Term
|
Definition
| Potential future costs an organization can circumvent by choosing a particular course of action. To be avoidable, costs must differ among decision alternatives. For example, if materials cost for two different products is the same for each product, materials cost could not be avoided by choosing to produce one product instead of the other. The materials cost would therefore not be an avoidable cost. |
|
|
Term
|
Definition
| The costs associated with producing a batch of products, most accurately allocated using cost drivers that measure activity levels. For example, the cost of setting up a press to print 500 copies of an engraved invitation is a batch-level cost. Classifying costs as batch-level is context sensitive. The postage to mail a single product would be classified as a unit-level cost. In contrast, the postage to mail a large number of products in a single shipment would be classified as a batch-level cost. |
|
|
Term
|
Definition
| A constraint that limits a company's capacity to produce or sell its products, such as a piece of equipment that cannot produce enough component parts to fully occupy employees in the assembly department. |
|
|
Term
|
Definition
| Suppliers who have demonstrated reliability by providing the buyer with quality goods and services at desirable prices, usually in accord with strict delivery specifications; frequently offer the buyer preferred customer status in exchange for guaranteed purchase quantities and prompt payment schedules. |
|
|
Term
|
Definition
| Conditions that limit a business's ability to satisfy the demand for its products. |
|
|
Term
| Equipment Replacement Decisions |
|
Definition
| Deciding whether to replace existing equipment with newer equipment based on comparing the avoidable costs of keeping the old or purchasing new equipment to determine which choice is more profitable. |
|
|
Term
|
Definition
| Costs incurred to support the whole company or a segment thereof, not related to any specific product, batch, or unit of production or service and unavoidable unless the entire company or segment is eliminated; they are so indirect that any allocation of facilitylevel costs is necessarily arbitrary. |
|
|
Term
|
Definition
| Supplier practice of pricing a product below competitors' prices to attract customers and then raising the price once customers depend on the supplier for the product. |
|
|
Term
|
Definition
| Cost of lost opportunities such as revenue forgone because of insufficient inventory. |
|
|
Term
|
Definition
| Buying goods and services from an outside company rather than producing them internally. |
|
|
Term
|
Definition
| Costs incurred to support specific products or services; allocated based on the extent to which they sustain the product or service, and avoidable by eliminating the product line or type of service. |
|
|
Term
| Qualitative Characteristics |
|
Definition
| Features of information such as company reputation, employee welfare, and customer satisfaction that cannot be quantified but may be relevant to decision making. |
|
|
Term
| Quantitative Characteristics |
|
Definition
| Features of information that can be mathematically measured, such as the dollar amounts of revenues and expenses, often relevant to decision making. |
|
|
Term
|
Definition
| Opening bottlenecks that limit the profitable operations of a business. |
|
|
Term
|
Definition
| Future-oriented costs that differ among alternative business decisions; also known as avoidable costs. |
|
|
Term
|
Definition
| Decision-making information about costs, cost savings, or revenues that |
|
|
Term
|
Definition
| Component part of an organization that is designated as a reporting entity. |
|
|
Term
|
Definition
| Deciding whether to accept orders from customers who offer to buy goods or services at prices significantly below selling prices regular customers pay. If the order's differential revenues exceed its avoidable costs, the order should be accepted unless qualitative factors, such as the order's effect on the existing customer base, could lead to unfavorable consequences. |
|
|
Term
|
Definition
| Costs that have been previously incurred; not relevant for decision making. For example, in an equipment replacement decision, the cost paid for the existing machine presently in use is a non-avoidable sunk cost because it has already been incurred. |
|
|
Term
| Theory of Constraints (TOC) |
|
Definition
| A management practice used to increase profitability by identifying bottlenecks or resource limitations that restrict operations and then removing them by relaxing the constraints. |
|
|
Term
|
Definition
| Costs incurred with each unit of product made or single service performed; exhibit variable cost behavior; avoidable by not producing the unit of product or providing the service. Similarly, unitlevel costs increase with each additional product produced or service provided. |
|
|
Term
|
Definition
| Maintaining control over the entire continuum of business activity from production to selling, such as a company owning both a grocery store and a farm. |
|
|
Term
Differential Revenues
Relevant Revenues |
|
Definition
| relevant revenues must (1) be future oriented and (2) differ for the alternatives under consideration. Since relevant revenues differ between the alternatives, they are sometimes called differential revenues. |
|
|
