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Definition of 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.
A relatively new method advocated for the
a process using multiple cost drivers to predict and allocate costs to products and services;
A cost allocation system that compiles costs and assigns
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
a cost accumulation and reporting
A methodology under which all manufacturing costs are assigned
a repetitive action performed in fulfillment of business functions
the process of detailing the various repetitive actions that are performed in making a product or
A method of budgeting that develops budgets based on expected activities and cost drivers – see also activity-based costing.
planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and
a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
a segment of the production or service
a measure of the demands on activities and,
hours, machine hours or volume of production
Ratios that measure how effectively the firm is managing its assets.
Methods of financing in which lenders and equity investors look principally to the
Loans granted usually by a financial institution where the asset being financed constitutes the sole security given to the lender.
attribute-based costing (ABC II)
an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
an activity that is necessary for the operation of the business but for which a customer would not want to pay
see variable costing
A costing methodology that only assigns direct labor and material costs
Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.
FIFO method (of process costing)
the method of cost assignment that computes an average cost per equivalent
First in, first-out costing method (FIFO)
A process costing methodology that assigns the earliest
see absorption costing
hybrid costing system
a costing system combining characteristics
A method of accounting that accumulates the costs of a product/service that is produced either
job order costing system
a system of product costing used
The process of continual cost reduction that occurs after a product
life cycle costing
the accumulation of costs for activities that
An approach to costing that estimates and accumulates the costs of a product/service over
modified FIFO method (of process costing)
the method of cost assignment that uses FIFO to compute a cost per
non-value-added (NVA) activity
an activity that increases the time spent on a product or service but that does not increase its worth or value to the customer
A budget that allocates funds in line with strategies.
A method of costing for continuous manufacture in which costs for an accounting compared are compared with production for the same period to determine a cost per unit produced.
A costing methodology that arrives at an individual product cost through the calculation of average costs for large quantities of identical products.
process costing system
a method of accumulating and assigning costs to units of production in companies producing large quantities of homogeneous products;
a process that compares, to the extent possible
strict FIFO method (of process costing)
the method of cost assignment that uses FIFO to compute a cost per equivalent unit and, in transferring units from a department, keeps the
A method of costing that is concerned with managing whole-of-life costs of a product/service during the product design phase – the difference between target price (to achieve market share) and the target profit margin.
a method of determining what the cost of a
value-added (VA) activity
an activity that increases the worth of the product or service to the customer
A variety of approaches that emphasize increasing shareholder value as the primary goal of every business.
A method of costing in which only variable production costs are treated as product costs and in which all fixed (production and non-production) costs are treated as period costs.
a cost accumulation and reporting method
weighted average method (of process costing)
the method of cost assignment that computes an average cost per
A method of budgeting that ignores historical budgetary allocations and identifies the costs that are necessary to implement agreed strategies.
see activity-based costing
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