Term
ABSORPTION COSTING
chapter6 |
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Definition
Definition: The product costing method that assigns direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead to products. Required by GAAP for external reporting. Called absorption costing because the products absorb all of the manufacturing costs- materials, labor, and overhead. These costs are recorded first as assets in the inventory accounts, and then when the product is sold, the costs are transferred to the expense account Cost of Goods Sold.
How is this system used:
It is required by Generally Accepted Accounting Principles (GAAP) for financial statements used to investors, creditors, and other external users. |
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Term
ACTIVITY BASED MANAGEMENT
chapter4 |
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Definition
Definition: A component of a lean management system that uses activity-based cost information to make decisons that improve customer satisfaction while also increasing profit.
How can it be used to make decisions:
1. Pricing and Product Mix Decisions
2. Cost Management Decisions |
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Term
ACTIVITY-BASED COSTING
chapter4 |
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Definition
| Definition: Focuses on the costs of activities as the building blocks for allocating indirect costs to products and services. |
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Term
JOB ORDER COSTING
chapter2 |
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Definition
Definition: An accounting system that accumulates costs by job. Used by companies that manufacture unique products or provide specialized services. The goal is to keep track of the costs associated with each individual job.
How can it used to make decisions:
1. Direct Costs Assigned to Jobs
2. Overhead Costs Allocated to Jobs
3. Sales Price Determined for Jobs |
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Term
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Definition
| Definition: The direct costs of the manufacturing process. Direct materials plus direct labor. (labor-intensive) |
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Term
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Definition
Definition: An accounting system that accumulates costs by process. Used by companies that manufacture identical units through a series of uniform production steps or processes.
How can it used to make decisions:
1. Controlling Costs
2. Evaluating Performance
3. Pricing Products
4. Identifying the Most Profitable Products
5. Preparing the Financial Statements |
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Term
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Definition
Definition: The product costing method that assigns only variable manufacturing costs to products: direct materials, direct labor, and variable manufacturing overhead. Used for internal reporting.
How can it be used to make decisions:
1. Setting Sales Prices
2. Controlling Costs
3. Planning Production
4. Analyzing Profitability
5. Analyzing Contribution Margins |
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