Definition of All-in cost

All-in cost

Total costs, explicit and implicit.

Capital Cost Allowance (CCA)

The annual depreciation expense allowed by the Canadian Income Tax Act.

cost allocation

the assignment, using some reasonable basis,
of any indirect cost to one or more cost objects

Absorption costing

A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.

absorption costing

a cost accumulation and reporting
method that treats the costs of all manufacturing components
(direct material, direct labor, variable overhead, and
fixed overhead) as inventoriable or product costs; it is the
traditional approach to product costing; it must be used for
external financial statements and tax returns

Absorption costing

A methodology under which all manufacturing costs are assigned
to products, while all non-manufacturing costs are expensed in the current period.

Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

Activity-based costing

A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.

activity based costing (ABC)

A relatively new method advocated for the
allocation of indirect costs. The key idea is to classify indirect costs,
many of which are fixed in amount for a period of time, into separate
activities and to develop a measure for each activity called a cost driver.
The products or other functions in the business that benefit from the
activity are allocated shares of the total indirect cost for the period based
on their usage as measured by the cost driver.

activity-based costing (ABC)

a process using multiple cost drivers to predict and allocate costs to products and services;
an accounting system collecting financial and operational
data on the basis of the underlying nature and extent
of business activities; an accounting information and
costing system that identifies the various activities performed
in an organization, collects costs on the basis of
the underlying nature and extent of those activities, and
assigns costs to products and services based on consumption
of those activities by the products and services

Activity-based costing (ABC)

A cost allocation system that compiles costs and assigns
them to activities based on relevant activity drivers. The cost of these activities can
then be charged to products or customers to arrive at a much more relevant allocation
of costs than was previously the case.

Actual cost

The actual expenditure made to acquire an asset, which includes the supplierinvoiced
expense, plus the costs to deliver and set up the asset.

actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of Work in Process Inventory

Agency cost view

The argument that specifies that the various agency costs create a complex environment in
which total agency costs are at a minimum with some, but less than 100%, debt financing.

Agency costs

The incremental costs of having an agent make decisions for a principal.

Aggressive Cost Capitalization

cost capitalization that stretches the flexibility within generally
accepted accounting principles beyond its intended limits, resulting in reporting as assets
items that more reasonably should have been expensed. The purpose of this activity is likely to
alter financial results and financial position in order to create a potentially misleading impression
of a firm's business performance or financial position.

All equity rate

The discount rate that reflects only the business risks of a project and abstracts from the
effects of financing.

All or none

Requirement that none of an order be executed unless all of it can be executed at the specified price.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

allocate

assign based on the use of a cost driver, a cost predictor,
or an arbitrary method

allocation

the systematic assignment of an amount to a recipient
set of categories annuity a series of equal cash flows (either positive or negative) per period

Allocation

The process of storing costs in one account and shifting them to other
accounts, based on some relevant measure of activity.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

Allowance for bad debts

An offset to the accounts receivable balance, against which
bad debts are charged. The presence of this allowance allows one to avoid severe
changes in the period-to-period bad debt expense by expensing a steady amount to
the allowance account in every period, rather than writing off large bad debts to
expense on an infrequent basis.

Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.

Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
amount.

Allowance method

A method of adjusting accounts receivable to the amount that is expected to be collected based on company experience.

Amortized Cost

cost of a security adjusted for the amortization of any purchase premium or
discount.

appraisal cost

a quality control cost incurred for monitoring
or inspection; compensates for mistakes not eliminated
through prevention activities

approximated net realizable value at split-off allocation

a method of allocating joint cost to joint products using a
simulated net realizable value at the split-off point; approximated
value is computed as final sales price minus
incremental separate costs

Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.

attribute-based costing (ABC II)

an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
enhancements that the company wants to integrate into a product

Average-Cost Inventory Method

The inventory cost-flow assumption that assigns the average
cost of beginning inventory and inventory purchases during a period to cost of goods sold and
ending inventory.

Average cost of capital

A firm's required payout to the bondholders and to the stockholders expressed as a
percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total
required cost of capital by the total amount of contributed capital.

Avoidable costs

costs that are identifiable with and able to be influenced by decisions made at the business
unit (e.g. division) level.

backflush costing

a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
few allocations, uses standard costs, and has minimal variances
from standard

Balloon maturity

Any large principal payment due at maturity for a bond or loan with or without a a sinking
fund requirement.

Bankruptcy cost view

The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Batch cost

A cost that is incurred when a group of products or services are produced,
and which cannot be identified to specific products or services within each group.

batch-level cost

a cost that is caused by a group of things
being made, handled, or processed at a single time

Borrower fallout

In the mortgage pipeline, the risk that prospective borrowers of loans committed to be
closed will elect to withdraw from the contract.

budgeted cost

a planned expenditure

Call

An option that gives the right to buy the underlying futures contract.

Call

a. An option to buy a certain quantity of a stock or commodity for a
specified price within a specified time. See Put.
b. A demand to submit bonds to the issuer for redemption before the maturity date.
c. A demand for payment of a debt.
d. A demand for payment due on stock bought on margin.

Call an option

To exercise a call option.

Call date

A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond
for a specified call price.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified
number of shares of the underlying stock at the given strike price, on or before the expiration date of the
contract.
Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to
holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call Option

A contract that gives the holder the right to buy an asset for a
specified price on or before a given expiration (maturity) date

call option

Right to buy an asset at a specified exercise price on or before the exercise date.

Call price

The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
specified call date.

Call price

The price for which a bond can be repaid before maturity under a call provision.

Call protection

A feature of some callable bonds that establishes an initial period when the bonds may not be
called.

Call provision

An embedded option granting a bond issuer the right to buy back all or part of the issue prior
to maturity.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Call swaption

A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.

Callable

A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to
call the security.

Callable bond

A bond that allows the issuer to buy back the bond at a
predetermined price at specified future dates. The bond contains an embedded
call option; i.e., the holder has sold a call option to the issuer. See Puttable
bond.

callable bond

Bond that may be repurchased by the issuer before maturity at specified call price.

Capital allocation

decision allocation of invested funds between risk-free assets versus the risky portfolio.

Capital Consumption Allowance

See depreciation.

capitalization of costs

When a cost is recorded originally as an increase
to an asset account, it is said to be capitalized. This means that the outlay
is treated as a capital expenditure, which becomes part of the total
cost basis of the asset. The alternative is to record the cost as an expense
immediately in the period the cost is incurred. Capitalized costs refer
mainly to costs that are recorded in the long-term operating assets of a
business, such as buildings, machines, equipment, tools, and so on.

Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against

future-period revenue.

Carring costs

costs that increase with increases in the level of investment in current assets.

carrying cost

the total variable cost of carrying one unit of
inventory in stock for one year; includes the opportunity
cost of the capital invested in inventory

Carrying cost

The cost of holding inventory, which can include insurance,
spoilage, rent, and other expenses.

carrying costs

costs of maintaining current assets, including opportunity cost of capital.

Cash cost

The amount of cash expended.

Chinese wall

Communication barrier between financiers (investment bankers) and traders. This barrier is
erected to prevent the sharing of inside information that bankers are likely to have.

committed cost

a cost related either to the long-term investment
in plant and equipment of a business or to the
organizational personnel whom top management deem
permanent; a cost that cannot be changed without longrun
detriment to the organization

company cost of capital

Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.

controllable cost

a cost over which a manager has the ability to authorize incurrence or directly influence magnitude

conversion cost

Refers to the sum of manufacturing direct labor and overhead
costs of products. The cost of raw materials used to make products
is not included in this concept. Generally speaking, this is a rough measure
of the value added by the manufacturing process.

conversion cost

the total of direct labor and overhead cost;
the cost necessary to transform direct material into a finished good or service

Cost

A resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined
typically in monetary terms.

cost

the cash or cash equivalent value necessary to attain an
objective such as acquiring goods and services, complying
with a contract, performing a function, or producing and
distributing a product

Cost

The expense incurred to create and sell a product or service. If a product is not
sold, then it is recorded as an asset, whereas the sale of a product or service will
result in the recording of all related costs as an expense.

cost accounting

a discipline that focuses on techniques or
methods for determining the cost of a project, process, or
thing through direct measurement, arbitrary assignment, or
systematic and rational allocation

Cost Accounting Standards Board (CASB)

a body established by Congress in 1970 to promulgate cost accounting
standards for defense contractors and federal agencies; disbanded
in 1980 and reestablished in 1988; it previously issued
pronouncements still carry the weight of law for those
organizations within its jurisdiction

cost accumulation

the approach to product costing that determines
which manufacturing costs are recorded as part
of product cost

cost avoidance

the practice of finding acceptable alternatives
to high-cost items and/or not spending money for
unnecessary goods or services

Cost basis

An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.

Cost behaviour

The idea that fixed costs and variable costs react differently to changes in the volume of
products/services produced.

Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.

cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)

Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.

cost center

a responsibility center in which the manager has
the authority to incur costs and is evaluated on the basis
of how well costs are controlled

Cost centre

A division or unit of an organization that is responsible for controlling costs.

Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

cost consciousness

a company-wide attitude about the topics
of cost understanding, cost containment, cost avoidance,
and cost reduction

cost containment

the practice of minimizing, to the extent
possible, period-by-period increases in per-unit variable
and total fixed costs

Cost control

The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.

cost control system

a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period

Cost depletion

A method of expensing the cost of a resource consumed by first determining
the total investment in the resource (such as the procurement of a coal mine),
then determining the total amount of extractable resource (such as tons of available
coal), and then assigning costs to each consumed unit of the resource, based on the
proportion of the total available amount that has been used.

Cost driver

The most significant cause of the cost of an activity, a measure of the demand for an activity
by each product/service enabling the cost of activities to be assigned from cost pools to products/services.

cost driver

a factor that has a direct cause-effect relationship
to a cost; an activity creating a cost

Cost driver

A factor that directly impacts the incidence of a cost, and which is generally
based on varying levels of activity.

cost driver analysis

the process of investigating, quantifying,
and explaining the relationships of cost drivers and
their related costs

cost leadership strategy

a plan to achieve the position in a
competitive environment of being the low cost producer of
a product or provider of a service; it provides one method
of avoiding competition

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