Absorption costing
A costing method that includes all manufacturing costs—direct
materials, direct labor, and both variable and fixed manufacturing
overhead—in unit product costs.
Activity
An event that causes the consumption of overhead resources in an
organization.
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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.
Activity cost pool
A "bucket" in which costs are accumulated that relate to a single
activity measure in an activity-based costing system.
Activity measure
An allocation base in an activity-based costing system; ideally, a
measure of the amount of activity that drives the costs in an activity
cost pool.
Activity variance
The difference between a revenue or cost item in the flexible budget
and the same item in the static planning budget. An activity
variance is due solely to the difference between the actual level of
activity used in the flexible budget and the level of activity assumed
in the planning budget.
Activity-based costing (ABC)
A costing method based on activities that is designed to provide
managers with cost information for strategic and other decisions
that potentially affect capacity and therefore fixed as well as
variable costs.
Activity-based management (ABM)
A management approach that focuses on managing activities as a
way of eliminating waste and reducing delays and defects.
Administrative costs
All executive, organizational, and clerical costs associated with the
general management of an organization rather than with
manufacturing or selling.
Allocation base
A measure of activity such as direct labor-hours or machine-hours
that is used to assign costs to cost objects.
Avoidable cost
, A cost that can be eliminated by choosing one alternative over
another in a decision. This term is synonymous with differential cost
and relevant cost.
Batch-level activities
Activities that are performed each time a batch of goods is handled
or processed, regardless of how many units are in the batch. The
amount of resource consumed depends on the number of batches
run rather than on the number of units in the batch.
Benchmarking
A systematic approach to identifying the activities with the greatest
potential for improvement.
Bill of materials
A document that shows the quantity of each type of direct material
required to make a product.
Bottleneck
A machine or some other part of a process that limits the total
output of the entire system.
Break-even point
The level of sales at which profit is zero.
Budget
A detailed plan for the future that is usually expressed in formal
quantitative terms.
Capital budgeting
The process of planning significant investments in projects that
have long-term implications such as the purchase of new equipment
or the introduction of a new product.
Cash budget
A detailed plan showing how cash resources will be acquired and
used over a specific time period.
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.
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