Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Absorption costing
A product-costing method that assigns all manufacturing costs to a product: direct materials, direct labour, variable overhead, and fixed overhead.

Acceptable quality level (AQL)
An approach to quality control that permits or allows defects to occur provided that they do not exceed a predetermined level.

Accounting rate of return
The rate of return obtained by dividing the average accounting net income by the original investment (or by average investment).

Accounting Standards Board
Establishes financial accounting standards, including the nature of inputs and the rules and conventions governing financial accounting processes.

Activity attributes
Nonfinancial and financial information items that describe individual activities.

Activity-based budgeting system
In activity-based budgeting, the workload (demand) for each activity is estimated and the resources required to sustain this workload are established.



Activity-based control systems
Control systems that focus on processes and use both financial and nonfinancial performance measures.

Activity-based costing (ABC)
A cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign costs to cost objects.

Activity-based costing (ABC) system
A cost system that first traces costs to activities and then traces costs from activities to products.

Activity-based cost management information system
An improved management accounting information system based on the principles of activity-based management and activity-based costing.

Activity-based management
A systemwide, integrated approach that focuses management's attention on activities with the objective of improving customer value and the profit achieved by providing this value. It includes driver analysis, activity analysis, and performance evaluation, and draws on activity-based costing as a major source of information.

Activity-based management (ABM) accounting system
An accounting system that emphasizes the use of activities for assigning and managing costs.



Activity capacity
The number of times an activity can be performed.

Activity dictionary
A list of activities described by specific attributes, such as name, definition, classification as primary or secondary, and activity driver.

Activity drivers
Factors that measure the consumption of activities by products and other cost objects.

Activity flexible budgeting
The prediction of what activity costs will be as activity usage changes.

Activity inputs
The resources consumed by an activity in producing its output (the factors that enable the activity to be performed).

Activity output
The result or product of an activity.



Activity output measure
The number of times an activity is performed. It is the quantifiable measure of the activity output.

Activity reduction
Decreasing the time and resources required by an activity.

Activity selection
The process of choosing among sets of activities caused by competing strategies.

Activity sharing
Increasing the efficiency of necessary activities by using economies of scale.

Activity value analysis
The process of identifying, describing, and evaluating the activities an organization performs.

Activity volume variance
The difference between the actual activity capacity acquired and the capacity that should be used.



Actual costing
An approach that assigns actual costs for direct materials, direct labour, and overhead to products.

Adjusted cost of goods sold
The cost of goods sold after all adjustments for overhead variance are made.

Administrative costs
All costs associated with the general administration of the organization that cannot be reasonably assigned to either marketing or production.

Aesthetics
A quality attribute that is concerned with the appearance of tangible products (e.g., style and beauty) as well as the appearance of the facilities, equipment, personnel, and communications materials associated with services.

Allocation
Assignment of indirect costs to cost objects.

Annuity
A series of future cash flows.

Applied overhead
Overhead assigned to production using predetermined rates.

Appraisal costs
Costs incurred to determine whether products and services are conforming to requirements.






B

Balanced scorecard
A strategic performance measurement framework that incorporates a balanced mix of financial and nonfinancial measures for internal processes, customer satisfaction, financial performance, and learning and growth.

Base period
A prior period used to set the benchmark for measuring productivity changes.

Batch-level activities
Activities that are performed each time a batch is produced.

Benchmarking
An approach that uses the best practices as the standard for evaluating activity performance.

Best-fitting line
The line that fits a set of data points the best, in the sense that the sum of the squared deviations of the data points from the line is the smallest.

Binding constraints
Constraints whose resources are fully utilized.



Bottom-up budgeting
A participative budgeting process that allows managers considerable input into the budget levels and processes.

Breakeven point
The point where total sales revenue equals total costs; the point of zero profits.

Budget committee
A committee responsible for setting budgetary policies and goals, reviewing and approving the budget, and resolving any differences that may arise in the budgetary process.

Budget director
The individual responsible for coordinating and directing the overall budgeting process.

Budgetary slack
The process of padding the budget by overestimating costs and underestimating revenues.

Budgets
Plans of action expressed in financial terms.

Business excellence model
A performance measurement framework that emphasizes total quality management and consists of nine dimensions: leadership, people management, policy and strategy, resources, processes, people satisfaction, customer satisfaction, impact on society, and business results.






C

Capital budgeting
The process of making capital investment decisions.

Capital cost allowances (CCAs)
Deduction for Canadian income tax purposes related to the capital cost of fixed assets.

Capital investment decisions
The process of planning, setting goals and priorities, arranging financing, and identifying criteria for making long-term investments.

Carrying costs
The costs of holding inventory.

Cash budget
A detailed plan that outlines all sources and uses of cash.

Causal factors
Activities or variables that invoke service costs. Generally, it is desirable to use causal factors as the basis for allocating service costs.



Centralized decision making
A system in which decisions are made at the top level of an organization and local managers are given the charge to implement them.

Certified General Accountant (CGA)
An accountant who holds the CGA designation after satisfying the examination and practice requirements. CGAs are found both in public practice and in private- and public-sector organizations.

Certified Management Accountant (CMA)
An accountant who holds the CMA designation after satisfying the entrance examination, the professional program, and experience requirements. CMAs are found primarily in private- and public-sector organizations.

Chartered Accountant (CA)
An accountant who holds the CA designation after satisfying the examination and public practice requirements. CAs are found in both public practice and private and public sector organizations.

Coefficient of correlation
The square root of the coefficient of determination, which is used to express not only the degree of correlation between two variables but also the direction of the relationship.

Coefficient of determination
The percentage of total variability in a dependent variable (e.g., cost) that is explained by an independent variable (e.g., activity level). It assumes a value between 0 and 1.



Committed fixed costs
Costs incurred for the acquisition of long-term activity capacity, usually as the result of strategic planning.

Committed resources
Resources that are purchased in advance of usage. These resources may or may not have unused (excess) capacity.

Common costs
The costs of resources used in the output of two or more services or products.

Common fixed expenses
Fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment.

Compounding of interest
Paying interest on interest.

Constraint set
The collection of all constraints that pertain to a particular optimization problem.



Constraints
Mathematical expressions that express resource limitations.

Consumption ratio
The proportion of an overhead activity consumed by a product.

Contingency theory
A theory maintaining that no single best or universal management control and performance management system exists but that the appropriateness of control systems depends on various organizational and environmental factors.

Continuous budget
A moving 12-month budget with a future month added as the current month expires.

Continuous improvement
The process of searching for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and reducing costs.

Continuous replenishment
A system where a manufacturer assumes the inventory management function for the retailer.



Contribution margin
Sales revenue minus total variable cost or price minus unit variable cost.

Contribution margin ratio
Contribution margin divided by sales revenue. It is the proportion of each sales dollar available to cover fixed costs and provide for profit.

Control
The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance has deviated significantly from planned performance.

Control activities
Activities performed by an organization to prevent or detect poor quality (because poor quality may exist).

Control costs
Costs incurred from performing control activities.

Control limits
The maximum allowable deviation from a standard.



Controllable costs
Costs that managers have the power to influence.

Controllable factors
Factors that can be influenced by a manager's decisions and actions.

Controller
The chief accounting officer, who supervises all accounting departments and activities.

Conversion cost
The sum of direct labour cost and overhead cost.

Cost
The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization.

Cost assignment
The process of associating the costs, once measured, with the units produced.



Cost behaviour
The way in which a cost changes in relation to changes in activity usage.

Cost centre
A responsibility centre in which a manager is responsible only for costs.

Cost formula
The linear function Y = F + VX, where Y = Total mixed cost, F = Fixed cost, V = Variable cost per unit of activity, and X = Activity level.

Cost measurement
The act of determining the dollar amounts of direct materials, direct labour, and overhead used in production.

Cost object
Any item, such as products, departments, projects, activities, and so on, for which costs are measured and assigned.

Cost of goods manufactured
The total cost of goods completed during the current period.



Cost of goods sold
The cost of direct materials, direct labour, and overhead attached to the units sold.

Cost of goods sold budget
The estimated costs for the units sold.

Cost reconciliation
The final section of the production report and the section that compares the costs to account for with the costs accounted for to ensure that they are equal.

Costs of quality
Costs incurred because poor quality may exist or because poor quality does exist.

Cost-volume-profit graph
A graph that depicts the relationships among costs, volume, and profits. It consists of a total revenue line and a total cost line.

Currently attainable standards
Standards that reflect an efficient operating state; they are rigorous but attainable.

Customer perspective
A balanced scorecard viewpoint that defines the customer and market segments in which the business will compete.

Customer value
The difference between what a customer receives (customer realization) and what the customer gives up (customer sacrifice).

Cycle time
The length of time required to produce one unit of a product.






D

Decentralization
The granting of decision-making freedom to lower operating levels.

Decentralized decision making
A system in which decisions are made and implemented by lower-level managers.

Decision making
The process of choosing among competing alternatives.

Decision model
A specific set of procedures that, when followed, produces a decision.

Defective product
A product or service that does not conform to specifications.

Degree of operating leverage (DOL)
A measure of the sensitivity of profit change to changes in sales volume. It measures the percentage change in profits resulting from a percentage change in sales.



Dependent variable
A variable whose value depends on the value of another variable. For example, Y in the cost formula Y = F + VX depends on the value of X.

Direct costs
Costs that can be easily and accurately traced to a cost object.

Direct fixed expenses
Fixed costs that are directly traceable to a given segment and, consequently, disappear if the segment is eliminated.

Direct labour
Labour that is traceable to the goods or services being produced.

Direct labour budget
A budget showing the total direct labour hours needed and the associated cost for the number of units in the production budget.

Direct materials
Materials that are traceable to the goods or services being produced.



Direct materials purchases budget
A budget that outlines the expected usage of materials for production and purchases of the direct materials required.

Direct method
A method that allocates service costs directly to producing departments. This method ignores any interactions that may exist among support departments.

Direct tracing
The process of identifying costs that are specifically or physically associated with a cost object.

Discount rate
The rate of return used to compute the present value of future cash flows.

Discounting models
Capital investment models that explicitly consider the time value of money in identifying criteria for accepting or rejecting proposed projects.

Discretionary fixed costs
Costs incurred for the acquisition of short-term capacity or services, usually as the result of yearly planning.



Double-loop feedback
Information about both the effectiveness of strategy implementation and the validity of assumptions underlying the strategy.

Driver analysis
The effort expended to identify those factors that are the root causes of activity costs.

Driver tracing
The use of drivers to assign costs to cost objects.

Drivers
Factors that cause changes in resource usage, activity usage, costs, and revenues.

Drum-buffer-rope (DBR) system
The TOC (theory of constraints) inventory management system that relies on the drum beat of the major constrained resources, time buffers, and ropes to determine inventory levels.

Drummer
The major binding constraint in an organization.

Durability
The length of time a product functions.

Dysfunctional behaviour
Individual behaviour that conflicts with the goals of the organization.






E

Economic order quantity (EOQ)
The amount that should be ordered (or produced) to minimize the total ordering (or setup) and carrying costs.

Economic value added (EVA)
A performance measure calculated by taking the after-tax operating profit minus the total annual cost of capital.

Electronic business (e-business)
Business transactions and information exchanges executed using information and communication technology.

Electronic commerce (e-commerce)
Buying and selling products using information and communication technology.

Electronic data interchange (EDI)
An inventory management method that allows suppliers access to a buyer's on-line database.

Employee empowerment
The authorization of operational personnel to plan, control, and make decisions without explicit authorization from middle and higher-level management.



Ending finished goods inventory budget
A budget that describes planned ending inventory of finished goods in units and dollars.

Equivalent units of output
Complete units that could have been produced given the total amount of manufacturing effort expended during the period.

Ethical behaviour
Choosing actions that are "right" and "proper" and "just." Our behaviour can be right or wrong, it can be proper or improper, and the decisions we make can be fair or unfair.

Expected activity capacity
Expected activity output for the coming year.

Expenses
E xpired costs.

External constraints
Limiting factors imposed on the firm from external sources (such as market demand).



External environment
External conditions that are largely uncontrollable by the organization, such as the economy and weather conditions.

External failure costs
Costs incurred because products fail to conform to requirements after being sold to outside parties.

External linkages
The relationship of a firm's activities within its segment of the value chain with those activities of its suppliers and customers.

External measures
Measures that relate to customer and shareholder objectives.






F

Facility-level activities
Activities that sustain a facility's general manufacturing process.

Failure activities
Activities performed by an organization or its customers in response to poor quality (poor quality does exist).

Failure costs
The costs incurred by an organization because failure activities are performed.

Favourable (F) variances
Variances produced whenever the actual amounts are less than the budgeted or standard allowances.

Feasible set of solutions
The collection of all feasible solutions.

Feasible solution
A product mix that satisfies all constraints.



Features (quality of design)
Characteristics of a product that differentiate functionally similar products.

Feedback
Information that can be used to evaluate or correct the steps being taken to implement a plan.

Feedback control
Control processes and mechanism focused on explaining past performance.

Feedforward control
Control processes and mechanism focused on planning for future performance.

FIFO costing method
A process-costing method that separates units in beginning inventory from those produced during the current period. Unit costs include only current-period costs and production.

Financial accounting information system
An accounting information subsystem which is concerned mainly with producing outputs for external users and which uses well-specified economic events as inputs and processes that meet certain rules and conventions.



Financial budgets
The portions of the master budget that include the cash budget, the budgeted balance sheet, the budgeted statement of cash flows, and the capital budget.

Financial measures
Measures expressed in dollar terms.

Financial perspective
A balanced scorecard viewpoint that describes the financial consequences of actions taken in the other three perspectives.

Financial productivity measure
A productivity measure in which inputs and outputs are expressed in dollars.

Fitness of use
The suitability of a product for carrying out its advertised functions.

Fixed activity rate
The fixed activity cost divided by the total capacity of the activity driver.



Fixed cost
Costs that, in total, are constant within the relevant range as the activity output varies.

Fixed overhead denominator variance
The difference between budgeted fixed overhead and applied fixed overhead.

Fixed overhead spending variance
The difference between actual fixed overhead and applied fixed overhead.

Flexible budget
A budget that can specify costs for a range of activity.

Flexible budget variance
The sum of price variances and efficiency variances in a performance report comparing actual costs to expected costs predicted by a flexible budget.

Flexible resources
Resources that are acquired as used and needed. There is no unused or excess capacity for these resources.



Functional-based control systems
Control systems that focus on functional organizational units and measure performance in financial terms.

Functional-based costing (FBC)
An approach for assigning costs of shared resources to products and other cost objects using only production or unit-level drivers.

Functional-based management (FBM) accounting system
An accounting information system that emphasizes the use of functional organizational units to assign and manage costs.

Future value
The value that will accumulate by the end of an investment's life if the investment earns a specified compounded return.






G

Gain sharing
Providing cash incentives for a company's entire workforce that relate to quality and productivity gains.

Goal congruence
The alignment of a manager's personal goals with those of the organization.

Goodness of fit
The degree of association between Y and X (cost and activity). It is measured by how much of the total variability in Y is explained by X.






H

Heterogeneity
One of the four qualities that distinguish services from products-the fact that there is a greater chance of variation in the performance of services than in the production of products.

Hidden quality costs
Opportunity costs resulting from poor quality.

High-low method
A method for fitting a line to a set of data points using the high and low points in the data set. For a cost formula, the high and low points represent the high and low activity levels. This method is used to break out the fixed and variable components of a mixed cost.

Homogeneous cost pool
A collection of overhead costs associated with activities that have the same process and the same level, and that can use the same activity driver to assign costs to products.






I

Ideal standards
Standards that reflect perfect operating conditions.

Incentive compensation
Monetary or nonmonetary rewards awarded to employees based on their meeting certain performance criteria.

Incentives
The positive or negative measures taken by an organization to induce a manager to exert effort toward achieving the organization's goals.

Independent projects
Projects that, if accepted or rejected, will not affect the cash flows of another project.

Independent variable
A variable whose value does not depend on the value of another variable. For example, in the cost formula Y = F + VX, the variable X is an independent variable.

Indirect costs
Costs that cannot be traced to a cost object.



Industrial value chain
The linked set of value-creating activities, from basic raw materials to end-use customers.

Industry volume variance
A difference in profit due to the difference between budgeted sales volume based on expected industry sales volume and budgeted sales volume based on actual industry sales volume.

Input tradeoff efficiency
The least-cost, technically efficient mix of outputs.

Inseparability
One of the four qualities that distinguish services from products-the fact that producers of services and buyers of services must usually be in direct contact for an exchange to take place.

Intangibility
One of the four qualities that distinguish services from products-the fact that buyers of services cannot see, feel, hear, or taste a service before it is bought.

Intercept parameter
The fixed cost, representing the point where the cost formula intercepts the vertical axis. In the cost formula Y = F + VX, F is the intercept parameter.



Internal business perspective
A balanced scorecard viewpoint that describes the internal processes needed to provide value for customers and owners.

Internal constraints
Limiting factors found within the firm (such as machine time availability).

Internal failure costs
Costs incurred because products and services fail to conform to requirements, where lack of conformity is discovered prior to external sale.

Internal linkages
Relationships among activities within a firm's value chain.

Internal measures
Measures that relate to the processes and capabilities that create value for customers and shareholders.

Internal rate of return (IRR)
The rate of return that equates the present value of a project's cash inflows with the present value of its cash outflows (i.e., it sets the net present value equal to zero). Also, the rate of return being earned on funds that remain internally invested in a project.



Internal value chain
The set of activities required to design, develop, produce, market, distribute, and service a product (the product could be a service).

Inventory
The money an organization spends in turning raw materials into throughput.

Investment centre
A responsibility centre in which a manager is responsible for revenues, costs, and investments.






J

Job-order costing system
A costing system in which costs are collected and assigned to units of production for each individual job.

Joint products
Products that are inseparable prior to a split-off point. All manufacturing costs up to the split-off point are joint costs.






K

Kaizen costing
Efforts to reduce the costs of existing products and processes.

Kaizen standard
An interim standard that reflects the planned improvement for a coming period.

Kanban system
An information system that controls production on a demand-pull basis through the use of cards or markers.

Keep-or-drop decisions
Relevant cost analyses that focus on keeping or dropping a segment of business.






L

Labour efficiency variance
The difference between the actual direct labour hours used and the standard direct labour hours allowed multiplied by the standard hourly wage rate.

Labour rate variance
The difference between the actual hourly rate paid and the standard hourly rate multiplied by the actual hours worked.

Lag measures
Outcome measures or measures of results from past efforts.

Lead measures
Factors that drive future performance. lead time For purchasing, the time to receive an order after it is placed. For manufacturing, the time to produce a product from start to finish.

Learning and growth (infrastructure) perspective
A balanced scorecard viewpoint that defines the capabilities an organization needs in order to create long-term growth and improvements.

Life cycle costs
All costs that are associated with the product for its entire life cycle.



Line positions
Positions that have direct responsibility for the basic objectives of an organization.

Linear programming
A method that searches among possible solutions until it finds the optimal solution.

Long run
A period of time in which all costs are variable.

Loose constraints
Constraints whose limited resources are not fully used by a product mix.






M

Make-or-buy decisions
Relevant cost analyses that focus on whether a component should be made internally or purchased externally.

Management Accounting Guidelines
A document published by CMA Canada to help management accountants fulfill their responsibilities; however, management accountants are under no obligation to follow any set of standards except as they relate to external reporting.

Management accounting information system
An information system that produces outputs using inputs as well as the processes needed to satisfy specific management objectives.

Management control
The process by which managers ensure that resources are obtained and used efficiently and effectively in accomplishing an organization's objectives.

Management control systems
Structures, resources, and processes that facilitate effective management control.

Managerial motivation
Drive and exertion of effort toward achieving an organization's objectives.



Manufacturing cycle effectiveness (MCE)
A measure of productive efficiency calculated as follows: processing time/(processing time + move time + inspection time + waiting time).

Margin
The ratio of net operating income to sales.

Margin of safety
The units sold or expected to be sold or sales revenue earned or expected to be earned above the breakeven volume.

Market share variance
A difference in profit due to the difference between the budgeted market share and the actual market share.

Marketing (selling) costs
The costs necessary to market and distribute a product or service.

Markup
The percentage applied to a base cost; it includes desired profit and any costs not included in the base cost.



Master budget
The collection of all area and activity budgets representing a firm's comprehensive plan of action.

Materials purchase price variance
The materials price variance based on materials purchased.

Materials usage variance
The difference between the direct materials actually used and the direct materials allowed for the actual output multiplied by the standard price.

Maximum transfer price
The transfer price that will make the buying division no worse off if an input is acquired internally.

Measurement criteria
Standards and benchmarks against which performance can be assessed.

Method of least squares
A statistical method to find a line that best fits a set of data. This method is used to break out the fixed and variable components of a mixed cost.



Minimum transfer price
The transfer price that will make the selling division no worse off if an output is sold internally.

Mixed cost
A cost that has both a fixed and a variable component.

Monetary compensation
Salaries, wages, cash bonuses, and other monetary rewards paid to employees.

Monetary incentives
Economic rewards used to motivate managers.

Multiple measures
More than one performance measure used to measure the achievement of each performance target.

Multiple-period quality trend report
A graph that plots quality costs (as a percentage of sales) against time.



Multiple regression
The use of the least-squares method to determine the parameters in a linear equation involving two or more explanatory variables.

Mutually exclusive projects
Projects that, if accepted, preclude the acceptance of competing projects.

Myopic behaviour
Managerial actions that improve budgetary performance in the short run at the expense of the long-run welfare of the program.






N

Net income
Operating income less income taxes.

Net present value (NPV)
The difference between the present value of a project's cash inflows and the present value of its cash outflows.

Nondiscounting models
Capital investment models that identify criteria for accepting or rejecting projects without considering the time value of money.

Nonfinancial measures
Measures expressed in nonmonetary units.

Noninventoriable (period) costs
Costs that are expensed in the period in which they are incurred.

Nonmonetary compensation
Benefits provided to employees in addition to monetary compensation, for example, prime office space, fancy titles, increased responsibilities and autonomy, the use of a company jet or car, expense accounts, awards, and club memberships.



Nonmonetary incentives
Psychological and social rewards used to motivate managers.

Nonproduction costs
Costs associated with the functions of selling and administration.

Nonunit-level activity drivers
Factors that measure the consumption of nonunit-level activities by products and other cost objects.

Nonunit-level drivers
Factors, other than the number of units produced, that measure the consumption of activities by cost objects.

Nonvalue-added activities
All activities other than those that are absolutely essential to remain in business.

Nonvalue-added costs
Costs that are caused either by nonvalue-added activities or by the inefficient performance of value-added activities.



Normal activity capacity
The average activity output for a given period.

Normal cost of goods sold
The cost of goods sold before adjustment for any overhead variance.

Normal costing
An approach that assigns the actual costs for direct materials and direct labour to products but uses a predetermined rate to assign overhead costs.






O

Objective function
The function to be optimized, usually a profit function; thus, optimization usually means maximizing profits.

Objective measures
Measures that can be readily quantified and verified.

Observable quality costs
Quality costs that are available from an organization's accounting records.

One-half rule
The rule that restricts the amount of CCA that can be claimed in the year of acquisition to one-half of the CCA rate for the class.

Operating assets
Assets used to generate operating income, usually consisting of cash, inventories, receivables, property, plant, and equipment.

Operating budgets
Budgets associated with the income-producing activities of an organization.



Operating expenses
The money an organization spends in turning inventories into throughput.

Operating income
Revenues minus expenses from the firm's normal operations. Income taxes are excluded.

Operating leverage
The use of fixed costs to extract higher percentage changes in profits as sales activity changes. Leverage is achieved by increasing fixed costs while lowering variable costs.

Operation costing
A hybrid costing method that assigns material costs to a product using a job-order approach and assigns conversion costs using a process approach.

Operational productivity measure
A measure that is expressed in physical terms.

Opportunity cost
The benefit sacrificed or forgone when one alternative is chosen over another.



Opportunity cost approach
A transfer pricing system that identifies the minimum price that a selling division would be willing to accept and the maximum price that a buying division would be willing to pay.

Optimal solution
The feasible solution that produces the best value for the objective function (the largest value if seeking to maximize the objective function; the minimum otherwise).

Ordering costs
The costs of placing and receiving an order.

Organizational environment
Organizational attributes and circumstances that are largely controllable by the organization in the long term but may be constant in the short term, such as the existing organizational structure, production capacity, and staff levels.

Organizational goals
Short- and medium-term performance targets or interim objectives toward the achievement of long-term strategic objectives.

Overapplied overhead
The amount by which applied overhead exceeds actual overhead.



Overhead
All production costs other than direct materials and direct labour.

Overhead budget
A budget that reveals the planned expenditures for all indirect manufacturing items.

Overhead variance
The difference between actual overhead and applied overhead.






P

Parallel processing
A processing pattern in which two or more sequential processes are required in order to produce a finished good.

Partial productivity measurement
A ratio that measures productive efficiency for one input.

Participative budgeting
An approach to budgeting that allows managers who will be held accountable for budgetary performance to participate in the budget's development.

Payback period
The time required for a project to return its investment.

Performance
The measure of how consistent and well a product functions.

Performance drivers
Factors that cause future performance, for example, employee training.



Performance management
Management processes concerned with the effective use of information provided by management control systems for strategic planning, control, and decision making.

Performance prism
A strategic performance measurement framework that focuses on stakeholders and includes five elements: strategies, processes, capabilities, stakeholder satisfaction, and stakeholder contribution.

Performance reports
Reports that compare the actual data with planned data.

Perishability
One of the four qualities that distinguish services from products-the fact that services cannot be stored for future use by the consumer.

Perquisites
A type of fringe benefit over and above salary that is received by managers.

Physical flow schedule
A schedule that reconciles units to account for with units accounted for. The physical units are not adjusted for percent of completion.



Planning
Setting objectives and identifying methods of achieving those objectives.

Postpurchase costs
The costs of using, maintaining, and disposing of a product.

Postsales service process
A process that provides critical and responsive service to customers after the product or service has been delivered.

Practical activity capacity
The activity output produced when the activity is performed efficiently.

Practical capacity
The efficient level of activity performance.

Predatory pricing
The practice of setting prices below cost for the purpose of injuring competitors and eliminating competition.



Predetermined overhead rate
An overhead rate computed using estimated data.

Present value (PV)
The current value of a future cash flow. It represents the amount that must be invested now if the future cash flow is to be received, assuming compounding at a given rate of interest.

Prevention costs
Costs incurred to prevent defects in products or services being produced.

Price gouging
A subjective term referring to the practice of setting an "excessively" high price.

Price (rate) variance
The difference between the standard price and the actual price multiplied by the actual quantity of inputs used.

Price-recovery component
The difference between the total profit change and the profit-linked productivity change.



Price standard
The price that should be paid per unit of input.

Primary activity
An activity that is consumed by products or customers.

Prime cost
The sum of direct materials cost and direct labour cost.

Process
A series of activities (operations) that are linked to perform a specific objective.

Process-costing system
A costing system that accumulates production costs by process or by department for a given period of time.

Producing departments
Units within an organization that are responsible for producing the products or services that are sold to customers.



Product cost
A cost assignment method that satisfies a well-specified managerial objective.

Product diversity
The situation present when products consume overhead in different proportions.

Product-level (sustaining) activities
Activities that are performed to enable the production of each different type of product.

Product life cycle
The time a product exists, from conception to abandonment.

Production budget
A budget that shows how many units must be produced to meet sales needs and satisfy ending inventory requirements.

Production costs
Costs associated with the manufacture of goods or the provision of services.



Production drivers
Drivers that are highly correlated with production output (volume).

Production Kanban
A card or marker that specifies the quantity that the Kanban system should produce.

Production report
A document that summarizes the manufacturing activity that takes place in a process department for a given period of time.

Productivity
The efficient production of output, using the least quantity of inputs possible.

Productivity measurement
The assessment of productivity changes.

Profile measurement
A series or vector of separate and distinct partial operational measures.



Profit centre
A responsibility centre in which a manager is responsible for both revenues and costs.

Profit-linked productivity measurement
The assessment of the amount of profit change (from the base period to the current period) attributable to productivity changes.

Profit-volume graph
A graph that depicts the relationship between profits and sales volume.

Profit volume variance (gross)
Consists of a profit volume variance (net) and a sales mix variance.

Profit volume variance (net)
Measures the effect on profit of the difference in total sales volume between the budget and the actual volume, with other factors-including sales mix and contribution margin per unit-remaining constant.

Pseudoparticipation
A budgetary system in which top management solicits inputs from lower-level managers and then ignores those inputs. Thus, in reality, budgets are dictated from above.






Q

Quality of conformance
Conforming to the design requirements of the product.

Quality product or service
A product that meets or exceeds customer expectations.

Quantity standard
The quantity of input allowed per unit of output.






R

Reciprocal method
A method that simultaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments.

Relevant costs
Future costs that change across alternatives.

Relevant range
The range over which an assumed cost relationship is valid for the normal operations of a firm.

Reliability
The probability that the product or service will perform its intended function for a specified length of time.

Reorder point
The point in time at which a new order (or setup) should be initiated.

Residual income (RI)
The difference between operating income and the minimum dollar return required on a company's operating assets.



Resource drivers
Factors that measure the consumption of resources by activities.

Responsibility accounting
A system that measures the results of each responsibility centre according to the information managers need in order to operate their centre.

Responsibility centre
A segment of the business whose manager is accountable for specified sets of activities.

Return on investment (ROI)
The ratio of operating income to average operating assets.

Revenue centre
A responsibility centre in which a manager is responsible only for sales.

Ropes
Actions taken to tie the rate at which raw material is released into the plant (at the first operation) to the production rate of the constrained resource.






S

Safety stock
Extra inventory carried to serve as insurance against fluctuations in demand.

Sales budget
A budget that describes expected sales in units and dollars for the coming period.

Sales mix
The relative combination of products (or services) being sold by an organization.

Sales mix variance
Measures the effect of the change from the budgeted sales mix.

Sales price variance
Measures the direct effect of the change in selling prices on profit.

Scattergraph
A plot of (X, Y) data points. For cost analysis, X is activity usage and Y is the associated cost at that activity level.



Scatterplot method
A method of fitting a line to a set of data using two points that are selected by judgment. It is used to break out the fixed and variable components of a mixed cost.

Secondary activity
An activity that is consumed by primary activities and/or other secondary activities.

Segment
A subunit of a company that is sufficiently important to warrant the production of performance reports.

Segment margin
The contribution a segment makes to cover common fixed costs and variable costs and provide for profit after direct fixed costs and variable costs are deducted from the segment's sales revenue.

Segmented reporting
The preparation of financial performance reports for each segment of importance within a firm.

Sell-or-process further decision
Relevant cost analysis that focuses on whether a product should be processed beyond the split-off point.



Selling and administrative expenses budget
A budget that outlines planned expenditures for nonmanufacturing activities.

Sensitivity analysis
The "what-if" process of altering certain key variables to assess the effect on the original outcome.

Sequential (or step) method
A method that allocates service costs to user departments in a sequential manner. It gives partial consideration to interactions among support departments.

Sequential processing
A processing pattern in which units pass from one process to another in a set order.

Serviceability
The ease of maintaining and/or repairing a product.

Services
Tasks or activities performed for a customer using an organization's products or facilities.



Setup costs
The cost of preparing equipment and facilities so that they can be used for production.

Short run
A period of time in which at least one cost is fixed.

Simplex method
An algorithm that identifies the optimal solution for a linear programming problem.

Single-loop feedback
Information about the effectiveness of strategy implementation.

Slope parameter
The variable cost per unit of activity usage, represented by V in the cost formula Y = F + VX.

Special-order decisions
Relevant cost analyses that focus on whether a specially priced order should be accepted or rejected.



Split-off point
The point at which products become distinguishable after passing through a common process.

Staff positions
Positions that are supportive in nature and have only indirect responsibility for an organization's basic objectives.

Standard cost per unit
The per-unit cost that should be achieved given materials, labour, and overhead standards.

Standard cost sheet
A listing of the standard costs and standard quantities of direct materials, direct labour, and overhead that should apply to a single product.

Standard hours allowed
The direct labour hours that should have been used to produce the actual output (Unit labour standard x Actual output).

Standard quantity of materials allowed
The quantity of materials that should have been used to produce the actual output (Unit materials standard x Actual output).



Static budget
A budget for a particular level of activity.

Step cost
A cost function in which cost is defined for ranges of activity use rather than point values. The function has the property of displaying constant cost over a range of activity use and then changing to a different cost level as a new range of activity use is undertaken.

Stock-out costs
The costs of insufficient inventory.

Strategic-based control systems
Control systems that link an organization's mission and strategy with operational objectives and use multiple financial and nonfinancial measures to measure performance from different stakeholders' perspectives in a balanced manner.

Strategic cost management
The use of cost data to develop and identify superior strategies that will produce a competitive advantage.

Strategic decision making
Choosing among alternative strategies with the goal of selecting the strategy or strategies that provide a company with reasonable assurance for long-term growth and survival.



Strategic performance measurement
The assessment of the achievement of strategic performance objectives of organizations, organizational units, and programs.

Strategic plan
The long-term plan for future activities and operations, usually involving at least five years.

Strategy
The process of choosing a business's market and customer segments, identifying its critical internal business processes, and selecting the individual and organizational capabilities needed to meet internal, customer, and financial objectives.

Subjective measures
Measures that are nonquantifiable and whose values are judgmental in nature.

Sunk cost
A cost for which the outlay has already been made and that cannot be affected by a future decision.

Supplies
hose materials necessary for production that do not become part of the finished product or that are not used in providing a service.



Supply chain
All activities that are involved in the efficient and effective movement and transformation of raw materials, through the manufacturing process, into final products to end users.

Supply chain management
The management of material flows beginning with suppliers and their upstream suppliers, moving through the transformation of materials into finished goods, to customers and their downstream customers.

Support departments
Units within an organization that provide essential support services for producing departments.






T

Tactical decision making
Choosing among alternatives with an immediate or limited end in view.

Taguchi loss function
A function that assumes that any variation from the target value of a quality characteristic causes hidden quality costs.

Tangible products
Goods that are produced by converting raw materials through the use of labour and capital inputs such as plant, land, and machinery.

Target cost
The difference between the sales price needed to achieve a projected market share and the desired per-unit profit.

Target costing
A method of determining the cost of a product or service based on the price (target price) that customers are willing to pay.

Technical efficiency
The point at which, for any mix of inputs that will produce a given output, no more of any one input is used than is absolutely necessary.



Testable strategy
A set of linked objectives aimed at an overall goal that can be restated into a sequence of cause-and-effect hypotheses.

Throughput
The rate at which an organization generates money through sales.

Time buffer
The inventory needed to keep the constrained resource busy for a specified time interval.

Time ticket
A source document by which direct labour costs are assigned to individual jobs.

Top-down budgeting
A budgeting process in which budgets are set unilaterally by top management.

Total preventive maintenance
A program of preventive maintenance that has zero machine failures as its standard.



Total product
The complete range of tangible and intangible benefits that a customer receives from a purchased product.

Total productive efficiency
The point at which technical and price efficiency are achieved.

Total productivity measurement
The assessment of productive efficiency for all inputs combined.

Total profit variance
The difference between actual and budgeted profit.

Total quality management
An approach to quality in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products.

Traceability
The ability to assign a cost directly to a cost object in an economically feasible way using a causal relationship.



Tracing
Assigning costs to a cost object using an observable measure of the cost object's resource consumption.

Transfer price
The price charged for goods transferred from one division to another.

Transfer pricing problem
The problem of finding a transfer pricing system that simultaneously satisfies the three objectives of accurate performance evaluations, goal congruence, and autonomy.

Transferred-in costs
Costs transferred from a prior process to a subsequent process.

Treasurer
The person responsible for the finance function. Specifically, the treasurer raises capital and manages cash and investments.

Turnover
The ratio of sales to average operating assets.






U

Uncontrollable factors
Factors that cannot be influenced by a manager during a given time period.

Underapplied overhead
The amount by which actual overhead exceeds applied overhead.

Unfavourable (U) variances
Variances produced whenever the actual input amounts are greater than the budgeted or standard allowances.

Unit cost
The total costs assigned to a product divided by the number of units produced of that product.

Unit-level activities
Activities that are performed each time a unit is produced.

Unit-level activity drivers
Factors that measure the consumption of unit-level activities by products and other cost objects.



Unit-level drivers
See production drivers.

Unused capacity variance
The difference between acquired capacity (practical capacity) and actual capacity.

Usage (efficiency) variance
The difference between standard quantities and actual quantities multiplied by standard price.






V

Value-added activities
Activities that are necessary to achieve corporate objectives and remain in business.

Value-added costs
Costs caused by value-added activities.

Value-added standard
The optimal output level for an activity.

Value chain
The set of activities required to design, develop, produce, market, and deliver products and services to customers; or, an interrelated set of activities that increases the usefulness or value of products or services to customers.

Value chain analysis
A strategic tool that can be used to understand an organization's competitive advantage and its relationships with suppliers, customers, and competitors.

Variable activity rate
The total variable activity cost divided by the amount of activity driver used.



Variable budgets
See flexible budget.

Variable cost
Costs that, in total, vary in direct proportion to changes in a cost driver.

Variable costing
A product-costing method that assigns only variable manufacturing costs-direct materials, direct labour, and variable overhead-to production. Fixed overhead is treated as a period cost.

Variable-cost ratio
Variable costs divided by sales revenues. It is the proportion of each sales dollar needed to cover variable costs.

Variable overhead efficiency variance
Assuming that direct labour hours are used to apply overhead costs, the difference between the actual direct labour hours used and the standard hours allowed multiplied by the standard variable overhead rate.

Variable overhead spending variance
The difference between the actual variable overhead and the budgeted variable overhead based on the actual hours used to produce the actual output.



Velocity
The number of units that can be produced in a given period of time (e.g., output per hour).

Vendor Kanbans
Cards or markers that signal to a supplier the quantity of materials that need to be delivered and the time of delivery.






W

Weighted average costing method
A process-costing method that combines beginning inventory costs with current-period costs to compute unit costs. Costs and output from the current period and the previous period are averaged to compute unit costs.

What-if analysis
A method to deal with uncertainty where the assumptions on which the analysis is based are changed and their effect assessed (see sensitivity analysis).

Whole life product cost
The life-cycle cost of a product plus costs that consumers incur, including operation, support, maintenance, and disposal.

Withdrawal Kanban
A marker or card that specifies the quantity that a subsequent process should withdraw from a preceding process.

Work in process
All partly completed units found in production at a given point in time.

Work-in-process file
A file that is the collection of all job-order cost sheets.