as, if the company would have bought the inputs for the next process, it would be inclusive of profits. But, at the end of an accounting period, this inter process profit has to be excluded in order to get the real valuation of closing stock. E.g.: Process I: Cost10000 Profit- 2000 Transferred Price- 12000

Process II:Inputs from Process I 12000 Additional Processing cost12000 Total Cost incurred 24000 Sales 21600 Closing Stock 2400 Inter-process profit of P-I 200 Value of Closing Stock 2200 What is equivalent production? At the end of a financial period, all the stock of a company needs to be assessed. All the partially completed units are valued through the method of equivalent

production. The units of production are calculated according to the percentage of completion of processing on the partially completed units. For example, two units that are 50 percent complete are the equivalent of one unit fully completed.

Budgetary Control What is Budgetary Control? What are the steps involved in Budgetary Control? Budgetary control is the management process of using budgets to monitor and control the performance of the

organization. This is done by comparing the planned values (in the budget) with the actual values as they occur during the year. A budget has been defined as a financial and quantitative statement prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. The following steps are involved in Budgetary Control: 1. Establishment of Budgets: Targets are fixed for each function relating to the responsibilities of individual executives. 2. Measurement of actual performance.

3. Comparison of actual performance with budgeted performance to detect deviation. 4. Analysis of the causes of variations and reporting What are the uses of diff budgets? It serves a declaration of policies Defines the objectives/ targets for executives, at all levels. Means of coordination of activities Means of communication Facilitates centralised control Helps in planning activities

Note: The information provided in this document on each topic is limited. We do not guarantee an inclusion of the whole scope of management accounting or of the whole syllabus of N.M.S.Y.B.M.S. We suggest you to refer to the books recommended by your professor. Actual and Applied Factory Overhead difference Overhead assigned to production using predetermined rates are applied Factory Overheads whereas Allocation of Joint Production cost and By-Product methods

By-Products:
Category 1: Method 1: Recognition of Gross Revenue Method 2: Recognition of Net Revenue

Method 3: Replacement cost method Method 4: Market value method or reversal cost method

Category 2:

Joint Production Cost: 1. The market or sales value method, based on the relative market values of the individual products. 2. The quantitative or physical unit method, based on some physical measurement unit such as weight, linear measure, or volume. 3. The average unit cost method. 4. The weighted average method, based on a predetermined standard or index of production.

Breakeven chart: The relationships among revenue, cost, profit and volume can be expressed graphically by preparing a cost-volume-profit (CVP) graph or break even chart.

Breakeven Point: The point where total sales revenue equals total costs; the point of zero profits Budget: Plans of action expressed in financial terms. By-Product: The term "by product" is generally used to denote one or more products of relatively small total value that are produced simultaneously with a product of greater total value. Capital budgeting: The process of making capital investment decisions. Capital expenditure: Capital expenditures are expenditures creating future benefits. A capital

expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year. Cash budget: A detailed plan that outlines all sources and uses of cash. Common Cost: The costs of resources used in the output of two or more services or products. Contribution margin: Sales revenue minus total variable cost or price minus unit variable cost.

Conversion cost: The sum of direct labour cost and overhead cost. Cost: The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization Cost Accounting: A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results

to aid company management in measuring financial performance. Cost of Production Report Uses: cost of production report
(CPR) shows all costs chargeable to a department. It is not only the source for summary journal entries at the end of the month but also a most convenient vehicle for presenting and disposing of costs accumulated during the month.

Direct labour: Employees or workers who are directly involved in the production of goods or services. Direct labor costs are assignable to a specific product, cost center, or work order. Factory overhead: The costs associated in the manufacturing

process, like a federal contract to produce a new research drug. Fixed expenses: Largely same as fixed costs, except that noncash items such as depreciation and depletion are not included. Imputed cost: Hidden or opportunity cost incurred in using the already paid for assets, without taking into account the income these assets would earn if hired out to others. Indirect cost: Costs that cannot be traced to a cost object. Job order costing: A costing system in which costs are

collected and assigned to units of production for each individual job. Joint Product Cost: Costs of two or more products that come from the same manufacturing process that have no way to distinguish the cost of producing each good. Costs are then divided up based on the selling price of each individual product. LIFO: Last in First out FIFO: First in First out WIP: Work in Process FOH: Factory Overhead Joint product: Products that are inseparable prior to a split-off

point. All manufacturing costs up to the split-off point are joint costs. Management Accounting: The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Manufacturing Costs: The cost of direct material, direct labor, and manufacturing overheads in the fabrication, assembly, and testing of an end item.

Margin of Safety: The units sold or expected to be sold or sales revenue earned or expected to be earned above the breakeven volume. Master Budget: A budget that summarizes and integrates all the individual budgets within an organization. Overhead: All production costs other than direct materials and direct labour. Overhead budget: A budget that reveals the planned expenditures for all indirect manufacturing items.

Overhead variance: The difference between actual overhead and applied overhead. Payback Period: The time required for a project to return its investment. Period Cost: Selling and general administrative expenses identified with the accounting period in which they are incurred, and charged against sales revenue in the same period. Also called period expense. Periodic Inventory System: When a company is still holding products or services that are ready for sale, the company will keep these on a balance sheet. Once there is a sale, the company

will then transfer the amount to the financial statement. PERT: Program Evaluation and Review Technique Prime cost: The total of direct material costs, direct labor costs, and direct expenses. Process Cost: A cost assignment method that satisfies a wellspecified managerial objective. Product Cost and Period Cost Difference Product Mix and Sales Mix: Product Mix: A range of associated products that yields larger sales revenue when marketed together than if they

were marketed individually or in isolation from others. Sale Mix: Proportion of total sales which each product or product line generates, and which needs to be appropriately balanced to achieve the maximum amount of gross profit. Production budget: A budget that shows how many units must be produced to meet sales needs and satisfy ending inventory requirements. Profit planning: Project balance sheet: A condensed statement that shows the financial position of an entity on a specified date.

Purchase Requisition: Document generated by a user department or storeroompersonnel to notify the purchasing department of items it needs to order, their quantity, and the timeframe. It may also contain the authorization to proceed with the purchase. Replacement cost method: Business valuation method in which its replacement cost (instead of its liquidation value) is considered which is usually higher than the book value (because depreciation is not taken into account). Liabilities are deducted from the replacement cost to

arrive at business.

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Standard Costing: Cost control and performance measurement method that employs standard costs as a basis for cost comparison. Step Cost: A cost function in which cost is defined for ranges of activity use rather than point values. The function has the property of displaying constant cost over a range of activity use and then changing to a different cost level as a new range of activity use is undertaken. Sunk Cost: A cost for which the outlay has already been made and

that cannot be affected by a future decision. Variance: A variance is the difference between a
budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues.