Chapter 1 Key Terms

Question	Answer
Activity Base	A measure of whatever causes the incurrence of a variable cost. For example, the total cost of surgical gloves in a hospital will increase as the number of surgeries increases. Therefore, the number of surgeries is the activity base that explains the total cost of surgical gloves.
Administrative Costs	All executive, organizational, and clerical costs associated with the general management of an organization rather than with the manufacturing or selling.
Committed Fixed Costs	Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.
Common Cost	A cost incurred to support a number of cost objects that cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot's wage is caused by any one passenger taking the flight.
Contribution approach	An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.
Conversion cost	Direct Labor plus manufacturing overhead cost
Cost behavior	The way in which a cost reacts to changes in the level of activity.
Cost object	Anything for which cost data are desired. Examples of cost objects are products, customers, geographic regions, and parts of the organization such as departments or divisions.
Cost structure	The relative proportion of fixed, variable, and mixed costs in an organization.
Differential cost	A future cost that differs between any two alternatives.
Differential revenue	Future revenue that differs between any two alternatives.
Direct cost	A cost easily traced to a specified cost object.
Direct Labor	Factory labor costs easily traced to specific products. Also called "touch labor'
Direct materials	Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.
Discretionary fixed costs	Fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.
Financial accounting	.The phase of accounting that reports historical financial information to external parties, such as stockholders, creditors, and regulators
Finished goods	Units of product that have been completed but not yet sold to customers.
Fixed cost	A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per-unit basis, it varies inversely with the level of activity.
Incremental cost	An increase in cost between two alternatives.
Indirect cost	A cost that cannot be easily traced to a specified cost object.
Indirect labor	The labor costs of janitors, supervisors, material handlers and other factory workers that cannot be easily traced to particular products.
Indirect materials	Small items of materials such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily traced to it.
Inventoriable costs	Synonym for product costs.
Managerial accounting	The phase of accounting that provides information to managers for use within the organization.
Manufacturing Overhead	All manufacturing costs except direct materials and direct labor.
Mixed cost	A cost with variable and fixed cost elements.
Opportunity cost	The potential benefit given up when one alternative is selected over another.
Period costs	Costs taken directly to the income statement as expenses in the period incurred or accrued.
Prime cost	Direct materials cost plus direct labor cost.
Product Costs	All costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Also see "Inventoriable Costs"
Raw materials	Any materials going into the final product.
Relevant benefit	A benefit that should be considered when making a decision.
Relevant cost	A cost that should be considered when making decisions.
Relevant range	The range of activity within which assumptions about variable and fixed cost behavior are valid
Selling costs	All costs incurred to secure customer orders and get the finished product or services into the hands of the customer.
Sunk cost	A cost already incurred that cannot be changed by any decision made now or in the future.
Variable cost	A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.
Work in process	Partially complete units of product requiring further work before they are ready for sale to the customer.

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	Created by Tammy McClintock about 2 months ago