Managerial Accounting by Braun, Tietz (5th edition)

The Managerial Accounting by Braun, Tietz (5th edition) is the fifth edition of the Managerial Accounting textbook that have been authored by Karen Wilken Braun, PhD, CPA, CGMA and Wendy M. Tietz, PhD, CPA, CGMA, CMA, as well as published by Pierson.

• Absorption costing. The costing method where products "absorb" both fixed and variable manufacturing costs.
• Account analysis. A method for determining cost behavior that is based on a manager's judgment in classifying each general ledger account as a variable, fixed, or mixed cost.
• Accounting rate of return (ARR). A measure of profitability computed by dividing the average annual operating income from an asset by the initial investment in the asset.
• Accounts receivable turnover. Measures a company's ability to collect cash from credit customers. To compute accounts receivable turnover, divide net credit sales by average net accounts receivable.
• Accrual basis of accounting. Revenues are recorded when they are earned (when the sale takes place) rather than when cash is received on the sale. Likewise, expenses are recorded when they are incurred rather than when they are paid.
• Acid-test ratio. Ratio of the sum of cash plus shortterm investments plus net current receivables to total current liabilities. It tells whether the entity can pay all of its current liabilities if they come due immediately; also called the quick ratio.
• Activity-based costing (ABC). Focusing on activities as the fundamental cost objects. The costs of those activities become building blocks for compiling the indirect costs of products, services, and customers.
• Activity-based management (ABM). Using activitybased cost information to make decisions that increase profits while satisfying customers' needs.
• Allocate. To assign an indirect cost to a cost object.
• American Institute of Certified Public Accountants (AICPA). The world's largest association representing the accounting profession; together with the Chartered Institute of Management Accountants (CIMA), offers the Chartered Global Management Accountant (CGMA) designation.
• Annuity. A stream of equal installments made at equal time intervals.
• Appraisal costs. Costs incurred to detect poor-quality goods or services.
• Assign. To attach a cost to a cost object.
• Assurance. An independent party's external validation of management's assertions.
• Attainable standards. Standards based on currently attainable conditions that include allowances for normal amounts of waste and inefficiency. Also known as practical standards.
• Audit committee. A subcommittee of the board of directors that is responsible for overseeing both the internal audit function and the annual financial statement audit by independent CPAs.
• Average cost. The total cost divided by the number of units.
• Avoidable fixed costs. Fixed costs that can be eliminated as a result of taking a particular course of action.
• Backflush costing. A simplified accounting system in which production costs are not assigned to the units until they are finished, or even sold, thereby saving the bookkeeping steps of moving the product through the various inventory accounts.
• Balanced scorecard. A performance evaluation system that integrates financial and operational performance measures along four perspectives: financial, customer, internal business, and learning and growth.
• Batch-level activities. Activities and costs incurred for every batch, regardless of the number of units in the batch.
• Benchmarking. The practice of comparing a company with other companies or industry averages.
• Big Four. The largest four accounting firms in the world: Deloitte, EY, KPMG, and PriceWaterhouseCoopers.
• Bill of materials. A list of all of the raw materials needed to manufacture a job.
• Billing rate. The labor rate charged to the customer, which includes both cost and profit components.
• Biomimicry. A means of product design in which a company tries to mimic, or copy, the natural biological process in which dead organisms (plants and animals) become the input for another organism or process.
• Board of Directors. The body elected by shareholders to oversee the company.
• Book value per share of common stock. Common stockholders' equity divided by the number of shares of common stock outstanding. It is the recorded amount for each share of common stock outstanding.
• Breakeven point. The sales level at which operating income is zero: Total revenues = Total expenses.
• Budget. Quantitative expression of a plan that helps managers coordinate and implement the plan.
• Budget committee. A committee comprised of upper management as well as cross-functional managers that reviews, revises, and approves the final budget.
• Capital budgeting. The process of making capital investment decisions. Companies make capital investments when they acquire capital assets-assets used for a long period of time.
• Capital rationing. Choosing among alternative capital investments due to limited funds.
• Capital turnover. Sales revenue divided by total assets. The capital turnover shows how much sales revenue is generated with every $1.00 of assets.
• Carbon Disclosure Project. A nonprofit organization that collects and disseminates carbon footprint information.
• Carbon footprint. A measure of the total emissions of carbon dioxide and other greenhouse gases (GHGs), often expressed for simplicity as tons of equivalent carbon dioxide.
• Cash equivalents. Very safe, highly liquid assets that are readily convertible into cash, such as money market funds, certificates of deposit that mature in less than three months, and U.S. treasury bills.
• Certified Management Accountant (CMA). A professional certification issued by the IMA to designate expertise in the areas of managerial accounting, economics, and business finance.
• Chartered Global Management Accountant (CGMA). A designation available to qualifying American Institute of Certified Public Accountants (AICPA) members that is meant to recognize the unique business and accounting skill set possessed by those CPAs who work, or have worked, in business, industry, or government.
• Chief Executive Officer (CEO). The position hired by the board of directors to oversee the company on a daily basis.
• Chief Financial Officer (CFO). The position responsible for all of the company's financial concerns.
• Chief Operating Officer (COO). The position responsible for overseeing the company's operations.
• Collect on Delivery, or Cash on Delivery. A sales term indicating that the inventory must be paid for at the time of delivery.
• Committed fixed costs. Fixed costs that are locked in because of previous management decisions; management has little or no control over these costs in the short run.
• Common fixed expenses. Expenses that cannot be traced to a particular segment or product line.
• Common-size statement. A financial statement that reports only percentages (no dollar amounts).
• Comparative balance sheets. A comparison of the balance sheets from the end of two fiscal periods, usually highlighting the changes in each account.
• Compound interest. Interest computed on the principal and all interest earned to date.
• Comprehensive report. A GRI-referenced report in which all indicators related to each identified material aspect are disclosed.
• Conformance costs. The combination of prevention and appraisal costs; the costs incurred to make sure a product or service is not defective and therefore conforms to its intended design.
• Constraint. A factor that restricts the production or sale of a product.
• Contract manufacturers. Manufacturers that make products for other companies, not for themselves.
• Contribution margin. Sales revenue minus variable expenses.
• Contribution margin income statement. Income statement that organizes costs by behavior (variable costs or fixed costs) rather than by function; can only be used by internal management.
• Contribution margin per unit. The excess of the unit sales price over the variable cost per unit; also called unit contribution margin.
• Contribution margin ratio. Ratio of contribution margin to sales revenue.
• Controllable costs. Costs that can be influenced or changed by management.
• Controller. The position responsible for general financial accounting, managerial accounting, and tax reporting.
• Controlling. One of management's primary respon sibilities; evaluating the results of business operations against the plan and making adjustments to keep the company pressing toward its goals.
• Conversion costs. The combination of direct labor and manufacturing overhead costs.
• Core report. A GRI-referenced report in which at least one indicator related to each identified material aspect is disclosed.
• Cost behavior. A behavior that describes how costs change as volume changes.
• Cost center. A responsibility center in which managers are responsible for controlling costs.
• Cost distortion. Overcasting some products while undercosting other products.
• Cost driver. The primary factor that causes a cost.
• Cost equation. A mathematical equation for a straight line that expresses how a cost behaves.
• Cost object. Anything for which managers want to know the cost.
• Cost of goods manufactured. The cost of manufacturing the goods that were finished during the period.
• Cost of goods sold, inventory, and purchases budget. A merchandiser's budget that computes the cost of goods sold, the amount of desired ending inventory, and amount of merchandise to be purchased.
• Cost-benefit analysis. Weighing costs against benefits to help make decisions.
• Cost-plus pricing. A pricing approach in which the company adds a desired level of profit to the product's cost; typically used by price-setters.
• Costs of quality report. A report that lists the costs incurred by the company related to quality. The costs are categorized as prevention costs, appraisal costs, internal failure costs, and external failure costs.
• Cost-volume-profit analysis (CVP analysis). Expresses the relationships among costs, volume, and profit or loss.
• Critical thinking. Improving the quality of thought by skillfully analyzing, assessing, and reconstructing it.
• Cross-functional teams. Corporate teams whose members represent various functions of the organization, such as R&D, design, production, marketing, distribution, and customer service.
• Current ratio. Current assets divided by current liabilities. It measures the ability to pay current liabilities with current assets.
• Curvilinear costs. A cost behavior that is not linear (not a straight line).
• Customer response time. The time that elapses between receipt of a customer order and delivery of the product or service.
• Customer service. Support provided for customers after the sale.
• Days' sales in receivables. Ratio of average net accounts receivable to one day's sale. It indicates how many days' sales remain in Accounts Receivable awaiting collection.
• Debt ratio. Ratio of total liabilities to total assets. It shows the proportion of a company's assets that is financed with debt.
• Decentralize. A process where companies split their operations into different operating segments.
• Decision making. Identifying possible courses of action and choosing among them.
• Departmental overhead rates. Separate manufacturing overhead rates established for each department.
• Design. Detailed engineering of products and services and the processes for producing them.
• Differential cost. The difference in cost between two alternative courses of action.
• Direct cost. A cost that can be traced to a cost object; a cost that is readily identifiable or associated with the cost object.
• Direct fixed expenses. Fixed expenses that can be traced to the segment.
• Direct labor. The cost of compensating employees who physically convert raw materials into the company's products; labor costs that are directly traceable to the finished product.
• Direct labor efficiency variance. This variance tells managers how much of the total labor variance is due to using a greater or lesser amount of time than anticipated. It is calculated as follows: SR X (AH - SHA).
• Direct labor rate variance. This variance tells managers how much of the total labor variance is due to paying a higher or lower hourly wage rate than anticipated. It is calculated as follows: AH X (AR - SR).
• Direct materials. Priniary raw 1naterials that becorne a physical part of a finished product and whose costs are traceable to the finished product.
• Direct materials price variance. This variance tells managers how much of the total direct materials variance is due to paying a higher or lower price than expected for the direct materials it purchased. It is calculated as follows: AQP X (AP SP).
• Direct materials quantity variance. This variance tells managers how much of the total direct materials variance is due to using a larger or smaller quantity of direct materials than expected. It is calculated as follows: SP X (AQU - SQA).
• Direct method. A method of presenting cash flows from operating activities that separately lists the receipt and payment of cash for specific operating activities.
• Directing. One of management's primary responsibilities; running the company on a day-to-day basis.
• Discount rate. Management's minimum desired rate of return on an investment; also called the hurdle rate and required rate of return.
• Discretionary fixed costs. Fixed costs that are a result of annual management decisions; fixed costs that are controllable in the short run.
• Dividend yield. Ratio of dividends per share of stock to the stock's market price per share. It tells the percentage of a stock's market value that the company returns to stockholders annually as dividends.
• DOWN TIME. An acronym for the eight wastes: defects, overproduction, waiting, not utilizing people to their full potential, transportation, inventory, movement, excess processing.
• Earnings per share (EPS). Amount of a company's net income for each share of its outstanding common stock.
• Eco-efficiency. Achieving economic savings by producing goods and services with fewer ecological resources
• Eight wastes. Defects, overproduction, waiting, not utilizing people to their full potential, transportation, inventory, movement, excess processing.
• Enterprise resource planning (ERP). Software systems that can integrate all of a company's worldwide functions, departments, and data into a single system.
• Environmental Management Accounting (EMA). A system used for the identification, collection, analysis, and use of two types of information for internal decision making-monetary and physical information.
• Equivalent units. Express the amount of work done during a period in terms of fully completed units of output.
• Extended producer responsibility laws (EPR laws). Laws that require product manufacturers to "take back" a large percentage of the products they manufacture at the end of the product's life in order to reduce the amount of waste ending up in landfills and the environment.
• External costs. Costs borne by society as a result of a company's operations and the products and services it sells.
• External failure costs. Costs incurred when the company does not detect poor-quality goods or services until a~er delivery is made to customers.
• Facility-level activities. Activities and costs incurred no matter how many units, batches, or products are produced in the plant.
• Favorable variance. A variance that causes operating income to be higher than budgeted.
• Financial budgets. The financial budgets include the capital expenditures budget and the cash budget. It culminates in a budgeted balance sheet.
• Financing activities. Activities that either generate capital for the company or pay it back, such as issuing stock or long-term debt, paying dividends, and repaying principal amounts on loans; this includes all activities that affect long-term liabilities and owners' equity.
• Finished goods inventory (FG inventory). Completed goods that have not yet been sold.
• Fixed costs. Costs that stay constant in total despite wide changes in volume.
• Fixed overhead budget variance. This variance measures the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs. This variance is sometimes referred to as the fixed overhead spending variance because it specifically looks at whether the company spent more or less than anticipated on fixed overhead costs.
• Fixed overhead spending variance. Another name for the Fixed Overhead Budget Variance. This variance measures the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs.
• Fixed overhead volume variance. This variance is the difference between the budgeted fixed overhead and the standard fixed overhead cost allocated to production. In essence, the fixed overhead volume variance measures the utilization of the fixed capacity costs. If volume is higher than originally anticipated, the variance will be favorable. If volume is lower than originally anticipated, the variance will be unfavorable.
• Flexible budget variance. The difference between the flexible budget and actual results. The flexible budget variances are due to something other than volume.
• Flexible budgets. Budgets prepared for different volumes of activity.
• Free cash flow. The amount of excess cash a business generates after taking into consideration the capital expenditures necessary to maintain its business. It is calculated as cash flows from operating activities minus capital expenditures.
• Global Reporting Initiative (GRI). A nonprofit organization whose mission is to make sustainability reporting standard practice by providing guidance and support to organizations. The developer of the G4 Guidelines.
• Goal Congruence. When the goals of the segment managers align with the goals of top management.
• Greenwashing. The unfortunate practice of overstating a company's commitment to sustainability.
• Gross book value. Historical cost of assets.
• Gross profit percentage. The fraction of each dollar of sales revenue that is gross profit, or markup over the cost of the merchandise.
• High-low method. A method for determining cost behavior that is based on two historical data points: the highest and lowest volume of activity.
• Horizontal analysis. Study of percentage changes in comparative financial statements.
• Hurdle rate. Management's minimum desired rate of return on an investment; also called the discount rate and required rate of return.
• Ideal standards. Standards based on perfect or ideal conditions that do not allow for any waste in the production process, machine breakdown, or other inefficiencies. Also known as perfection standards.
• Indifference point. The volume of sales at which a company would be indifferent between alternative cost structures because they would result in the same total cost.
• Indirect cost. A cost that relates to the cost object but cannot be traced specifically to it; a cost that is jointly used or shared by more than one cost object.
• Indirect labor. Labor costs that are difficult to trace to specific products.
• Indirect materials. Materials whose costs are difficult to trace to specific products.
• Indirect method. A method of presenting the cash flows from operating activities that begins with the company's net income, which is prepared on an accrual basis, and then reconciles it back to the cash basis through a series of adjustments.
• Institute of Management Accountants (IMA). The professional organization that promotes the advancement of the management accounting profession.
• Integrated reporting (IR). A process resulting in a report that describes how a company is creating value over time using financial, manufactured, intellectual, human, social, and natural capital.
• Interest-coverage ratio. Ratio of income from operations to interest expense. It measures the number of times that operating income can cover interest expense; also called the times-interest-earned ratio.
• Internal audit function. The corporate function charged with assessing the effectiveness of the company's internal controls and risk management policies.
• Internal costs. Costs that are incurred and paid for by the organization and recorded in GAAP-based accounting records.
• Internal failure costs. Costs incurred when the company detects and corrects poor-qualiry goods or services before making delivery to customers.
• Internal rate of return (IRR). The rate of return (based on discounted cash flows) that a company can expect to earn by investing in a capital asset. The interest rate that makes the NPV of the investment equal to zero.
• Inventory turnover. Ratio of cost of goods sold to average inventory. It indicates how rapidly inventory is sold, 850, 860 Investing activities. Activities that involve buying or selling long-term assets, such as buying or selling property, plant, or equipment; buying or selling stock in other companies (if the stock is meant to be held for the long term); or loaning money to other companies with the goal of earning interest income from the loan.
• Investment center. A responsibility center in which managers are responsible for generating revenues, controlling costs, and efficiently managing the division's assets.
• Job cost record. A written or electronic document that lists the direct materials, direct labor, and manufacturing overhead costs assigned to each individual job.
• Job costing. A system for assigning costs to products or services that differ in the amount of materials, labor, and overhead required. Typically used by manufacturers that produce unique, or customordered products in small batches; also used by professional service firms.
• Just in time (JIT). An inventory management philosophy that focuses on purchasing raw materials just in time for production and completmg fmished goods just in time for delivery to customers.
• Kaizen. A Japanese word meaning "change for the better."
• Key performance indicators (KPls). Summary performance metrics used to assess how well a company is achieving its goals.
• Labor time record. A written or electronic document that identifies the employee, the amount of time spent on a particular job, and the labor cost charged to a job.
• Lag indicators. Performance indicators that reveal the results of past actions and decisions.
• Lead indicators. Performance measures that predict future performance.
• Lean thinking. A philosophy and business strategy of operating without waste.
• LEED certification. LEED, which stands for Leadership in Energy and Environmental Design, is a certification system developed by the U.S. Green Building Council as a way of promoting and evaluating environmentally friendly construction projects, 714 Legal concerns, 900-901 Legal services. See Service company
• Leverage. Earning more income on borrowed money than the related interest expense, thereby mcreasing the earnings for the owners of the business; also called trading on equity.
• Life-cycle assessment (LCA). Studying the environmental and social impact of a product or service over its entire life, from "cradle to grave," in attempt to minimize negative environmental consequences throughout the entire lifespan of the product.
• Line of credit. A lending arrangement from a bank in which a company is allowed to borrow money as needed, up to a specified maximum amount, yet only pay interest on the portion that is actually borrowed until it is repaid.
• Management accounting. A profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management m _the formulation and implementation of an organization's strategy.
• Management by exception. A management technique in which managers only investigate budget variances that are relatively large.
• Manufacturing company. A company that uses labor, plant, and equipment to convert raw materials into new finished products.
• Manufacturing cycle time. The time that elapses between the start of production and the product's completion.
• Manufacturing overhead (MOH). All manufacturing costs other than direct materials and direct labor; also called factory overhead and indirect manufacturing cost.
• Margin of safety. Excess of expected sales over breakeven sales; the drop in sales a company can absorb without incurring an operating loss.
• Marginal cost. The cost of producing one more unit.
• Marketing. Promotion and advertising of products or services.
• Mass customization. Large-scale production of customized product that allows manufacturers to meet a variety of consumer desires, while at the same time achieving the efficiencies of mass production that drive down unit costs.
• Master budget. The comprehensive planning document for the entire organization. The master budget includes the operating budgets and the financial budgets.
• Master budget variance. The difference between actual results and the master budget.
• Materia lity. An important concept in CSR reporting defined as those aspects of a business that reflect the organization's significant economic, environmental, and social impacts, or substantively influence the assessments and decisions of stakeholders.
• Materials flow accounting (MFA). An accounting system in which all physical inputs to an organization's operations are reconciled with output generated. The goal is to track where all physical inputs are going.
• Materials requisition. A written or electronic document requesting that specific materials be transferred from the raw materials inventory storeroom to the production floor.
• Merchandising company. A company that resells tangible products previously bought from suppliers.
• Mixed cost. Costs that change, but not in direct proportion to changes in volume. Mixed costs have both variable cost and fixed cost components.
• Monetary information. The type of information traditionally used in accounting systems.
• Net book value. The original cost of assets less accumulated depreciation.
• Net present value (NPV). The difference between the present value of the investment's net cash inflows and the investment's cost.
• Nonconformance costs. The combination of internal failure and external failure costs; the costs incurred when a product is defective and therefore does not conform to its intended design.
• Non-governmental organizations (NGOs). Not-for-profit organizations that serve the public interest, such as Greenpeace and Sierra Club.
• Non-value-added activities. Activities that neither enhance the customer's image of the product or service nor provide a competitive advantage; also known as waste activities.
• Offshoring. Having work performed overseas. Offshored work can be performed either by the company itself or by outsourcing the work to another company.
• Operating activities. The day-to-day profit-making activities of the company, such as making or buying inventory, selling inventory, selling services, paying employees, advertising, and so forth; this also includes any other activity that affects net income (not just operating income), current assets, or current liabilities.
• Operating budgets. The budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement.
• Operating income. Earnings generated from the company's primary ongoing operations; the company's earnings before interest and taxes.
• Operating income percentage. The percentage of each sales dollar that becomes income from the company's primary business operations before considering interest and income taxes.
• Operating Leverage. The relative amount of fixed and variable costs that make up a firm's total costs.
• Operating leverage factor. At a given level of sales, the contribution margin divided by operating income; the operating leverage factor indicates the percentage change in operating income that will occur from a 1 % change in sales volume.
• Opportunity cost. The benefit forgone by choosing a particular alternative course of action.
• Other indirect manufacturing costs. All manufacturing overhead costs aside from indirect materials and indirect labor.
• Outliers. Abnormal data points; data points that do not fall in the same general pattern as the other data points.
• Outsourcing. Contracting an outside company to produce a product or perform a service. Outsourced work can be done domestically or overseas.
• Overallocated Manufacturing Overhead. The amount of manufacturing overhead allocated to jobs is more than the amount of manufacturing overhead costs actually incurred; results in jobs being overcosted.
• Participative budgeting. Budgeting that involves the participation of many levels of management, 509 Payback period. The length of time it takes to recover, in net cash inflows, the cost of a capital outlay.
• Perfection standards. Standards based on perfect or ideal conditions that do not allow for any waste in the production process, machine breakdown, or other inefficiencies. Also known as ideal standards.
• Performance reports. Reports that compare actual results against budgeted figures.
• Performance scorecard or performance dashboard. A report displaying the measurement of KPis, as well as their short-term and long-term targets.
• Period costs. The costs incurred by the company to operate the business that do not get treated as inventory, but rather are expensed immediately in the period in which they are incurred. These costs do not relate to manufacturing or purchasing product. Period costs are often called operating expenses or selling, general, and administrative expenses.
• Periodic inventory. An inventory system in which Cost of Goods Sold is calculated at the end of the period rather than every time a sale is made.
• Perpetual inventory. An inventory system in which both Cost of Goods Sold and Inventory are updated every time a sale is made.
• Physical information. A vital part of environmental management accounting systems. Examples include: quantity of air emissions, tons of solid waste generated, gallons of wastewater generated, pounds of packaging recycled, and total amount of water consumed.
• Pick. Storeroom workers remove items from raw materials inventory that are needed by production.
• Planning. One of management's primary responsibilities: setting goals and objectives for the company and deciding how to achieve them.
• Plantwide overhead rate. When overhead is allocated to every product using the same manufacturing overhead rate.
• Point of Use Storage (POUS). A storage system used to reduce the waste of transportation and movement in which tools, materials, and equipment are stored in proximity to where they will be used most frequently.
• Post-audits. Comparing a capital investment's actual net cash inflows to its projected net cash inflows.
• Practical standards. Standards based on currently attainable conditions that include allowances for normal amounts of waste and inefficiency. Also known as attainable standards.
• Predetermined manufacturing overhead rate. The rate used to allocate manufacturing overhead to individual jobs; calculated before the year begins as follows: total estimated manufacturing overhead costs divided by total estimated amount of allocation base.
• Present value index. An index that computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars. It is computed as present value of net cash inflows divided by investment; also called profitability index.
• Prevention costs. Costs incurred to avoid poor quality goods or services.
• Price/Earnings Ratio (P/E Ratio). Ratio of the market price of a share of common stock to the company's earnings per share. It measures the value that the stock market places on $1 of a company's earnings.
• Prime costs. The combination of direct material and direct labor costs, 61 Principal, time value of money.
• Principles for Responsible Investment (PRI). Six principles of investing, including a commitment to incorporate environmental, social, and governance issues into investment analysis and decision making.
• Process costing. A system for assigning costs to a large number of identical units that typically pass through a series of uniform production steps. Costs are averaged over the units produced such that each unit bears the same unit cost.
• Product costs. The costs incurred by manufacturers to produce their products or incurred by merchandisers to purchase their products. For external financial reporting, GAAP requires that these costs be assigned to inventory until the products are sold, at which point, they are expensed as Cost of Goods Sold.
• Product line income statement. An income statement that shows the operating income of each product line, as well as the company as a whole.
• Production cost report. Summarizes a processing department's operations for a period.
• Production or purchases. Resources used to produce a product or service or to purchase finished merchandise intended for resale.
• Production schedule. A written or electronic document indicating the quantity and types of inventory that will be manufactured during a specified time frame.
• Product-level activities. Activities and costs incurred for a particular product, regardless of the number of units or batches of the product produced.
• Profit center. A responsibility center in which managers are responsible for both revenues and costs, and therefore profits.
• Profitability index. An index that computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars. Computed as present value of net cash inflows divided by investment; also called present value index.
• Purchase order. A written or electronic document authorizing the purchase of specific raw materials from a specific supplier.
• Quality at the source. A term that refers to shifting the responsibility for quality adherence to the operators at each step in the value stream, rather than relying on supervisors or a quality assurance departrnent to catch errors.
• Quick ratio. Ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities. It tells whether the entity can pay all its current liabilities if they come due immediately; also called the acid-test ratio.
• Rate of return on common stockholders' equity. Net income minus preferred dividends divided by average common stockholders' equity. It is a measure of profitability; also called return on equity.
• Rate of return on net sales. Ratio of net income to net sales. It is a measure of profitability; also called return on sales.
• Rate of return on total assets. Net income plus interest expense divided by average total assets. This ratio measures a company's success in using its assets to earn income for the people who finance the business; also called return on assets.
• Ratio analysis. Evaluating the relationships between two or more key components of the financial statements.
• Raw materials inventory (RM inventory). All raw materials (direct materials and indirect materials) not yet used in manufacturing.
• Raw materials record. A written or electronic document listing the number and cost of all units used and received, and the balance currently in stock; a separate record is maintained for each type of raw material kept in stock.
• Receiving report. A written or electronic document listing the quantity and type of raw materials received in an incoming shipment; the report is typically a duplicate of the purchase order without the quantity pre-listed on the form.
• Regression analysis. A statistical procedure for determining the line that best fits the data by using all of the historical data points, not just the high and low data points.
• Relevant information. Expected future data that differ among alternatives.
• Relevant range. The band of volume where total fixed costs remain constant at a certain level and where the variable cost per unit remains constant at a certain level.
• Required rate of return. Management's minimum desired rate of return on an investment; also called the discount rate and hurdle rate.
• Research and development (R&D). Researching and developing new or improved products or services or the processes for producing them.
• Residual income (RI). Operating income minus the minimum acceptable operating income given the size of the division's assets.
• Responsibility accounting. A system for evaluating the performance of each responsibility center and its manager.
• Responsibility center. A part of an organization whose manager is accountable for planning and controlling certain activities.
• Retailer. Merchandising company that sells to consumers.
• Return on assets. Net income plus interest expense, divided by average total assets. This ratio measures a company's success in using its assets to earn income for the people who finance the business; also called rate of return on total assets.
• Return on equity. Net income minus preferred dividends, divided by average common stockholders' equity. It is a measure of profitability; also called rate of return on common stockholders' equity.
• Return on investment (ROI). Operating income divided by total assets. The ROI measures the profitability of a division relative to the size of its assets.
• Return on sales. Ratio of net income to net sales. It is a measure of profitability; also called rate of return on net sales.
• Revenue center. A responsibility center in which managers are responsible for generating revenue.
• Rolling budget. A budget that is continuously updated so that the next 12 months of operations are always budgeted; also known as a continuous budget.
• Safety stock. Extra inventory kept on hand in case demand is higher than expected or problems in the factory slow production.
• Sales margin. Operating income divided by sales revenue. The sales margin shows how much income is generated for every $1.00 of sales.
• Sales mix. The combination of products that make up total sales.
• Sarbanes-Oxley Act of 2002 (SOX). A congressional act that enhances internal control and financial reporting requirements and establishes new regulatory requirements for publicly traded companies and their independent auditors.
• Scatter plot. A graph that plots historical cost and volume data.
• Segment margin. The income resulting from subtracting only the direct fixed costs of a segment from its contribution margin. The segment margin contains no allocation of common fixed costs.
• Segment margin income statement. A product line income statement that contains no allocation of common fixed costs. Only direct fixed costs that can be traced to specific product lines are subtracted from the product line's contribution margin. All common fixed costs remain unallocated and are shown only under the company total.
• Sensitivity analysis. A what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes.
• Service company. A company that sells intangible services rather than tangible products.
• Simple interest. Interest computed only on the principal amount.
• Six Sigma. The goal of producing near perfection, with less than 3.4 defects per million opportunities.
• Slack. Intentionally overstating budgeted expenses or understating budgeted revenues in order to cope with uncertainty, make performance appear better, or make room for potential budget cuts.
• Social Return on Investment (SROI). An analytical tool that is used to explain social and environmental value in monetary terms.
• Standard cost. The budget for a single unit of product. Also simply referred to as standards.
• Standard cost accounting. Another common name for standard costing.
• Standard costing. Also known as standard cost accounting. A method of accounting in which product costs are entered into the general ledger inventory accounts at standard cost rather than actual cost. The variances are captured in their own general ledger accounts and displayed on a standard costing income statement prior to being closed out at the end of the period.
• Standards. Another common name for standard costs.
• Statement of cash flows. One of the four basic financial statements; the statement shows the overall increase or decrease in cash during the period as well as how the company generated and used cash during the period.
• Step costs. A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume.
• Stock inventory. Products normally kept on hand in order to quickly fill customer orders.
• Strategic planning. Setting long-term goals that may extend 5 to 10 years into the future.
• Subsidiary ledger. Supporting detail for a general ledger account.
• Sunk cost. A cost that has already been incurred, and therefore cannot be changed regardless of which future action is taken.
• Supply-chain assessment. Making purchase decisions based partially on how well suppliers manage the social and environmental impact of their operations.
• Sustainability. The ability of a system to endure without giving way or to use resources so that they are not depleted or permanently damaged. In business, sustainability is also defined as the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs.
• Sustainability report. The primary document used for communicating a company's performance on all three pillars of the triple bottom line: economic, environmental, and social. Also known as a Corporate Social Responsibility (CSR) report.
• Sustainability reporting. A process that helps companies set goals, measure performance, and manage change as they move toward an economic model that produces long-term economic profit as well as environmental care and social responsibility.
• Takt time. The rate of production needed to meet customer demand, yet avoid overproduction.
• Target costing. An approach to pricing used by pricetakers; target costing begins with the revenue at market price and subtracts the company's desired profit to arrive at the target total cost.
• Time Value of Money. The fact that money can be invested to earn income over time.
• Times-interest-earned ratio. Ratio of income from operations to interest expense. It measures the number of times operating income can cover interest expense; also called the interest-coverage ratio.
• Total cost. The cost of all resources used throughout the value chain.
• Total Quality Management (TOM). A management philosophy of delighting customers with superior products and services by continually setting higher goals and improving the performance of every business function.
• Trace. To assign a direct cost to a cost object.
• Trading on equity. Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business; also called leverage.
• Transfer price. The price charged for the internal sale of product between two different divisions of the same company, 597-599 Transferred-in costs. Costs incurred in a previous process that are carried forward as part of the product's cost when it moves to the next process, 264,272 Transportation, 198, 199 Trash audits, 258, 899, 900 Treasurer. The position responsible for raising the firm's capital and investing funds.
• Trend percentages. A form of horizontal analysis in which percentages are computed by selecting a base year as 100 % and expressing amounts for the following years as a percentage of the base amount.
• Triple bottom line. Evaluating a company's performance not only by its ability to generate economic profits, but also by its impact on people and on the planet.
• Unavoidable fixed costs. Fixed costs that will continue to be incurred even if a particular course of action is taken.
• Uncontrollable costs. Costs that cannot be changed or influenced in the short run by management.
• Underallocated manufacturing overhead. The amount of manufacturing overhead allocated to jobs is less than the amount of manufacturing overhead costs actually incurred; this results in jobs being undercosted.
• Unfavorable variance. A variance that causes operating income to be lower than budgeted.
• Unit Contribution Margin. The excess of the unit sales price over the variable cost per unit: also called contribution margin per unit.
• Unit-level activities. Activities and costs incurred for every unit produced.
• Value chain. The activities that add value to a firm's products and services; includes R&D, design, production or purchases, marketing, distribution, and customer service.
• Value-added activities. Activities for which the customer is willing to pay because these activities add value to the final product or service, 192 Variable costing. The costing method that assigns only variable manufacturing costs to products. All fixed manufacturing costs (fixed MOH) are expensed as period costs. Also known as direct costing.
• Variable costs. Costs that change in total in direct proportion to changes in volume.
• Variable overhead efficiency variance. This variance tells managers how much of the total variable MOH variance is due to using more or fewer hours of the allocation base (u sually machine hours or DL hours) than anticipated for the actual volume of output. It is calculated as follows: SR X (AH - SHA).
• Variable overhead rate variance. Also called the variable overhead spending variance. This variance tells managers whether more or less was spent on variable overhead than they expected would be spent for the hours worked. It is calculated as follows: AH X (AR - SR).
• Variable overhead spending variance. Another common name for variable overhead rate variance.
• Variance. The difference between an actual figures and budgeted figures.
• Vertical analysis. Analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure.
• Vertical integration. The acquisition of companies within one's supply chain.
• Volume variance. The difference between the master budget and the flexible budget. The volume variance arises only because the actual sales volume differs from the volume originally anticipated in the master budget.
• Waste activities. Activities that neither enhance the customer's image of the product or service nor provide a competitive advantage; also known as non-value-added activities.
• Waste audits. Studying the stream of waste coming from company operations (solid waste, water discharge, chemicals, etc.) to determine waste that can be avoided and alternative uses for the remaining waste.
• Water footprint. The total volume of water use associated with the processes and products of a business.
• Weighted-average method of process costing. A process costing method that combines any beginning inventory units (and costs) with the current period's units (and costs) to get a weighted-average cost.
• Wholesaler. Merchandising companies that buy in bulk from manufacturers, mark up the prices, and then sell those products to retailers.
• Working capital. Current assets minus current liabilities; measures a business's ability to meet its short-term obligations with its current assets.
• Work-in-process inventory (WIP inventory). Goods that are partway through the manufacturing process but not yet complete.
• Zero-based budgeting. A budgeting approach in which managers begin with a budget of zero and must justify every dollar put into the budget.