Glossary for CMA Part 1 Spoilage that is recognized as a loss when discovered.

Normal Spoilage is inherent in the manufacturing process and is unavoidable in the short run. Abnormal spoilage is spoilage beyond the normal spoilage rate. It is controllable because it is a result of inefficiency. It is not a cost of good production, but rather it is a loss for the period. Costs are assigned to the spoiled units and then Abnormal credited to Work-In-Process inventory and debited to a Spoilage loss account. Method in which all manufacturing costs, variable and fixed, are treated asProduct Costs while nonmanufacturing costs (e.g., selling and administrative expenses) are treated as Period Costs. Absorption Absorption costing for inventory valuation is required for external Costing reporting. Evaluation involving the determination of the combination of production processes that maximizes output (or profits), subject to the restrictions on the required Activity analysis resources (inputs). Approach to budgeting that involves quantitative expression of the activities/business processes of the organization reflecting forecasts of workload (quantity of drivers) and other financial requirements to achieve strategic goals or planned changes to improve performance. Activity-based budgeting provides greater detail, especially regarding overhead, because it permits the identification of value-adding activities and their drivers. After operations, it is useful for comparing actual Activity Based costing rates and driver usage with the amounts Budgeting - ABB budgeted. Expense incurred in controlling and directing an organization, but not directly identifiable with financing, marketing, or production operations. Salaries of senior executives and costs of general services (such as accounting, contracting, and industrial relations) fall under this heading. Administrative costs are related to the organization as a whole as opposed to expenses related Administrative to individual departments. Also called administrative cost expenses. Recorded flow of a transaction from initiation (e.g., source document) to finalization (e.g., financial statement), or vice versa. The auditor, assuring that data are processed correctly, appraises the material that forms the audit trail. 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 made to the source of a transaction. An audit trail allows the tracing of transactions to control totals and from the control totals to supporting transactions. An audit trail is good when the tracing process is easy to accomplish. Variable cost that may be avoided if a particular course of action is not taken. Fixed costs are usually unavoidable in Avoidable cost the short run. Activities performed each time a batch of goods is Batch-Level produced; such activities vary with the number of batches Activities prepared. Listing of all the assemblies, subassemblies, parts, and raw materials that are needed to produce one unit of a finished product. Thus, each finished product has its own bill of materials. The listing in the bill of materials file is hierarchical; it shows the quantity of each item needed to Bill of materials complete one unit of the next-highest level of assembly. Department, facility, machine, or resource already working at its full capacity and which, therefore, cannot handle any additional demand placed on it. Also called critical resource, a bottleneck limits the throughput of Bottleneck associated resources. Point in time (or in number of units sold) when forecasted revenue exactly equals the estimated total costs; where loss ends and profit begins to accumulate. This is the point at which a business, product, or project becomes Breakeven point financially viable. Group, usually made up of top management and the chief financial officer, that reviews and approves, or makes Budget appropriate adjustments to the budgets submitted from Committee operational managers. Budget cycle Period between one budget and the next. Collection of procedures that describe how a budget is to be prepared. Items usually appearing in a budget manual include a budget planning calendar and distribution instructions for all budget schedules. Distribution instructions are important because, once a schedule is prepared, other departments in the organization use the schedule to prepare their own budgets. Without distribution instructions, someone who needs a particular Budget manual schedule might be overlooked. Schedule of activities for the development and adoption Budget Planning of the budget. It should include a list of dates indicating Calendar when specific information is to be provided to others by

each information source. The preparation of a master budget usually takes several months. For instance, many firms start the budget for the next calendar year in September, anticipating its completion by the first of December. Because all of the individual departmental budgets are based on forecasts prepared by others and the budgets of other departments, a planning calendar is essential to integrate the entire process. Intentional underestimation of revenues and/or overestimation of expenses; also called budget slack. This must be avoided if a budget is to have its desired effects. Misstating projections of costs and revenues for this purpose is behavior that is both dysfunctional and Budgetary Slack unethical. Process of expressing quantified resource requirements (amount of capital, amount of material, number of people) Budgeting into time-phased goals and milestones. Tendency of consumers of a material or product in short supply to buy more than they need in the immediate Bullwhip effect future. Thorough rethinking of all business processes, job definitions, management systems, organizational structure, work flow, and underlying assumptions and beliefs. BPR's main objective is to break away from old ways of working, and effect radical (not incremental) redesign of processes to achieve dramatic improvements Business process in critical areas (such as cost, quality, service, and reengineering response time) through the in-depth use of information (BPR) technology. Also called business process redesign Process of making long-term planning decisions for capital investments. There are typically two types of investment decisions: (1) Selecting new facilities or expanding existing facilities. Examples include: (a) investments in long-term assets such as property, plant, and equipment; and (b) resource commitments in the form 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 bookkeeping system with a computerized system and replacing an inefficient lathe with one that is numerically controlled. As such, capital budgeting decisions are a key factor in the long-term profitability of a firm. To make wise investment decisions, managers need tools at their disposal that will Capital guide them in comparing the benefits and costs of various Budgeting investment alternatives. Many techniques used for

evaluating investment proposals are widely available. They include payback, Accounting Rate of Return, Internal Rate of Return and the Net Present Value method. In marketing, carrying cost refers to the total cost of holding inventory. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to perishibility, shrinkage and insurance.[1] When there are no transaction costs for shipment, carrying costs are minimized when no excess inventory is held at all, as in a Just In Time production system.[1] Excess inventory can be held for one of three reasons. Cycle stock is held based on the re-order point, and defines the inventory that must be held for production, sale or consumption during the time between re-order and delivery. Safety stock is held to account for variability, either upstream in supplier lead time, or downstream in customer demand. Psychic stock is held by consumer retailers to provide Carrying cost consumers with a perception of plenty. Budget for cash planning and control that presents expected cash inflow and outflow for a designated time period. The cash budget helps management keep cash balances in reasonable relationship to its needs. It aids in avoiding idle cash and possible cash shortages. The cash budget typically consists of four major sections: (1) receipts section, which is the beginning cash balance, cash collections from customers, and other receipts; (2) disbursement section comprised of all cash payments made by purpose; (3) cash surplus or deficit section showing the difference between cash receipts and cash payments; and (4) financing section providing a detailed account of the borrowings and repayments expected Cash Budget during the period. Statistical measure of Goodness-Of-Fit. It measures how good the estimated regression equation is, designated as r2 (read as r-squared). The higher the r-squared, the more confidence one can have in the equation. Statistically, the coefficient of determination represents the proportion of the total variation in the y variable that is Coefficient of explained by the regression equation. It has the range of Determination values between 0 and 1. It is computed as A strategy to minimize the effect of disturbances and to allow for timely resumption of activities. The aim of Contingency contingency planning is to minimize the effects of a Planning disruption on an organization. A disruption is any security

Continuous Budget Continuous replenishment program (CRP) Contribution Margin Controllability

violation, man-made or natural, intentional or accidental, that affects normal operations Budget that rolls ahead each month or period without regard to the fiscal year so that a twelve-month or other periodic forecast is always available. Method in which a budget established at the beginning of an accounting period is continually amended to reflect variances that arise due to changing circumstances. Vendor managed inventory (VMI) arrangement in which either the vendor continuously monitors a customer's inventory or customer supplies current inventory data, so that the vendor can make timely shipments to maintain the customer's inventory at agreed upon levels. A cost accounting concept that allows a company to determine the profitability of individual products. Feature of a system which allows a user to have immediate control over what the system does. Variable costs such as direct materials, direct labor, and variable overhead that are usually considered controllable by the department manager. Further, a certain portion of fixed costs can also be controllable. For example, certain advertising spent specifically for a given department would be an expense controllable by the manager of that department. Advertising expenses that benefit many departments or products are, however, Noncontrollable Costs. Expenditures that are subject to the discretion of a manager and, hence, can be kept within predefined limits. Cost of moving from one kind of equipment or production process to another. Conversion cost is high when converting from a manual system to a computerized system. It includes the cost of new equipment plus training. Collection of costs in an organized fashion by means of a cost accounting system. There are two primary approaches to cost accumulation: Job Order and Process Costing. Under a job order system, the three basic elements of manufacturing costs-direct materials, direct labor, and factory overhead-are accumulated according to assigned job numbers. Under a process cost system, manufacturing costs are accumulated according to processing department or cost center. Factor that has a direct cause-effect relationship to a cost, such as direct labor hours, machine hours, beds occupied, computer time used, flight hours, miles driven,

Controllable Costs Controllable costs

Conversion Cost

Cost Accumulation Cost Driver

or contracts. Management and control of activities to help set enterprise strategies and to determine an accurate Cost product and service cost, improve business processes, Management eliminate waste, identify cost drivers, and plan operations. A cost object is a tangible input for a product manufactured/Service provided, like labor or material. For example a cloth manufacturing firm requires some amount of predetermined labor and predetermined raw material for any amount of cloth being manufactured. The cost of employing labor can be directly fixed as per man per hour or per man per day per hour per minute per annum, so the labor is a cost object as you can directly associate cost with it. Similarly the raw material like cotton or threads or fabric can be another cost object. Other examples may include services taken by another firm, for example a transportation company/ courier company can offer some service to all customers at a fixed rate. so the cost can be directly associated with it and the company/service can be then called as cost Cost object object. The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and Cost Of Goods can be deducted from revenue to calculate a companys Sold COGS gross margin. Also referred to as cost of sales. Grouping of individual costs. Subsequent allocations are made of cost pools rather than of individual costs. Costs are often pooled by departments, by jobs, or by behavior pattern. For example, overhead costs are accumulated by service departments in a factory and then allocated to production departments before multiple departmental overhead rates are developed for product costing Cost Pool purposes. Limited number (usually between 3 to 8) of characteristics, conditions, or variables that have a direct and serious impact on the effectiveness, efficiency, and viability of an organization, program, or project. Activities associated with CSF must be performed at the highest possible level of excellence to achieve the intended Critical success overall objectives. Also called key success factors (KSF) factors (CSF) or key result areas (KRA).

Cross subsidization is the practice of charging higher prices to one group of consumers in order to subsidize lower prices for another group. State trading enterprises with monopoly control over marketing agricultural exports are sometimes alleged to cross subsidize, but lack of Cross transparency in their operations makes it difficult if not subsidization impossible to determine if that is the case. Data theft is a growing problem primarily perpetrated by office workers with access to technology such as desktop computers and hand-held devices capable of storing digital information such as flash drives, iPods and even digital cameras. Since employees often spend a considerable amount of time developing contacts and confidential and copyrighted information for the company they work for they often feel they have some right to the information and are inclined to copy and/or delete part of it when they leave the company, or misuse it while they Data theft are still in employment. 1. Cost that is different for each available alternative. 2. Difference between the costs of two or more alternatives. Differential cost 3. Alternative term for marginal cost. Work directly involved in making the product. Examples of direct labor costs are the wages of assembly workers on an assembly line and the wages of a machine tool operator in a machine shop. Direct labor is an Direct Labor inventoriable cost. Schedule for expected labor cost. Expected labor cost is dependent upon expected production volume (production budget). Labor requirements are based on production volume multiplied by direct labor-hours per unit. Direct labor-hours needed for production are then multiplied by direct labor cost per hour to derive budgeted direct labor costs. For example, assume budgeted production of 790 Direct Labor units, direct labor-hours per unit of 5, and direct labor cost Budget per hour of $5. The expected labor cost equals: All the material that becomes an integral part of the finished product. Examples are the steel used to make an automobile and the wood to make furniture. Direct materials are charged to work-in-process as an Direct Material inventoriable cost. All the material that becomes an integral part of the finished product. Examples are the steel used to make an automobile and the wood to make furniture. Direct materials are charged to work-in-process as an Direct Material inventoriable cost.

Cost such as that of advertising, preventive maintenance, research and development, that a manager may eliminate or postpone without disrupting the firm's operations or affecting its productive capacity in the short run. A discretionary cost is usually specific in amount, or is determined by a formula such as a certain percentage of Discretionary sales revenue. Also called discretionary expenditure or cost managed cost. Actual sacrifice involved in performing an activity, or following a decision or course of action. It may be expressed as the total of opportunity cost (cost of employing resources in one activity than the other) and Economic cost accounting costs (the cash outlays). Transmission of business transactions from one company's computer to another company's computer. Transmission is achieved through an electronic communication network that uses translation software to convert transactions from a company's internal format to a standard EDI format. Companies that participate in EDI are referred to as trading partners. Trading partners may be involved in on-line banking, on-line retailing, and electronic funds transfer. There are paperless Electronic Data transactions in an electronic format. In the case of EDI, Interchange the auditor should be cognizant of the possible impact on (EDI) the gathering of evidential matter. Placing the authority to make critical decisions with those Employee closest to the problem, for example, those in the work Empowerment area directly affected.

Engineered Costs

Costs having a clear relationship to output. Direct materials cost is an example. Expenditures incurred to prevent, contain, or remove environmental contamination. Such costs are generally expensed. However, in the following cases only, the company may elect to either expense or defer the costs: (1) the expenditures either extend the life or capacity of the asset or increase the property's safety; (2) the expenditures are made to get the property ready for sale; and (3) the expenditures prevent or lessen environmental Environmental contamination that may result from future activities of Costs property owned. Number of units of an item that could have been produced with the given material and processing costs in Equivalent units an accounting period. This measure is used as a of production benchmark in allocating departmental costs.

Maximum amount a decision maker is willing to pay for perfect information. It is the difference between expected profit under conditions of Uncertainty and Expected Value With Perfect Information. For example, assume that the expected value of perfect information is calculated as Expected value $2.50. There is no sense in paying more than $2.50 for of perfect the perfect forecast; to do so would lower the expected information profit. Limit to the amount anticipated as an expense to be Expense Budget incurred in a future period. Forecasting technique that uses a weighted moving average of past data as the basis for a forecast. The procedure gives heaviest weight to more recent information and smaller weight to observations in the more distant past. The reason for this is that the future may be more dependent upon the recent past than on the distant past. The method is effective when there is random demand and no seasonal fluctuations in the data. It is a popular technique for short-run forecasting by business forecasters. Each new forecast is based on the previous forecast plus a percentage of the difference Exponential between that forecast and the actual value of the time Smoothing series at that point. Reporting of the financial position and performance of a Financial firm through financial statements issued to external users Accounting on a periodic basis. Long-term profit planning aimed at generating greater Financial return on assets, growth in market share, and at solving planning foreseeable problems. 1. Accounting: Method of inventory valuation based on the assumption that goods are sold or used in the same chronological order in which they are bought. Hence, the cost of goods purchased first (first-in) is the cost of goods sold first (first-out). During periods of high inflation-rates, the FIFO method yields higher value of the ending inventory, lower cost of goods sold, and a higher gross profit (hence the higher taxable income) than that yielded by the last-in first-out (LIFO) method. The 'in' office basket is an illustration of FIFO method. 2. Banking: Method which assumes that the first-in funds (on deposit for the longest period) are withdrawn first. Hence interest on the account balance will be computed on the basis of First-in, first-out the interest rate applicable at the time of its earliest (FIFO) deposited funds.

Fixed (Factory) Portion of total factory overhead that remains constant Overhead over a given time period without regard to changes in the

volume of activity. Examples of fixed overhead are depreciation, rent, property taxes, insurance, and salaries of production supervisors. Statement of projected revenue and expenditure based on various levels of production. It shows how costs vary with different rates of output or at different levels of sales Flexible Budget volume. Stock analysts use various forecasting methods to determine future stock price movements, earnings, etc. Economists use forecasting techniques in order to Forecasting determine future economic trends. Future-oriented is a term used in finance and economics to describe agents that discount the future lightly and so have a low discount rate, or equivalently a high discount factor. Conversely, present-oriented agents discount the future heavily and so have high discount rates, or Future-oriented equivalently a low discount factor. Consistency or agreement of actions with organizational goals. It identifies the managerial principle that all of a firm's subgoals must be congruent to achieve one central Goal Congruence set of objectives. Summation of numbers having no practical meaning as a control precaution; used by auditors primarily in a computer application. The purpose is to identify whether a record has been lost or omitted from processing. For example, check numbers may be summed to get a hash total. If the total of the check numbers processed does not agree with the hash total, a discrepancy exists, and Hash Total investigation is required to uncover the error. Pyramid-like ranking of ideas, individuals, items, etc., where every level (except the top and the bottom ones) has one higher and one lower neighbor. Higher level Hierarchy means greater authority, importance, and influence. Past-periods data, used usually as a basis for forecasting Historical data the future data or trends.

Homogeneous Cost Pool

A group of overhead costs associated with activities that can use the same Cost Driver Condition found in a type of scatter graph; also known as constant variance. It is one of the assumptions required in a Regression Analysis in order to make valid statistical inferences about population relationships. Homoscedasticity requires that the standard deviation and variance of the error terms () are constant for all x and that the error terms are drawn from the same population. This indicates that there is a uniform scatter Homoscedasticity or dispersion of data points about the regression line. If

Imputed cost Incremental budgeting Incurred cost

Internal Control

Internal Reporting

the assumption does not hold , the accuracy of the b coefficient is open to question. Expense not incurred directly, but actually borne. For example, a person who owns a home debt-free has an imputed rent expense equal to the amount of interest that could be earned on the proceeds from the sale of the home if the home were sold. Forecast of fixed overhead costs, computed by adding or subtracting a predetermined percentage from the historical costs (or current or past budgets). Cost identified through accrual basis accounting. Plan of organization and all the methods and measures used by a business to monitor assets, prevent fraud, minimize errors, verify the correctness and reliability of accounting data, promote operational efficiency, and ensure that established managerial policies are followed. Internal control extends to functions beyond the accounting and financial departments. Accounting controls encompass safeguarding assets and the accuracy of financial records. They are designed to give assurance that transactions are properly authorized and are recorded to allow for financial statement preparation in accordance with Gaap. Further, accounting controls deal with maintaining accountability for assets, proper authorization to access assets, and periodic reconciliations between recorded assets on the books and the physical assets that exist. Administrative or managerial controls deal with operational efficiency, adherence to managerial policies, and management's authorization of transactions. Examples are quality control and employee performance reports. Accounting and administrative controls are not mutually exclusive since some procedures and records falling under accounting control may also be used for administrative control. An essential ingredient in maintaining internal control is the internal audit function. The CPA reports on the adequacy of existing controls within the entity. The external auditor must carefully evaluate the internal control system as a basis to determine the degree of audit procedures necessary in the circumstances. Financial data or other information accumulated by one individual to be communicated to another within the business entity. The information assists others in the managerial decision-making process. Examples are expense reports, capital budgeting analysis, and other reports designed to guide management rather than inform

outsiders. Subsidiary record for work-in-process inventory under a job order production system. A separate cost sheet is kept for each identifiable job, accumulating the direct materials, direct labor, and factory overhead assigned to that job as it moves through production. The form varies Job Cost Sheet according to the needs of the company Accumulation of costs by specific jobs, contracts, or orders. This costing method is appropriate when direct costs can be identified with specific units of production. Job order costing is widely used by custom manufacturers such as printing, aircraft, construction, auto repair, and professional services. Job order costing keeps track of costs as follows: (1) direct material and direct labor are traced to a particular job; (2) costs not directly traceable-factory overhead-are applied to individual jobs, using a predetermined overhead rate. The overhead rate is equal to the budgeted annual overhead divided by the budgeted annual activity units (direct laborhours, machine-hours, etc.). At the end of the year, the difference between actual overhead and overhead applied is closed to cost of goods sold, if there is an immaterial difference. On the other hand, if a material difference exists, work-in-process, finished goods, and cost of goods sold are adjusted on a proportionate basis Job Order based on units or dollars at year-end for the deviation Costing between actual and applied overhead. Common manufacturing costs incurred prior to the point, referred to as the Split-Off Point, where Joint Products are identified as individual products. There are several methods of allocating joint costs to the joint products, including sales value and volume. See also Common Joint Costs Cost; Sell-Or-Process-Further Decision. A good example would be a car manufacturer that operates with very low inventory levels, relying on their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not arrive before nor after they are needed, rather they arrive just as they are needed. This inventory supply system represents a shift away from the older "just in case" strategy where producers carried large inventories in Just In Time - JIT case higher demand had to be met. Japanese word for card or ticket. It is essentially a Japanese information system for coordinating production orders and withdrawals from in-process inventory to Kanban realize just-in-time production. Originated from the use of

Life cycle cost

Logic bomb Long term assets

Malware

Managerial Accounting Manufacturing Cycle Time

Manufacturing overhead budget

cards to indicate a work station's need for additional parts. A basic kanban system includes a withdrawal kanban that states the quantity that a later process should withdraw from its predecessor, a production kanban that states the output of the preceding process, and a vendor kanban that tells a vendor what, how much, where, and when to deliver. Sum of all recurring and one-time (non-recurring) costs over the full life span or a specified period of a good, service, structure, or system. In includes purchase price, installation cost, operating costs, maintenance and upgrade costs, and remaining (residual or salvage) value at the end of ownership or its useful life. A logic bomb is a piece of code intentionally inserted into a software system that will set off a malicious function when specified conditions are met. For example, a programmer may hide a piece of code that starts deleting files (such as a salary database trigger), should they ever be terminated from the company. Balance sheet term for capital assets held for longer than one accounting period (usually a year) and shown at their book value. (MALicious softWARE) Software designed to destroy, aggravate and otherwise make life unhappy. See security suite, malvertising, crimeware, virus, worm, logic bomb, macro virus and Trojan. The key difference between managerial and financial accounting is that managerial accounting information is aimed at helping managers within the organization make decisions. In contrast, financial accounting is aimed at providing information to parties outside the organization. Delay from the moment the order is ready for setup to its completion. Sometimes called manufacturing lead time or throughput time. The manufacturing overhead budget show the expected manufacturing over head costs for the budget period. The budget distinguishes between variable and fixed overhead costs. Companies fluctuate with production volume on the basis of the following rates per direct labor hour: indirect materials $1.00, indirect labor $1.40, utilities $0.40, and maintenance $0.20. Thus, for 6,200 direct labor hours budgeted indirect materials are $6,200 (6,200 x $1), and budgeted indirect labor is $8,680 (6,200 x $1.40). The company recognizes that some maintenance is fixed. The amounts reported for fixed cost are assumed.

Manufacturing Resource Planning (Mrp-Ii)

Marginal cost

Master production schedule

Material Requirement Planning (MRP)

Integrated information system that steps beyond firstgeneration MRP to synchronize all aspects (not just manufacturing) of the business, including production, sales, inventories, schedules, and cash flows. MRP-II uses an MPS (master production schedule), which is a statement of the anticipated manufacturing schedule for selected items for selected periods. MRP also uses the MPS. Thus, MRP is a component of an MRP-II system. Increase or decrease in the total cost of a production-run, from making one additional unit of an item. It is computed in situations where breakeven point has been reached: the fixed costs have already been absorbed by the already produced items and only the direct (variable) costs have to be accounted for. Marginal costs are variable costs comprising of labor and material costs, plus an estimated portion of fixed costs (such as administration overheads and selling expenses). In firms where average costs are fairly constant, marginal cost is usually equal to average cost. However, in industries that require heavy capital investment (automobile plants, airlines, mines) and have high average costs, it is comparatively very low. The concept of marginal cost is of critical importance in resource allocation because, for optimum results, the management must concentrate its resources where the excess of marginal revenue over the marginal cost is maximum. Also called choice cost, differential cost, or incremental cost. A master production schedule (MPS) is a plan for production, staffing, inventory, etc.[1] It is usually linked to manufacturing where the plan indicates when and how much of each product will be demanded.[2] This plan quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods. Since an MPS drives much factory activity, its accuracy and viability dramatically affect profitability. Typical MPS's are created by software with user tweaking. Computer-based information system designed to handle ordering and scheduling of dependent-demand inventories (such as raw materials, component parts, and subassemblies that will be used in the production of a finished product). MRP is designed to answer three questions: what is needed, how much is needed, and when is it needed. The primary inputs of MRP are a bill of materials, which tells what goes into a finished product; a

master schedule, which tells how much finished product is desired and when; and an inventory-records file, which tells how much inventory is on hand or on order. This information is processed, using various computer programs to determine the net requirements for each period of the planning horizon. Outputs from the process include planned-order schedules, order releases, changes, performance-control reports, planning reports, and exception reports. Mission statements are documents that are intended to serve as a summary of a business's goals and values. Their contents often reflect the fact that they are utilized both as an internal performance enhancer and as a public relations tool. Mission statements serve several purposes, but at their core, they are usually intended as a means by which a business's ownership or management Mission attempt to attach meaning to an organization's operations Statement beyond profit and loss statements. Mixed cost Alternative term for semi-variable cost. Statistical analysis that describes the changes in a dependent variable, such as sunglass sales volumes, associated with changes in one or more independent variables, such as the average age of the residents of a market area. For example, a multiple-regression analysis might reveal a positive relationship between demand for sunglasses and various demographic characteristics (age, income) of the buyers-that is, demand varies directly with changes in their characteristics. Multiple Multiple regression thereby helps marketers to identify their best regression prospects Cost not subject to influence at a given level of managerial supervision. For instance, a manager's salary is not within the control of the manager himself. Rent of Noncontrollable the factory building is another example. See also Cost Controllable Cost. Product deterioration that is expected even under the best operating conditions. It is inherent and unavoidable in the short run. Costs of normal spoilage are allocated to the remaining good units in inventory. Management establishes a normal spoilage rate that is acceptable under a given combination of production factors. Normal Normal Spoilage spoilage is a cost of goods produced. A reasonable expectation of future income and expenses from property operations. Example: An operating budget was prepared each year for each hotel owned by the Operating Budget Reit. During the year, budget analysts would compare

Opportunity cost Outlay Cost

Payoff table

Period Cost

Preemption Prime Cost

Process Costing

actual financial performance to the budget to determine reasons for variances, especially underperformance, to identify problems that needed to be resolved. Benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost. Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays and their resulting profit or loss. These costs do not include forgone profits or benefits. For corporations, outlay costs for new projects will include start-up, production, maintenance and extraneous costs. Decision analysis tool that summarizes pros and cons of a decision in a tabular form. It lists payoffs (negative or positive returns) associated with all possible combinations of alternative actions (under the decision maker's control) and external conditions (not under decision maker's control). Also called payoff matrix. Expense that is not inventoriable; it is charged against sales revenue in the period in which the revenue is earned, also called period expense. Selling and general and administrative expenses are period costs. 1. Establishment of a prior claim. 2. Right to avail of an advantage or opportunity before others. 3. Appropriation or seizure of something belonging to, or needed or wanted by others. In manufacturing, Direct Material plus Direct Labor. It excludes overhead. See also Conversion Cost. Method that aggregates manufacturing costs by departments or by production processes. Total manufacturing costs are accumulated by major categories-direct materials, direct labor, and factory overhead applied. Unit cost is determined by dividing the total costs charged to a cost center by the output of that cost center. Process costing is appropriate for companies that produce a continuous mass of like units through a series of operations or processes-generally used in such industries as petroleum, chemicals, oil refinery, textiles, and food processing. A Cost of Production Report is a cost sheet used for process costing that summarizes the total cost charged to a department and the allocation between the ending work-in-process inventory and the

Production Budget

Program Alteration

Project budget

Quantitative Methods RAID

units completed and transferred to the next department or finished goods inventory. The output of a processing department during a given period is measured in terms of equivalent units of production which is the expression of the physical units of output in terms of doses or amount of work applied thereto. In computing the unit cost for a processing center, when a beginning inventory of work-inprocess exists, two specific assumptions about the flow of cost are used-Weighted Average and FIFO. Under weighted average, the costs in the beginning inventory are averaged with the current period's costs to determine one average unit cost for all units passing through the cost center in a given month. Under FIFO, costs in the beginning inventory are not mingled with the current period's costs but transferred out as a separate batch of goods at a different unit cost than units started and completed during the period. Schedule for expected units to be produced. It sets forth the units expected to be manufactured to satisfy budgeted sales and inventory requirements. Expected production volume is determined by adding desired ending inventory to planned sales and then subtracting beginning inventory. There are several causes of alteration to the user program, including extreme environmental conditions, Electromagnetic Interface (EMI), improper grounding, improper wiring connections, and unauthorized tampering. If you suspect the memory has been altered, check the program against a previously saved program on an EEPROM, UVPROM or Flash EPROM module he sum established by the owner as available for the entire project, including the construction budget, land costs, equipment costs, financing costs, compensation for professional services, contingency allowance, and other similar established or estimated costs. Collection of mathematical and statistical methods used in the solution of managerial and decision-making problems, also called operations research (OR) and management science. There are numerous tools available under these headings such as Linear Programming (LP), Economic Order Quantity (Eoq), Learning Curve theory, Pert and Regression Analysis. RAID, an acronym for Redundant Array of Inexpensive Disks or Redundant Array of Independent Disks, is a technology that allows high levels of storage reliability

Regression Analysis

from low-cost and less reliable PC-class disk-drive components, via the technique of arranging the devices into arrays for redundancy. This concept was first defined by David A. Patterson, Garth A. Gibson, and Randy Katz at the University of California, Berkeley in 1987 as Redundant array of inexpensive disks.[1] Marketers representing industry RAID manufacturers later reinvented the term to describe a Redundant array of independent disks as a means of dissociating a "low cost" expectation from RAID technology Statistical technique used to establish the relationship of a dependent variable, such as the sales of a company, and one or more independent variables, such as family formations, Gross Domestic Product per capita income, and other Economic Indicators. By measuring exactly how large and significant each independent variable has historically been in its relation to the dependent variable, the future value of the dependent variable can be predicted. Essentially, regression analysis attempts to measure the degree of correlation between the dependent and independent variables, thereby establishing the latter's predictive value. For example, a manufacturer of baby food might want to determine the relationship between sales and housing starts as part of a sales forecast. Using a technique called a scatter graph, it might plot on the X and Y axes the historical sales for ten years and the historical annual housing starts for the same period. A line connecting the average dots, called the regression line, would reveal the degree of correlation between the two factors by showing the amount of unexplained variation-represented by the dots falling outside the line. Thus, if the regression line connected all the dots, it would demonstrate a direct relationship between baby food sales and housing starts, meaning that one could be predicted on the basis of the other. The proportion of dots scattered outside the regression line would indicate, on the other hand, the degree to which the relationship was less direct, a high enough degree of unexplained variation meaning there was no meaningful relationship and that housing starts have no predictive value in terms of baby food sales. This proportion of unexplained variations is termed the coefficient of determination, and its square root the Correlation Coefficient. The correlation coefficient is the ultimate yardstick of regression analysis: a correlation coefficient of 1 means the relationship is direct-baby food and

housing starts move together; -1 means there is a negative relationship-the more housing starts there are, the less baby food is sold; a coefficient of zero means there is no relationship between the two factors. 1. Cost or expense attributable or chargeable to one or more activities on the basis of benefits received or some other logical relationship. 2. Differential or quantifiable future cost that must be considered in making a particular Relevant cost decision. The deliberate damage to equipment or information. For example, Web site defacement is an example of Sabotage information sabotage. Operating plan for a period expressed in terms of sales volume and selling prices for each class of product or service. Preparation of a sales budget is the starting point in budgeting since sales volume influences nearly all Sales Budget other items. Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends, and interest rates. In the preparation of a comprehensive marketing plan, sales forecasts help the marketer develop a marketing budget, allocate marketing resources, and monitor the Sales forecast competition and the product environment. Internal control concept in which individuals do not have responsibility for incompatible activities. For example, the record-keeping or authorization function should be divorced from the physical custody of the asset to guard against misuse. The person who approves invoices for payment should not be responsible for writing and signing checks. An auditor should note situations where one individual's responsibility extends improperly over related areas, i.e., the person maintaining inventory records has physical possession of the merchandise. Segregation of duties assists in detecting errors and deterring improper Segregation of activities. The smaller the organization, the more difficult Duties this practice becomes. In Linear Programming (LP) a technique for determining how the optimal solution to a linear programming problem changes if the problem data such as objective function coefficients or right-hand side values change; also called post-optimality analysis. To an alert accountant, the optimal solution not only provides answers-given Sensitivity assumptions about resources, capacities, and prices in Analysis the problem formulation-but should raise questions about

Separable Costs

Simple Regression Split off point

Standard cost

Static Budget

Step cost

Strategic plan

Sunk cost

what would happen if conditions should change. Some of these changes might be imposed by the environment, such as changes in resource costs and market conditions. Some, however, represent changes that the manager can initiate, such as enlarging capacities or adding new activities Costs incurred beyond the split-off point and identifiable with specific products. Regression analysis that involves one independent variable. For example, total factory overhead is related to one activity variable (either direct labor-hours or machinehours). Also, the demand for automobiles is a function of its price only Juncture of production where Joint Products become individually identifiable. Estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions (where special or extraordinary factors, that may affect performance, are absent). Standard costs are used as target-costs (or basis for comparison with the actual costs), and are developed from historical data analysis or from time and motion studies. They almost always vary from actual costs, because every situation has its share of unpredictable factors. A type of budget that incorporates anticipated values about inputs and outputs that are conceived before the period in question begins. When compared to the actual results that are received after the fact, the numbers from static budgets are often quite different from the actual results. 1. Fixed cost that increases to a new level in step with the significant changes in activity or usage. 2. Cost that is relatively fixed over a small volume or range of activities but is variable over a large range or volume. Broadly-defined plan aimed at creating a desired future. In contrast, a long-term plan is aimed at meeting estimated future needs, a short-term plan at meeting current or immediate needs, and a tactical plan at realizing interim objectives that lead to the goal(s) of a strategy. See also strategic business plan. Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected

cash flows and not on how much money was spent in drilling it. Also called embedded cost, prior year cost, stranded cost, or sunk capital.

Supervariable Costing

Treats only direct materials as the only variable cost. Method used in the analysis of product design that involves estimating a target cost, via a desired profit and sales price, and then designing the product/service to meet that cost. This method precedes Kaizen costing. The Japanese concept of Kaizen is relevant to target costing. A policy of seeking continuous improvement in all phases of company activities facilitates cost reduction, Target Costing often through numerous minor changes. Approach to continuous improvement (reducing operating expenses and inventory and increasing throughput) based on a five-step procedure: (1) identifying constraints, (2) exploiting the binding constraints, (3) subordinating everything else to the decisions made in the second step, (4) increasing capacity of the binding constraints, and (5) repeating the process when new binding constraints are identified. It seeks to identify a company's constraints or bottlenecks and exploit them so Theory of that throughput is maximized and inventories and Constraints operating costs are minimized.

Throughput costing

Time-series analysis

Trade-Off

Transferred-in Costs Trojan horse

Method of costing a product where only the unit-level direct costs are assigned to the product. Use of historical data and mathematical techniques to model the historical path of a price, demand for a good, or consumption. Time series analysis is based on the premise that by knowing the past, the future can be forecast. Giving up one advantage in order to gain another. For example, a trade-off may be realized by taking a financial loss in order to gain a tax deduction that will lower total tax liability. Costs of processing a product or performing a service from a prior department to the current department. The costs usually occur under a Process Costing system. Consider two processing departments in a chainDepartment A and Department B. Transferred-in costs would be the costs attached to partially completed units transferred in from Department A. A Trojan, sometimes refered to as a Trojan horse, is nonself-replicating malware that appears to perform a desirable function for the user but instead facilitates

unauthorized access to the user's computer system. The term is derived from the Trojan Horse story in Greek mythology.

Unit Activities

Level Activities performed each time a unit is produced; such

activities vary with the number of units produced. 1. Assessment of an action, decision, plan, or transaction to establish that it is (1) correct, (2) complete, (3) being implemented (and/or recorded) as intended, and (4) delivering the intended outcome. Value-chain analysis looks at every step a business goes through, from raw materials to the eventual end-user. The goal is to deliver maximum value for the least possible total cost.

Validation

Value Chain Value-Adding Cost

Cost of an operating activity that increases the market value of a product or service. Portion of total factory overhead that varies directly with Variable changes in volume. Examples of variable overhead are (Factory) indirect materials, supplies, indirect labor, and fuel and Overhead power. A method of budgeting in which all expenditures must be justified each new period, as opposed to only explaining the amounts requested in excess of the previous period's funding. For example, if an organization used ZBB, each department would have to justify its funding every year. That is, funding would have a base at zero. A department would have to show why its funding efficiently helps the organization toward its goals. ZBB is especially encouraged for Government budgets because expenditures can easily run out of control if it is Zero Based automatically assumed what was spent last year must be Budgeting - ZBB spent this year.