Activity-Based Costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.
An activity cost pool in activity-based costing groups indirect costs according to activities to allocate costs effectively.
In standard costing or budgetary control, a controllable variance is a variance regarded as controllable by the manager responsible for that area of an organization. The variance occurs as a result of the difference between the budget cost allowance and the actual cost incurred for the period.
Cost absorption involves assigning all costs, both fixed and variable, to the product or service being produced or delivered.
Cost-plus transfer prices are set by cost-plus pricing, which includes a mark-up to provide a profit for the supplying division. This method incorporates variable costs and fixed costs for the purpose of setting a transfer price that includes a profit margin.
A curvilinear cost function represents any cost relationship where the cost does not change proportionally with the level of activity. This type of cost function forms a curved line when plotted on a graph.
Equitable apportionment refers to the process of sharing common costs between different cost centres in a fair and just manner. This is done using a basis of apportionment that accurately reflects how the costs are incurred by each cost centre.
A fixed cost is a type of business expense that is constant and does not fluctuate with changes in the level of goods or services produced. These costs are incurred regularly, regardless of the business's activity level.
Fixed production overhead consists of factory costs that remain constant regardless of changes in the level of production or sales. Understanding these overheads is crucial for accurate financial and managerial accounting.
Full-cost transfer prices are internal pricing strategies where transfer prices are set based on full cost pricing but do not include a profit margin for the supplying division. This method is widely used but can lead to issues if cost information is inaccurate.
An income standard in standard costing refers to the predetermined level of income expected to be generated by an item to be sold. It is often applied to a budgeted quantity to determine the budgeted revenue.
Joint costs are costs that are incurred up to the point where multiple products are separately identifiable in a production process. They are essential in evaluating the cost-effectiveness and profitability of production processes.
Managerial accounting is the practice of using financial accounting records as basic data to enable better business planning and decision-making. It is designed to aid in decision-making, planning, and control within a business organization.
Transfer prices set by negotiation between the supplying and receiving divisions of an organization, typically deemed appropriate when there is an imperfect market for the goods and services exchanged.
An operating statement is a financial report provided to management, detailing the performance of specific areas of operation over a selected budget period. It includes production levels, costs incurred, and revenues generated, and is compared with budgeted amounts and previous performances.
The Overhead Efficiency Variance measures the difference between the standard overhead cost allocated based on standard hours and the actual overhead cost incurred based on actual hours worked.
Overhead Volume Variance is a budgetary metric used in cost accounting to measure the difference between the budgeted and actual fixed overhead allocated based on the actual volume of production.
A basis used in absorption costing for absorbing the manufacturing overhead into the cost units produced. The formula used is: Overhead Absorption Rate = (Total Overhead / Total Direct Material Cost) * 100.
Product-sustaining-level activities are activities that are necessary to support a specific product regardless of the volume of production. These activities ensure the possible production and effective marketing of the product.
Relevant costs are expected future costs that vary with different courses of action a manager might take, making them essential for effective decision-making.
Relevant income, also known as relevant revenue, refers to the revenue that changes as a result of a proposed business decision. Revenues that remain unchanged by the decision are considered irrelevant to the decision-making process.
An essential concept in managerial accounting, Sales Mix Profit Variance looks at the difference in actual profit compared to budgeted profit, considering the sales mix. It helps businesses understand the impact of variations in product sales mix on overall profitability.
Specific Order Costing, often compared to job costing, is a method of assigning production costs to a distinct batch or order. It provides a bespoke way to track the profitability and efficiency of unique production runs.
The split-off point refers to the stage in the production process where jointly produced products become separately identifiable and can be sold or further processed.
Standard costing involves assigning a predetermined cost to products or services, which serves as a benchmark for measuring performance and cost control.
Computer programs that perform functions helpful to accountants, particularly managerial accountants, by creating, changing, storing, and using mathematical models. Examples include SPSS/PC and Systat.
Total cost represents the comprehensive expenses incurred by a firm to produce a specific level of output, encompassing both fixed and variable costs.
The Variable Cost Ratio measures the ratio of variable costs to sales revenue, expressed as a percentage. It provides insight into the relationship between production costs and sales, crucial for cost management and pricing strategies.
Variable costing, also known as direct or marginal costing, is a managerial accounting method where only variable costs are included in the cost of a product.
