Term
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Definition
| Annual number of units used/Number of units used |
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Term
| total ordering cost formula |
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Definition
| Number of orders x Cost per Order |
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Term
| total carrying cost formula |
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Definition
| Average number of units in inventory x Cost of carrying one unit in inventory |
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Term
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Definition
| Large orders mean lower annual order costs but higher annual carrying costs |
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Term
| total inventory related costs formula |
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Definition
| Total order Cost + Total carrying cost |
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Term
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Definition
| carrying cost always equals the ordering cost |
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Term
| economic order quantity formula |
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Definition
square root (2 x Cost of placing 1 order x annual demand for item)/ (Cost of carrying 1 unit)
number of orders= annual number of units/ EOQ |
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Term
| segmented income statements |
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Definition
| show sales and directly attributable costs (variable costs and direct fixed costs) by individual segment (product, customer type, etc.). Common fixed expenses are not shown by segment. They are subtracted from total segment margin. |
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Term
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Definition
measured in units of inventory
point in time when a new order should be placed (setup started) |
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Term
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Definition
| rate of usage x lead time |
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Term
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Definition
| (Maximum Daily Usage- Avg. Daily Usage) x Lead time |
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Term
| segment margin (both products) formula |
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Definition
| sales minus variable costs) = contribution margin - direct fixed expense |
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Term
| change in operating income |
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Definition
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Term
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Definition
| ssigns all manufacturing costs to the product. Direct materials, direct labor, variable overhead, and fixed overhead define the cost of a product. Thus, under absorption costing, fixed overhead is viewed as a product cost, not a period cost. Under this method, fixed overhead is assigned to the product through the use of a predetermined fixed overhead rate and is not expensed until the product is sold. In other words, fixed overhead is an inventoriable cost. |
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Term
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Definition
| assigns only variable manufacturing costs to the product; these costs include direct materials, direct labor, and variable overhead. Fixed overhead is treated as a period expense and is excluded from the product cost. The rationale for this is that fixed overhead is a cost of capacity, or staying in business. Once the period is over, any benefits provided by capacity have expired and should not be inventoried. Under variable costing, fixed overhead of a period is seen as expiring that period and is charged in total against the revenues of the period. |
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Term
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Definition
Product costs- direct materials, direct labor, variable overhead
Period costs- fixed overhead, selling expenses, admin expenses |
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Term
| assigned absorption costs |
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Definition
Product Costs- direct materials, direct labor, variable overhead, fixed overhead
Period costs- selling expenses, admin expenses |
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Term
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Definition
| a subunit of a company of sufficient importance to warrant the production of performance reports. |
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Term
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Definition
| fixed expenses that are directly traceable to a segment. These are sometimes referred to as avoidable fixed expenses or traceable fixed expenses because they vanish if the segment is eliminated. |
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Term
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Definition
| jointly caused by two or more segments. These expenses persist even if one of the segments to which they are common is eliminated. |
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Term
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Definition
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Term
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Definition
| the unit product cost under absorption costing is always _______ than the unit product cost under variable costing. |
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Term
| ordering (carrying) costs |
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Definition
| If the inventory is a material or good purchased from an outside source |
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Term
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Definition
| If the material or good is produced internally |
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Term
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Definition
| are the costs of not having a product available when demanded by a customer or the cost of not having a raw material available when needed for production. |
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Term
| reasons for carrying inventory |
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Definition
balance ordering, setup and carrying costs
satisfy customer demand (meet delivery dates)
avoid shutting down manufacturing facilities because of machine failure, defective parts, unavailable parts, late delivery
buffer against unreliable production processes
take advantage of discounts
hedge against future price increases |
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Term
how much should be ordered?
when should the order be placed? |
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Definition
| once a company decides to carry inventory, 2 basic questions must be addressed... |
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Term
| average inventory formula |
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Definition
| (Max amount + Min. amount) / 2 |
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Term
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Definition
| time required to receive the economic order quantity once an order is placed or a setup is started. |
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Term
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Definition
| extra inventory carried to serve as insurance against changes in demand. |
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Term
| just-in-time approach (JIT) |
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Definition
| maintains that goods should be pulled through the system by present demand rather than being pushed through on a fixed schedule based on anticipated demand. |
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Term
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Definition
| Segments can be divisions, departments, product lines, customer classes, and so on. In segmented income statements, fixed expenses are broken down into two categories: direct fixed expenses and common fixed expenses. This additional subdivision highlights controllable versus noncontrollable costs and enhances the manager's ability to evaluate each segment's contribution to overall firm performance. |
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Term
| example of direct fixed expenses |
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Definition
| for each region would be the rent for the sales office, salary of the sales manager of each region, and so on. If one region were to be eliminated, |
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Term
| example of common fixed expense |
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Definition
For example, depreciation on the corporate headquarters building, the salary of the CEO, and the cost of printing and distributing the annual report to shareholders are
If Walt Disney Company were to sell a theme park or open a new one _____ would not be affected. |
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