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    Absorption (full) costing
    Considers fixed manufacturing overhead to be a product cost.

    Activity-based costing (ABC)
    A cost system that focuses on activities, determines their costs and then uses appropriate cost drivers to trace costs to the products based on the activities.

    Activity-based management (ABM)
    Integrates ABC with other concepts such as Total Quality Management (TQM) and target costing to produce a management system that strives for excellence through cost reduction, continuous process improvement, and productivity gains.

    Actual activity level
    The level of production actually occurring for the period.

    Backflush costing
    A costing system that omits to record some or all of the journal entries to track the purchase and production of goods. Goods are costed after they have been completed.

    Computer-integrated manufacturing (CIM)
    A highly automated and integrated production process that is controlled by computers.

    Conversion costs
    These include direct manufacturing labor and manufacturing overhead. They are the costs of converting direct materials into finished products.

    Cost assignment
    This encompasses both cost tracing (assignment of direct costs to a cost object) and cost allocation (assignment of indirect costs to the cost object). A cost object is an item (product, department, process, etc.) for which cost is being determined.

    Cost driver
    A factor that causes a cost to be incurred. Cost drivers may be volume-related (e.g., repair costs may depend on the volume of machine-hours) and transaction-related (purchasing costs may depend on the number of purchase transactions).

    Cost estimation
    The examination of past relationships of costs and level of activity to develop predictions of future costs. 

    Cost management system (CMS)
    A planning and control system that measures the cost of significant activities, identifies non-value-added costs and identifies activities that will improve organizational performance.

    Cost pools
    Groupings of related costs accumulated together to be allocated to a product or some other cost object. 

    Cycle time (or throughput time)
    The time required to complete a good from the start of the production process until the product is finished.

    Direct costs
    Costs easily traced to a specific business segment (e.g., product, division, department).

    Direct manufacturing labor
    The cost of labor directly transforms a product. This theoretically should include fringe benefits, but frequently does not. This is contrasted with indirect manufacturing labor, which is the cost of supporting labor (e.g., material-handling labor, factory supervisors).

    Direct materials inventory
    This includes the cost of materials awaiting entry into the production system.

    Direct materials
    The cost of materials is directly and conveniently traceable to a product. Minor material items (nails, glue) are not deemed conveniently traceable. These items are treated as indirect materials along with production supplies. 

    Engineered costs
    Determined from industrial engineering studies that examine how activities are performed and if/ how performance can be improved.

    Factory (manufacturing) overhead
    Normally includes indirect manufacturing labor costs, supplies cost, and other production facility costs such as plant depreciation, taxes, etc. It is comprised of all manufacturing costs that are not direct materials or direct manufacturing labor.

    Finished goods inventory
    Includes the cost of units completed but unsold.

    Fixed costs
    Costs that do not vary with the level of activity within the relevant range for a given period of time (usually one year), for example, plant depreciation.

    Flexible manufacturing system (FMS)
    A series of computer-controlled manufacturing processes that can be easily changed to make a variety of products.

    A system that blends the characteristics of both the job order and process costing systems. Firms using this system typically produce large numbers of closely related products.

    Indirect costs
    Costs that are not easily traceable to specific segments and include factory overhead.

    Job order costing
    A system for allocating costs to groups of unique products made to customer specifications.

    Joint costs
    Costs common to multiple products that emerge at a split-off point.

    Joint costing
    A system of assigning joint costs to joint products whose overall sales values are relatively significant. 

    Learning curve
    A function that demonstrates how productivity improves as workers become more proficient at producing the product.

    Mixed costs (semivariable)
    Costs that have a fixed component and a variable component. These components are separated by using the scattergraph, high-low, or linear regression methods.

    Nonlinear cost function
    A cost function that is not described by a straight line over the relevant range.

    Non-value-added costs
    The cost of activities can be eliminated without the customer perceiving a decline in product quality or performance.

    Normal activity level
    The production level is expected to be achieved over a number of periods or seasons under normal circumstances.

    Period costs
    Costs that cannot be associated (or matched) with manufactured goods (e.g., advertising expenditures). Period costs become expenses when incurred.

    Prime costs
    Costs are easily traceable to specific units of production and include direct manufacturing labor and direct materials.

    Process costing
    A system for allocating costs to homogeneous units of a mass-produced product.

    Product costs
    Costs that can be associated with the production of specific goods. Product costs attach to a physical unit and become an expense in the period in which the unit to which they attach is sold. Product costs normally include direct manufacturing labor, direct materials, and factory overhead.

    Product life-cycle costing
    Tracks the accumulation of costs that occur starting with the research and development for a product and ending with the time at which sales and customer support are withdrawn.

    Relevant range
    The operating range of activity in which cost behavior patterns are valid. It is the production range for which fixed costs remain constant (e.g., if production doubles, an additional shift of salaried foremen would be added and fixed costs would increase).

    Stepped costs (or semifixed costs)
    are fixed over relatively short ranges of production levels (e.g., supervisors’ salaries).

    Value chain
    The sequence of business functions in which value is added to a firm’s products or services. This sequence includes research and development, product design, manufacturing, marketing, distribution, and customer service.

    Value-added cost
    The cost of activities cannot be eliminated without the customer perceiving a decline in product quality or performance.

    Variable (direct) costing)
    Costing considers all fixed manufacturing overhead as a period cost rather than as a product cost.

    Work in process inventory
    Includes the cost of units being produced but not yet completed.