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Published by: ajithsubramanian on Oct 23, 2012
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Glossary for CMA Part 1
AbnormalSpoilage
Spoilage that is recognized as a loss when discovered.Normal Spoilage is inherent in the manufacturing processand is unavoidable in the short run. Abnormal spoilage isspoilage beyond the normal spoilage rate. It iscontrollable because it is a result of inefficiency. It is not acost of good production, but rather it is a loss for theperiod. Costs are assigned to the spoiled units and thencredited to Work-In-Process inventory and debited to aloss account.
AbsorptionCosting
Method in which all manufacturing costs, variable andfixed, are treated asProduct Costs whilenonmanufacturing costs (e.g., selling and administrativeexpenses) are treated as Period Costs. Absorptioncosting for inventory valuation is required for externalreporting.
Activity analysis
Evaluation involving the determination of the combinationof production processes that maximizes output (orprofits), subject to the restrictions on the requiredresources (inputs).
Activity BasedBudgeting - ABB
Approach to budgeting that involves quantitativeexpression of the activities/business processes of theorganization reflecting forecasts of workload (quantity ofdrivers) and other financial requirements to achievestrategic goals or planned changes to improveperformance. Activity-based budgeting provides greaterdetail, especially regarding overhead, because it permitsthe identification of value-adding activities and theirdrivers. After operations, it is useful for comparing actualcosting rates and driver usage with the amountsbudgeted.
Administrativecost
Expense incurred in controlling and directing anorganization, but not directly identifiable with financing,marketing, or production operations. Salaries of seniorexecutives and costs of general services (such asaccounting, contracting, and industrial relations) fall underthis heading. Administrative costs are related to theorganization as a whole as opposed to expenses relatedto individual departments. Also called administrativeexpenses.
Audit Trail
Recorded flow of a transaction from initiation (e.g., sourcedocument) to finalization (e.g., financial statement), orvice versa. The auditor, assuring that data are processedcorrectly, appraises the material that forms the audit trail.An audit trail may be either visible or invisible (e.g.,
 
magnetic storage). Components of an audit trail include:(1) source records, (2) list of transactions processed, and(3) transaction identifiers so that reference can be madeto the source of a transaction. An audit trail allows thetracing of transactions to control totals and from thecontrol totals to supporting transactions. An audit trail isgood when the tracing process is easy to accomplish.
Avoidable cost
Variable cost that may be avoided if a particular course ofaction is not taken. Fixed costs are usually unavoidable inthe short run.
Batch-LevelActivities
Activities performed each time a batch of goods isproduced; such activities vary with the number of batchesprepared.
Bill of materials
Listing of all the assemblies, subassemblies, parts, andraw materials that are needed to produce one unit of afinished product. Thus, each finished product has its ownbill of materials. The listing in the bill of materials file ishierarchical; it shows the quantity of each item needed tocomplete one unit of the next-highest level of assembly.
Bottleneck
Department, facility, machine, or resource alreadyworking at its full capacity and which, therefore, cannothandle any additional demand placed on it. Also calledcritical resource, a bottleneck limits the throughput ofassociated resources.
Breakeven point
Point in time (or in number of units sold) when forecastedrevenue exactly equals the estimated total costs; whereloss ends and profit begins to accumulate. This is thepoint at which a business, product, or project becomesfinancially viable.
BudgetCommittee
Group, usually made up of top management and the chieffinancial officer, that reviews and approves, or makesappropriate adjustments to the budgets submitted fromoperational managers.
Budget cycle
Period between one budget and the next.
Budget manual
Collection of procedures that describe how a budget is tobe prepared. Items usually appearing in a budget manualinclude a budget planning calendar and distributioninstructions for all budget schedules. Distributioninstructions are important because, once a schedule isprepared, other departments in the organization use theschedule to prepare their own budgets. Withoutdistribution instructions, someone who needs a particularschedule might be overlooked.
Budget PlanningCalendar
Schedule of activities for the development and adoptionof the budget. It should include a list of dates indicatingwhen specific information is to be provided to others by
 
each information source. The preparation of a masterbudget usually takes several months. For instance, manyfirms start the budget for the next calendar year inSeptember, anticipating its completion by the first ofDecember. Because all of the individual departmentalbudgets are based on forecasts prepared by others andthe budgets of other departments, a planning calendar isessential to integrate the entire process.
Budgetary Slack
Intentional underestimation of revenues and/oroverestimation of expenses; also called budget slack.This must be avoided if a budget is to have its desiredeffects. Misstating projections of costs and revenues forthis purpose is behavior that is both dysfunctional andunethical.
Budgeting
Process of expressing quantified resource requirements(amount of capital, amount of material, number of people)into time-phased goals and milestones.
Bullwhip effect
Tendency of consumers of a material or product in shortsupply to buy more than they need in the immediatefuture.
Business processreengineering(BPR)
Thorough rethinking of all business processes, jobdefinitions, management systems, organizationalstructure, work flow, and underlying assumptions andbeliefs. BPR's main objective is to break away from oldways of working, and effect radical (not incremental)redesign of processes to achieve dramatic improvementsin critical areas (such as cost, quality, service, andresponse time) through the in-depth use of informationtechnology. Also called business process redesign
CapitalBudgeting
Process of making long-term planning decisions forcapital investments. There are typically two types ofinvestment decisions: (1) Selecting new facilities orexpanding existing facilities. Examples include: (a)investments in long-term assets such as property, plant,and equipment; and (b) resource commitments in theform of new product development, market research,refunding of long-term debt, introduction of a computer,etc. (2) Replacing existing facilities with new facilities.Examples include replacing a manual bookkeepingsystem with a computerized system and replacing aninefficient lathe with one that is numerically controlled. Assuch, capital budgeting decisions are a key factor in thelong-term profitability of a firm. To make wise investmentdecisions, managers need tools at their disposal that willguide them in comparing the benefits and costs of variousinvestment alternatives. Many techniques used for

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