Cost_and_Managerial_Accounting_Definitions - 1 COURSE 1:...

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1 Copyright © 2003 by Gleim Publications, Inc. and Gleim Internet, Inc. All rights reserved. Duplication prohibited. C OURSE 1 : COST AND MANAGERIAL ACCOUNTING DEFINITIONS 9 pages of outline Note: There are no subunits in this study unit. This course consists of numerous definitions. These definitions occupy relatively few pages, but they require your careful analysis and deliberation. Please think about each definition after reading it. How would you explain the concept to a nonaccountant? Try to achieve a working knowledge of each definition. COST AND MANAGERIAL ACCOUNTING DEFINITIONS Abnormal spoilage is spoilage that is not expected to occur under normal, efficient operating conditions. The cost of abnormal spoilage should be separately identified and reported to management. Abnormal spoilage is typically treated as a period cost (a loss) because of its unusual nature. Absorption costing (sometimes called full absorption costing) treats all manufacturing costs as product costs. These costs include variable and fixed manufacturing costs whether direct or indirect. Thus, fixed manufacturing overhead is inventoried. Compare with variable costing. Activity-based costing “identifies the causal relationship between the incurrence of cost and activities, determines the underlying driver of the activities, establishes cost pools related to individual drivers, develops costing rates, and applies cost to product on the basis of resources consumed (drivers)” (SMA 2A). Actual costing is based on actual rates and quantities for indirect as well as direct costs. Applied (absorbed) overhead is factory (manufacturing) overhead allocated to products or services, usually on the basis of a predetermined rate. Overhead is over- or underapplied (absorbed) when overhead charged is greater (less) than overhead incurred. Avoidable costs are those that may be eliminated by not engaging in an activity or by performing it more efficiently. Backflush costing is often used with a just-in-time (JIT) inventory system. It delays costing until goods are finished. Standard costs are then flushed backward through the system to assign costs to products. The result is that detailed tracking of costs is eliminated. The system is best suited to companies that maintain low inventories because costs then flow directly to cost of goods sold.
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Course 1: Cost and Managerial Accounting Definitions 2 Copyright © 2003 by Gleim Publications, Inc. and Gleim Internet, Inc. All rights reserved. Duplication prohibited. Benchmarking (also called competitive benchmarking or best practices) compares one’s own product, service, or practice with the best known similar activity. The objective is to measure the key outputs of a business process or function against the best and to analyze the reasons for the performance difference. Benchmarking applies to services and practices as well as to products and is an ongoing systematic process. It entails both quantitative and qualitative measurements that allow both an internal and an external assessment. Breakeven analysis
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Cost_and_Managerial_Accounting_Definitions - 1 COURSE 1:...

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