Managerial Accounting Ch6-8

Front 1

Cost Allocation

Back 1

The process of assigning indirect costs

Front 2

Cause-and-effect relationship

Back 2

Allocation base that relates costs to cost objectives that caused the costs to be incurred

Front 3

relative benefits approach to allocation

Back 3

suggests that the base should result in more costs being allocated to the cost objectives that benefit most from incurring the cost

Front 4

ability to bear costs

Back 4

suggests that the allocation base should result in more costs being allocated to products, services, or departments that are more profitable

Front 5

equity approach to allocation

Back 5

suggests that the base should result in allocations that are perceived to be fair or equitable

Front 6

direct method of allocating cost

Back 6

allocation method where service costs are allocated to production departments but not to other service departments

Front 7

responsibility accounting system

Back 7

a system of accounting that traces revenues and costs to organizational units and individuals, with related responsibility for generating revenue and controlling costs

Front 8

controllable costs

Back 8

costs that can be controlled or are affected by a manager's decisions

Front 9

unitized

Back 9

stated on a per unit basis

Front 10

lump-sum allocations

Back 10

an allocation of a predetermined amount that is not affected by changes in the activity level of the organizational unit receiving the allocation

Front 11

Activity-based costing (ABC)

Back 11

method of assigning overhead costs to products using a number of different allocation bases

Front 12

Cost driver

Back 12

an allocation base in an ABC ssytem where costs are assigned to products using a measure of activity

Front 13

Activity-based management (ABM)

Back 13

a management tool that involves analyzing and costing activities with the goal of improving efficiency and effectiveness

Front 14

cost objective

Back 14

the product, service or department that is to receive the allocation

Front 15

cost pools

Back 15

a grouping of individual costs whose total is allocated using one allocation base

Front 16

incremental analysis

Back 16

the analysis of the incremental revenue and the incremental costs incurred when one decision alternative is chosen over another

Front 17

incremental revenue

Back 17

the additional revenue received as a result of selecting one decision alternative over another

Front 18

incremental cost

Back 18

the additional cost incurred as a result of selecting one decision alternative over another

Front 19

relevant costs

Back 19

incremental costs (the additional cost incurred as a result of selecting one decision alternative over another)

Front 20

differential costs

Back 20

the costs that differ between decision alternatives (also known as incremental cost or the additional cost incurred as a result of selecting one decision over another)

Front 21

avoidable costs

Back 21

costs that can be avoided if a particular action is undertaken

Front 22

opportunity cost

Back 22

the value of benefits forgone by selecting one decision alternative over another

Front 23

joint products

Back 23

when two or more products always result from common inputs

Front 24

joint costs

Back 24

the costs of common inputs

Front 25

split-off point

Back 25

the stage of production at which individual products are identified

Front 26

relative sales value method

Back 26

the amount of joint cost allocated to products depends on the relative values of the products at the split-off point

Front 27

cost-plus pricing

Back 27

an estimate of product cost plus a markup to arrive at a price that allows for a reasonable profit

Front 28

target costing

Back 28

an approach to detemining product features, product price, product cost and product design that helps ensure a company will earn a reasonable profit on new products

Front 29

customer profitability measurement program

Back 29

the indirect costs of servicing customers are assigned cost pools. Using cost drivers, these costs are then allocated to specific customers. subrtacting these costs and product costs from customer revenue yields a measure of customer profitability.

Front 30

activity-based pricing

Back 30

an approach to pricing in which customers are presnted with separate prices for services they request in addition to the cost of goods they purchase