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Glossary

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    54076
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    Glossary Entries
    Word(s) Definition Image Caption Link Source
    absorption costing A costing method that includes all manufacturing costs (fixed and variable) in inventory until the goods are sold.
    account analysis A method of cost analysis that requires a review of accounts by an experienced employee or group of employees to determine whether the costs in each account are fixed or variable.
    activity Any process or procedure that consumes overhead resources.
    Activity-based costing (ABC) A method of costing that uses several cost pools, and therefore several predetermined overhead rates, organized by activity to allocate overhead costs.
    Activity-based management (ABM) A management tool that uses cost information obtained from an ABC system to improve the efficiency and profitability of operations.
    Activity-based management (ABM) A management tool that uses cost information obtained from an ABC system to improve the efficiency and profitability of operations.
    Allocated fixed costs Fixed costs that cannot be traced directly to a product line or customer, and therefore are assigned to product lines or customers using an allocation process (also called common fixed costs).
    Allocated fixed costs Fixed costs that cannot be traced directly to a product line or customer, and therefore are assigned to product lines or customers using an allocation process (also called common fixed costs).
    annuity A term used to describe identical cash flows that occur in regular intervals.
    annuity A term used to describe identical cash flows that occur in regular intervals.
    Asset turnover The ratio of sales to average operating assets.
    Asset turnover The ratio of sales to average operating assets.
    Attainable standards Standards that are more realistic than ideal standards by taking into consideration the likelihood of encountering problems in production such as machine downtime, materials waste, and employee illness.
    Attainable standards Standards that are more realistic than ideal standards by taking into consideration the likelihood of encountering problems in production such as machine downtime, materials waste, and employee illness.
    average collection period Indicates how many days it takes on average to collect credit sales. Calculated as 365 days divided by receivables turnover ratio.
    average collection period Indicates how many days it takes on average to collect credit sales. Calculated as 365 days divided by receivables turnover ratio.
    Average operating assets Assets the division has in place to run the daily operations of the business; it is calculated using operating asset information as follows: (Beginning period balances + Ending period balances) ÷ 2.
    Average operating assets Assets the division has in place to run the daily operations of the business; it is calculated using operating asset information as follows: (Beginning period balances + Ending period balances) ÷ 2.
    average sale period Indicates how many days it takes on average to sell the company’s inventory. Calculated as 365 days divided by inventory turnover ratio.
    average sale period Indicates how many days it takes on average to sell the company’s inventory. Calculated as 365 days divided by inventory turnover ratio.
    avoidable cost A cost that can be avoided, or eliminated, if one alternative is chosen over another.
    avoidable cost A cost that can be avoided, or eliminated, if one alternative is chosen over another.
    balanced scorecard A balanced set of financial and nonfinancial measures used by organizations to motivate employees and evaluate performance.
    balanced scorecard A balanced set of financial and nonfinancial measures used by organizations to motivate employees and evaluate performance.
    break-even point in sales dollars The total sales measured in dollars required to achieve zero profit.
    break-even point in sales dollars The total sales measured in dollars required to achieve zero profit.
    budget A series of reports used to quantify an organization’s plan for the future.
    budget A series of reports used to quantify an organization’s plan for the future.
    budgeted balance sheet An estimate of the ending balances for all balance sheet accounts.
    budgeted balance sheet An estimate of the ending balances for all balance sheet accounts.
    budgeted income statement An estimate of the organization’s profit for a given budget period.
    budgeted income statement An estimate of the organization’s profit for a given budget period.
    capital budgeting decision The process of analyzing and deciding which long-term investments (or capital expenditure decision) to make.
    capital budgeting decision The process of analyzing and deciding which long-term investments (or capital expenditure decision) to make.
    capital expenditure ratio A cash flow performance measure calculated as cash provided by operating activities divided by capital expenditures.
    capital expenditure ratio A cash flow performance measure calculated as cash provided by operating activities divided by capital expenditures.
    capital expenditures budget An estimate of the long-term assets to be purchased during the budget period.
    capital expenditures budget An estimate of the long-term assets to be purchased during the budget period.
    cash budget An estimate of the amount and timing of cash inflows and outflows for the budget period.
    cash budget An estimate of the amount and timing of cash inflows and outflows for the budget period.
    chief financial officer (CFO) The person in charge of all finance and accounting functions within the organization.
    chief financial officer (CFO) The person in charge of all finance and accounting functions within the organization.
    clearing account An account used to hold financial data temporarily until it is closed out at the end of the period.
    clearing account An account used to hold financial data temporarily until it is closed out at the end of the period.
    committed fixed cost A fixed cost that cannot easily be changed in the short run without having a significant impact on the organization.
    committed fixed cost A fixed cost that cannot easily be changed in the short run without having a significant impact on the organization.
    Common-size analysis An analysis that converts each line of financial statement data to an easily comparable amount measured in percent form. Income statement items are stated as a percent of net sales, and balance sheet items are stated as a percent of total assets (or total liabilities and shareholders’ equity); also called vertical analysis.
    Common-size analysis An analysis that converts each line of financial statement data to an easily comparable amount measured in percent form. Income statement items are stated as a percent of net sales, and balance sheet items are stated as a percent of total assets (or total liabilities and shareholders’ equity); also called vertical analysis.
    contribution margin Sales revenue left over after deducting variable costs from sales.
    contribution margin Sales revenue left over after deducting variable costs from sales.
    contribution margin per unit The amount each unit sold contributes to (1) covering fixed costs and (2) increasing profit.
    contribution margin per unit The amount each unit sold contributes to (1) covering fixed costs and (2) increasing profit.
    contribution margin per unit of constraint The contribution margin per unit divided by the units of constrained resource required to produce one unit of product.
    contribution margin per unit of constraint The contribution margin per unit divided by the units of constrained resource required to produce one unit of product.
    contribution margin ratio The contribution margin as a percentage of sales; it measures the amount each sales dollar contributes to (1) covering fixed costs and (2) increasing profit; also called contribution margin percent.
    contribution margin ratio The contribution margin as a percentage of sales; it measures the amount each sales dollar contributes to (1) covering fixed costs and (2) increasing profit; also called contribution margin percent.
    control The process of evaluating whether the organization’s plans were effectively implemented.
    control The process of evaluating whether the organization’s plans were effectively implemented.
    controller The person responsible for managing the accounting staff that provides managerial accounting information used for internal decision making, financial accounting information for external reporting purposes, and tax accounting information to meet tax filing requirements.
    controller The person responsible for managing the accounting staff that provides managerial accounting information used for internal decision making, financial accounting information for external reporting purposes, and tax accounting information to meet tax filing requirements.
    cost center A segment of an organization responsible only for costs, but not for revenue or investments in assets.
    cost center A segment of an organization responsible only for costs, but not for revenue or investments in assets.
    cost driver The allocation base that drives overhead costs.
    cost driver The allocation base that drives overhead costs.
    cost driver The action that causes the costs associated with an activity.
    cost driver The action that causes the costs associated with an activity.
    cost hierarchy A method of costing that groups costs based on whether the activity is at the facility level, product or customer level, batch level, or unit level.
    cost hierarchy A method of costing that groups costs based on whether the activity is at the facility level, product or customer level, batch level, or unit level.
    cost of capital The weighted average costs associated with debt and equity used to fund long-term investments.
    cost of capital The weighted average costs associated with debt and equity used to fund long-term investments.
    cost of goods manufactured The cost of completed goods transferred from work-in-process inventory into finished goods inventory.
    cost of goods manufactured The cost of completed goods transferred from work-in-process inventory into finished goods inventory.
    cost of goods sold An expense account on the income statement that represents the product costs for all goods sold during the period.
    cost of goods sold An expense account on the income statement that represents the product costs for all goods sold during the period.
    cost per equivalent unit The average unit cost for each product.
    cost per equivalent unit The average unit cost for each product.
    cost pools A collection of overhead costs, typically organized by department or activity.
    cost pools A collection of overhead costs, typically organized by department or activity.
    Cost structure The proportion of fixed and variable costs to total costs.
    Cost structure The proportion of fixed and variable costs to total costs.
    Cost-plus pricing An approach to establishing prices that starts with an estimate of the costs incurred to build a product, and a certain profit percentage is added to establish the price.
    Cost-plus pricing An approach to establishing prices that starts with an estimate of the costs incurred to build a product, and a certain profit percentage is added to establish the price.
    cost-volume-profit analysis The process of analyzing how changes in key assumptions (e.g., assumptions related to cost, volume, or profit) may impact financial projections.
    cost-volume-profit analysis The process of analyzing how changes in key assumptions (e.g., assumptions related to cost, volume, or profit) may impact financial projections.
    current ratio Indicates whether a company has enough current assets to cover current liabilities. Calculated as current assets divided by current liabilities.
    current ratio Indicates whether a company has enough current assets to cover current liabilities. Calculated as current assets divided by current liabilities.
    debt to assets Indicates the percentage of assets funded by creditors. Calculated as total liabilities divided by total assets.
    debt to assets Indicates the percentage of assets funded by creditors. Calculated as total liabilities divided by total assets.
    debt to equity Indicates the balance of liabilities and shareholders’ equity used to fund assets. Calculated as total liabilities divided by total shareholders’ equity.
    debt to equity Indicates the balance of liabilities and shareholders’ equity used to fund assets. Calculated as total liabilities divided by total shareholders’ equity.
    Decentralized organizations Organizations that delegate decision-making and operational responsibilities to the managers of each segment of the organization. Segments are often called divisions or subunits.
    Decentralized organizations Organizations that delegate decision-making and operational responsibilities to the managers of each segment of the organization. Segments are often called divisions or subunits.
    department allocation A method of allocating costs that uses a separate cost pool, and therefore a separate predetermined overhead rate, for each department.
    department allocation A method of allocating costs that uses a separate cost pool, and therefore a separate predetermined overhead rate, for each department.
    depreciation tax shield The tax savings that result from depreciation expense.
    depreciation tax shield The tax savings that result from depreciation expense.
    differential analysis The process of analyzing differential revenues and costs from one alternative to another (also called incremental analysis).
    differential analysis The process of analyzing differential revenues and costs from one alternative to another (also called incremental analysis).
    Direct fixed costs Fixed costs that can be traced directly to a product line or customer.
    Direct fixed costs Fixed costs that can be traced directly to a product line or customer.
    direct labor Labor performed by workers who convert materials into a finished product and whose time is easily traced to the product.
    direct labor Labor performed by workers who convert materials into a finished product and whose time is easily traced to the product.
    direct labor budget An estimate of direct labor hours, and related cost, necessary to achieve a desired level of production.
    direct labor budget An estimate of direct labor hours, and related cost, necessary to achieve a desired level of production.
    direct materials Raw materials used in the production process that are easily traced to the product.
    direct materials Raw materials used in the production process that are easily traced to the product.
    direct materials purchases budget An estimate of raw materials needed to achieve a desired level of production.
    direct materials purchases budget An estimate of raw materials needed to achieve a desired level of production.
    direct method A method of allocating costs that allocates service department costs directly to production departments but not to other service departments.
    direct method A method of allocating costs that allocates service department costs directly to production departments but not to other service departments.
    direct method A statement of cash flows method that makes adjustments to each income statement revenue and expense line item, thereby converting each item to a cash basis. The resulting cash payments and cash receipts are used to calculate cash provided by operating activities.
    direct method A statement of cash flows method that makes adjustments to each income statement revenue and expense line item, thereby converting each item to a cash basis. The resulting cash payments and cash receipts are used to calculate cash provided by operating activities.
    discretionary fixed cost A fixed cost that can be changed in the short run without having a significant impact on the organization.
    discretionary fixed cost A fixed cost that can be changed in the short run without having a significant impact on the organization.
    Earnings per share Indicates how much net income was earned for each share of common stock outstanding. Calculated as net income minus preferred dividends divided by weighted average common shares outstanding.
    Earnings per share Indicates how much net income was earned for each share of common stock outstanding. Calculated as net income minus preferred dividends divided by weighted average common shares outstanding.
    Economic value added (EVA) Similar to RI, and it is defined as Economic value added = Net operating profit after taxesadjusted − (Percent cost of capital × Average operating assetsadjusted)
    Economic value added (EVA) Similar to RI, and it is defined as Economic value added = Net operating profit after taxesadjusted − (Percent cost of capital × Average operating assetsadjusted)
    Enterprise resource planning (ERP) A system designed to record and share information across functional and geographical areas to meet the needs of internal and external users.
    Enterprise resource planning (ERP) A system designed to record and share information across functional and geographical areas to meet the needs of internal and external users.
    Equivalent units Partially completed units converted to the equivalent completed units; calculated by multiplying the number of physical units on hand by the percentage of completion of the physical units.
    Equivalent units Partially completed units converted to the equivalent completed units; calculated by multiplying the number of physical units on hand by the percentage of completion of the physical units.
    External failure costs Costs for activities that result from delivering defective products to customers.
    External failure costs Costs for activities that result from delivering defective products to customers.
    Financial leverage Indicates the ability of a company to leverage common shareholders’ equity by taking on debt at an interest rate lower than the company’s return on assets.
    Financial leverage Indicates the ability of a company to leverage common shareholders’ equity by taking on debt at an interest rate lower than the company’s return on assets.
    Financing activities A section of the statement of cash flows that includes cash activities related to noncurrent liabilities and owners’ equity, such as cash receipts from the issuance of bonds and cash payments for the repurchase of common stock.
    Financing activities A section of the statement of cash flows that includes cash activities related to noncurrent liabilities and owners’ equity, such as cash receipts from the issuance of bonds and cash payments for the repurchase of common stock.
    finished goods inventory An account used to record the manufacturing costs associated with products that are completed and ready to sell.
    finished goods inventory An account used to record the manufacturing costs associated with products that are completed and ready to sell.
    first-in-first-out (FIFO) A method of accounting for product costs that assumes that the first units completed within a processing department are the first units transferred out; beginning inventory costs are maintained separately from current period costs.
    first-in-first-out (FIFO) A method of accounting for product costs that assumes that the first units completed within a processing department are the first units transferred out; beginning inventory costs are maintained separately from current period costs.
    fixed cost A cost that remains constant in total with changes in activity and varies on a per unit basis with changes in activity.
    fixed cost A cost that remains constant in total with changes in activity and varies on a per unit basis with changes in activity.
    fixed overhead production volume variance The difference between the budgeted and applied fixed overhead costs.
    fixed overhead production volume variance The difference between the budgeted and applied fixed overhead costs.
    fixed overhead spending variance The difference between actual and budgeted fixed overhead costs.
    fixed overhead spending variance The difference between actual and budgeted fixed overhead costs.
    flexible budget A revised master budget based on the actual activity level.
    flexible budget A revised master budget based on the actual activity level.
    Free cash flow A cash flow performance measure calculated as cash provided by operating activities minus capital expenditures.
    Free cash flow A cash flow performance measure calculated as cash provided by operating activities minus capital expenditures.
    general and administrative costs Costs related to the overall management of an organization.
    general and administrative costs Costs related to the overall management of an organization.
    gross margin ratio Indicates the gross margin generated for each dollar in net sales. Calculated as gross margin divided by net sales.
    gross margin ratio Indicates the gross margin generated for each dollar in net sales. Calculated as gross margin divided by net sales.
    high-low method A method of cost analysis that uses the high and low activity data points to estimate fixed and variable costs.
    high-low method A method of cost analysis that uses the high and low activity data points to estimate fixed and variable costs.
    Ideal standards Standards set assuming production conditions are perfect with no inefficiencies.
    Ideal standards Standards set assuming production conditions are perfect with no inefficiencies.
    Indirect labor costs The costs of workers who are involved in the production process but whose time cannot easily be traced to the product.
    Indirect labor costs The costs of workers who are involved in the production process but whose time cannot easily be traced to the product.
    indirect method A statement of cash flows method that begins with net income from the income statement and makes several adjustments related to changes in current assets, current liabilities, and other items to arrive at cash provided by (used by) operating activities.
    indirect method A statement of cash flows method that begins with net income from the income statement and makes several adjustments related to changes in current assets, current liabilities, and other items to arrive at cash provided by (used by) operating activities.
    internal auditor The person responsible for confirming that controls within the company are effective in ensuring accurate financial data.
    internal auditor The person responsible for confirming that controls within the company are effective in ensuring accurate financial data.
    internal rate of return (IRR) A method used to evaluate long-term investments. It is defined as the rate required to get a net present value of zero for a series of cash flows.
    internal rate of return (IRR) A method used to evaluate long-term investments. It is defined as the rate required to get a net present value of zero for a series of cash flows.
    inventory turnover ratio Indicates how many times inventory is sold and restocked in a given period. Calculated as cost of goods sold divided by average inventory.
    inventory turnover ratio Indicates how many times inventory is sold and restocked in a given period. Calculated as cost of goods sold divided by average inventory.
    investment center A segment of an organization responsible for costs, revenues, and investments in assets.
    investment center A segment of an organization responsible for costs, revenues, and investments in assets.
    job An activity that results in a unique product, one easily distinguished from other products.
    job An activity that results in a unique product, one easily distinguished from other products.
    job cost sheet A means of accumulating the manufacturing costs incurred for each job.
    job cost sheet A means of accumulating the manufacturing costs incurred for each job.
    job costing system A system that records revenues and costs for each job.
    job costing system A system that records revenues and costs for each job.
    job costing system A system of assigning costs used by companies that produce unique products or jobs.
    job costing system A system of assigning costs used by companies that produce unique products or jobs.
    joint costs The cost of inputs required to produce joint products.
    joint costs The cost of inputs required to produce joint products.
    labor efficiency variance The difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards.
    labor efficiency variance The difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standards.
    Management by exception A term used to describe managers who focus solely on variances showing actual results that are significantly different than expected results.
    Management by exception A term used to describe managers who focus solely on variances showing actual results that are significantly different than expected results.
    Managerial accounting Focuses on internal users, including executives, product managers, sales managers, and any other personnel in the organization who use accounting information for decision making.
    Managerial accounting Focuses on internal users, including executives, product managers, sales managers, and any other personnel in the organization who use accounting information for decision making.
    manufacturing overhead All costs associated with the production process other than direct material costs and direct labor costs.
    manufacturing overhead All costs associated with the production process other than direct material costs and direct labor costs.
    manufacturing overhead budget An estimate of all production costs, other than direct materials and direct labor, necessary to achieve a desired level of production.
    manufacturing overhead budget An estimate of all production costs, other than direct materials and direct labor, necessary to achieve a desired level of production.
    margin of safety The excess of expected sales over the break-even point, measured in units and in sales dollars.
    margin of safety The excess of expected sales over the break-even point, measured in units and in sales dollars.
    Market capitalization Indicates the value of a company at a point in time. Calculated as market price per share times the number of shares outstanding; also called market cap.
    Market capitalization Indicates the value of a company at a point in time. Calculated as market price per share times the number of shares outstanding; also called market cap.
    master budget A series of budget schedules outlining the organization’s plans for the upcoming period.
    master budget A series of budget schedules outlining the organization’s plans for the upcoming period.
    materials quantity variance The difference between the actual quantity of materials used in production and budgeted materials that should have been used in production based on the standards.
    materials quantity variance The difference between the actual quantity of materials used in production and budgeted materials that should have been used in production based on the standards.
    materials requisition form A form used to track materials taken out of raw materials inventory and placed into production.
    materials requisition form A form used to track materials taken out of raw materials inventory and placed into production.
    merchandise purchases budget An estimate of the units of merchandise to be purchased and the cost per unit.
    merchandise purchases budget An estimate of the units of merchandise to be purchased and the cost per unit.
    mixed cost A cost that has a combination of fixed and variable costs.
    mixed cost A cost that has a combination of fixed and variable costs.
    net present value (NPV) A method used to evaluate long-term investments. It is calculated by adding the present value of all cash inflows and subtracting the present value of all cash outflows.
    net present value (NPV) A method used to evaluate long-term investments. It is calculated by adding the present value of all cash inflows and subtracting the present value of all cash outflows.
    non-value-added activities Activities that do not add to a product’s quality and performance.
    non-value-added activities Activities that do not add to a product’s quality and performance.
    normal costing A method of costing that uses a predetermined overhead rate to apply overhead to jobs.
    normal costing A method of costing that uses a predetermined overhead rate to apply overhead to jobs.
    operating budget A short-term budget (typically one year) that focuses on the daily operations of the organization.
    operating budget A short-term budget (typically one year) that focuses on the daily operations of the organization.
    operating cash flow ratio A cash flow performance measure calculated as cash provided by operating activities divided by current liabilities.
    operating cash flow ratio A cash flow performance measure calculated as cash provided by operating activities divided by current liabilities.
    Operating income Income produced by the division related to its daily activities; it typically excludes items, such as income tax expense, interest income, interest expense, and unusual gains or losses.
    Operating income Income produced by the division related to its daily activities; it typically excludes items, such as income tax expense, interest income, interest expense, and unusual gains or losses.
    Operating leverage The level of fixed costs within an organization.
    Operating leverage The level of fixed costs within an organization.
    opportunity cost The benefit forgone when one alternative is selected over another.
    opportunity cost The benefit forgone when one alternative is selected over another.
    Overapplied overhead Overhead costs applied to jobs that exceed actual overhead costs.
    Overapplied overhead Overhead costs applied to jobs that exceed actual overhead costs.
    overhead applied The assignment of overhead costs to jobs based on a predetermined overhead rate.
    overhead applied The assignment of overhead costs to jobs based on a predetermined overhead rate.
    payback period The time it takes to generate enough cash receipts from an investment to cover the cash outflows for the investment.
    payback period The time it takes to generate enough cash receipts from an investment to cover the cash outflows for the investment.
    percent change Calculated as the current year amount minus the base amount; this is then divided by the base year amount.
    percent change Calculated as the current year amount minus the base amount; this is then divided by the base year amount.
    percent cost of capital The company’s percentage cost to obtain investment funds.
    percent cost of capital The company’s percentage cost to obtain investment funds.
    period costs Costs that are not related to the production of goods; also called nonmanufacturing costs.
    period costs Costs that are not related to the production of goods; also called nonmanufacturing costs.
    physical quantities method A method that allocates joint costs based on a physical measure of output.
    physical quantities method A method that allocates joint costs based on a physical measure of output.
    plantwide allocation A method of allocating costs that uses one cost pool, and therefore one predetermined overhead rate, to allocate overhead costs.
    plantwide allocation A method of allocating costs that uses one cost pool, and therefore one predetermined overhead rate, to allocate overhead costs.
    postaudit Compares the original capital budget with the actual results.
    postaudit Compares the original capital budget with the actual results.
    predetermined overhead rate A rate established prior to the year in which it is used in allocating manufacturing overhead costs to jobs.
    predetermined overhead rate A rate established prior to the year in which it is used in allocating manufacturing overhead costs to jobs.
    present value The term used to describe future cash flows (both in and out) in today’s dollars.
    present value The term used to describe future cash flows (both in and out) in today’s dollars.
    price-earnings ratio Indicates the premium investors are willing to pay for shares of stock relative to the company’s earnings. Calculated as market price per share divided by earnings per share; also called P/E ratio.
    price-earnings ratio Indicates the premium investors are willing to pay for shares of stock relative to the company’s earnings. Calculated as market price per share divided by earnings per share; also called P/E ratio.
    process costing system A costing system used by companies that produce identical units of product in batches employing a consistent process.
    process costing system A costing system used by companies that produce identical units of product in batches employing a consistent process.
    product costs All costs related to the production of goods; also called manufacturing costs.
    product costs All costs related to the production of goods; also called manufacturing costs.
    product line A group of related products.
    product line A group of related products.
    production budget An estimate of units to be produced, and it is based on sales projections plus an estimate of desired ending finished goods inventory less beginning finished goods inventory.
    production budget An estimate of units to be produced, and it is based on sales projections plus an estimate of desired ending finished goods inventory less beginning finished goods inventory.
    production cost report A report that summarizes the production and cost activity within a department for a reporting period.
    production cost report A report that summarizes the production and cost activity within a department for a reporting period.
    Production departments Departments directly involved with producing goods or providing services for customers.
    Production departments Departments directly involved with producing goods or providing services for customers.
    profit center A segment of an organization responsible for costs and revenues, but not investments in assets.
    profit center A segment of an organization responsible for costs and revenues, but not investments in assets.
    profit equation Profit equals total revenues minus total variable costs minus total fixed costs.
    profit equation Profit equals total revenues minus total variable costs minus total fixed costs.
    profit margin ratio Indicates the profit generated from each dollar in net sales. Calculated as net income divided by net sales.
    profit margin ratio Indicates the profit generated from each dollar in net sales. Calculated as net income divided by net sales.
    public company A company whose shares of stock are publicly traded.
    public company A company whose shares of stock are publicly traded.
    quick ratio Indicates whether a company has enough quick assets to cover current liabilities. Calculated as quick assets divided by current liabilities; also called acid-test ratio.
    quick ratio Indicates whether a company has enough quick assets to cover current liabilities. Calculated as quick assets divided by current liabilities; also called acid-test ratio.
    R-squared Measures the percent of the variance in the dependent variable explained by the independent variable.
    R-squared Measures the percent of the variance in the dependent variable explained by the independent variable.
    raw materials inventory An account used to record the cost of materials not yet put into production.
    raw materials inventory An account used to record the cost of materials not yet put into production.
    receivables turnover ratio Indicates how many times receivables are collected in a given period. Calculated as credit sales divided by average accounts receivable.
    receivables turnover ratio Indicates how many times receivables are collected in a given period. Calculated as credit sales divided by average accounts receivable.
    Regression analysis A method of cost analysis that uses a series of mathematical equations to estimate fixed and variable costs; typically done using computer software.
    Regression analysis A method of cost analysis that uses a series of mathematical equations to estimate fixed and variable costs; typically done using computer software.
    relevant range The range of activity for which the cost behavior patterns are likely to be accurate.
    relevant range The range of activity for which the cost behavior patterns are likely to be accurate.
    required rate of return The interest rate used for evaluating long-term investments; it represents the company’s minimum acceptable return (or discount rate; also called hurdle rate).
    required rate of return The interest rate used for evaluating long-term investments; it represents the company’s minimum acceptable return (or discount rate; also called hurdle rate).
    responsibility centers Segments of the organization responsible for revenues, costs, and/or investments in assets and typically defined as cost centers, profit centers, or investment centers.
    responsibility centers Segments of the organization responsible for revenues, costs, and/or investments in assets and typically defined as cost centers, profit centers, or investment centers.
    return on assets Indicates the net income generated from each dollar in average assets. Calculated as net income divided by average total assets.
    return on assets Indicates the net income generated from each dollar in average assets. Calculated as net income divided by average total assets.
    return on common shareholders’ equity Indicates the net income generated from each dollar of common shareholders’ equity. Calculated as net income minus preferred dividends divided by average common shareholders’ equity.
    return on common shareholders’ equity Indicates the net income generated from each dollar of common shareholders’ equity. Calculated as net income minus preferred dividends divided by average common shareholders’ equity.
    RI The dollar amount of division operating profit in excess of the division’s cost of acquiring capital to purchase operating assets; it is calculated as Residual income = Operating income − (Percent cost of capital × Average operating assets).
    RI The dollar amount of division operating profit in excess of the division’s cost of acquiring capital to purchase operating assets; it is calculated as Residual income = Operating income − (Percent cost of capital × Average operating assets).
    ROI Operating income divided by average operating assets.
    ROI Operating income divided by average operating assets.
    sales budget An estimate of units of product the organization expects to sell times the expected sales price per unit.
    sales budget An estimate of units of product the organization expects to sell times the expected sales price per unit.
    sales mix The proportion of one product’s sales to total sales.
    sales mix The proportion of one product’s sales to total sales.
    sales value method A method that allocates joint costs based on the relative sales value of each product at the split-off point.
    sales value method A method that allocates joint costs based on the relative sales value of each product at the split-off point.
    scattergraph method A method of cost analysis that uses a set of data points to estimate fixed and variable costs.
    scattergraph method A method of cost analysis that uses a set of data points to estimate fixed and variable costs.
    Segmented income Segment (or division) revenues minus segment expenses.
    Segmented income Segment (or division) revenues minus segment expenses.
    selling and administrative budget An estimate of all operating costs other than production.
    selling and administrative budget An estimate of all operating costs other than production.
    selling costs Costs incurred to obtain customer orders and provide customers with a finished product.
    selling costs Costs incurred to obtain customer orders and provide customers with a finished product.
    Sensitivity analysis An analysis that shows how the CVP model will change with changes in any of its variables.
    Sensitivity analysis An analysis that shows how the CVP model will change with changes in any of its variables.
    special order A unique one-time order made by a customer.
    special order A unique one-time order made by a customer.
    split-off point The point at which identifiable joint products emerge from the production process.
    split-off point The point at which identifiable joint products emerge from the production process.
    Standard costs Costs that management expects to incur to provide a good or service and are typically stated as a cost per unit. Standard cost is based on the combination of a price (or rate) standard and quantity (or hours) standard.
    Standard costs Costs that management expects to incur to provide a good or service and are typically stated as a cost per unit. Standard cost is based on the combination of a price (or rate) standard and quantity (or hours) standard.
    standard hours The direct labor time required to complete one good unit of product.
    standard hours The direct labor time required to complete one good unit of product.
    standard price The final delivered cost of materials per unit of measure (e.g., measured in yards or pounds).
    standard price The final delivered cost of materials per unit of measure (e.g., measured in yards or pounds).
    standard quantity for direct materials The quantity of materials required to complete one good unit of product.
    standard quantity for direct materials The quantity of materials required to complete one good unit of product.
    standard quantity for variable manufacturing overhead The time, typically measured in direct labor hours or machine hours depending on the allocation base, required to complete one good unit of product.
    standard quantity for variable manufacturing overhead The time, typically measured in direct labor hours or machine hours depending on the allocation base, required to complete one good unit of product.
    standard rate for direct labor The average cost of wages and benefits for each hour of direct labor work performed.
    standard rate for direct labor The average cost of wages and benefits for each hour of direct labor work performed.
    standard rate for variable manufacturing overhead The variable portion of the predetermined overhead rate used to allocate overhead cost to products.
    standard rate for variable manufacturing overhead The variable portion of the predetermined overhead rate used to allocate overhead cost to products.
    statement of cash flows A financial statement that provides cash receipt and cash payment information and explains the change in cash for a period of time.
    statement of cash flows A financial statement that provides cash receipt and cash payment information and explains the change in cash for a period of time.
    sunk cost A cost incurred in the past that cannot be changed by future decisions.
    sunk cost A cost incurred in the past that cannot be changed by future decisions.
    Target costing An approach to pricing that integrates the product design, desired price, desired profit, and desired cost into one process beginning at the product development stage.
    Target costing An approach to pricing that integrates the product design, desired price, desired profit, and desired cost into one process beginning at the product development stage.
    target profit in sales dollars The total sales measured in dollars required to achieve a certain profit.
    target profit in sales dollars The total sales measured in dollars required to achieve a certain profit.
    target profit in units The number of units that must be sold to achieve a certain profit.
    target profit in units The number of units that must be sold to achieve a certain profit.
    tax accountant The person who assists in preparing tax reports for governmental agencies.
    tax accountant The person who assists in preparing tax reports for governmental agencies.
    theory of constraints A five-step approach to managing bottlenecks.
    theory of constraints A five-step approach to managing bottlenecks.
    times interest earned Indicates the ability of a company to cover its interest expense with current period earnings. Calculated as income before income tax expense and interest expense divided by interest expense; also called interest coverage ratio.
    times interest earned Indicates the ability of a company to cover its interest expense with current period earnings. Calculated as income before income tax expense and interest expense divided by interest expense; also called interest coverage ratio.
    timesheet A document that workers use to track the hours spent on each job.
    timesheet A document that workers use to track the hours spent on each job.
    transfer price The value assigned to the transfer of goods or services between divisions within the same company.
    transfer price The value assigned to the transfer of goods or services between divisions within the same company.
    Transferred-in costs Costs associated with products moving from one department to another.
    Transferred-in costs Costs associated with products moving from one department to another.
    treasurer The person responsible for obtaining financing, projecting cash flow needs, and managing cash and short-term investments for the organization.
    treasurer The person responsible for obtaining financing, projecting cash flow needs, and managing cash and short-term investments for the organization.
    Trend analysis An analysis that evaluates financial information for an organization over a period of time and is typically presented as a dollar amount change and a percentage change.
    Trend analysis An analysis that evaluates financial information for an organization over a period of time and is typically presented as a dollar amount change and a percentage change.
    trend percentage Calculated as the current year amount divided by the base year amount.
    trend percentage Calculated as the current year amount divided by the base year amount.
    U.S. Generally Accepted Accounting Principles (U.S. GAAP) A set of accounting rules that must be followed to provide consistency in reporting financial information to external users.
    U.S. Generally Accepted Accounting Principles (U.S. GAAP) A set of accounting rules that must be followed to provide consistency in reporting financial information to external users.
    Underapplied overhead Overhead costs applied to jobs that are less than actual overhead costs.
    Underapplied overhead Overhead costs applied to jobs that are less than actual overhead costs.
    unfavorable variance A variance that has a negative impact on operating profit.
    unfavorable variance A variance that has a negative impact on operating profit.
    variable cost A cost that varies in total with changes in activity and remains constant on a per unit basis with changes in activity.
    variable cost A cost that varies in total with changes in activity and remains constant on a per unit basis with changes in activity.
    Variable costing A costing method that includes all variable manufacturing costs in inventory until the goods are sold (just like absorption costing) but reports all fixed manufacturing costs as an expense on the income statement when incurred.
    Variable costing A costing method that includes all variable manufacturing costs in inventory until the goods are sold (just like absorption costing) but reports all fixed manufacturing costs as an expense on the income statement when incurred.
    variable overhead efficiency variance The difference between the actual activity level in the allocation base (often direct labor hours or machine hours) and the budgeted activity level in the allocation base according to the standards.
    variable overhead efficiency variance The difference between the actual activity level in the allocation base (often direct labor hours or machine hours) and the budgeted activity level in the allocation base according to the standards.
    variance analysis Using standards to analyze the difference between budgeted costs and actual costs.
    variance analysis Using standards to analyze the difference between budgeted costs and actual costs.
    weighted average contribution margin per unit Calculated by multiplying each product’s unit contribution margin by the product’s proportion of total sales.
    weighted average contribution margin per unit Calculated by multiplying each product’s unit contribution margin by the product’s proportion of total sales.
    weighted average contribution margin ratio The total contribution margin divided by total sales.
    weighted average contribution margin ratio The total contribution margin divided by total sales.
    work-in-process (WIP) inventory An account used to record costs associated with products in the production process that are not yet complete.
    work-in-process (WIP) inventory An account used to record costs associated with products in the production process that are not yet complete.
    Working capital Current assets minus current liabilities.
    Working capital Current assets minus current liabilities.