Managerial Accounting 5th Edition

Glossary

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Ability to bear costs (6) The notion in cost allocation that the allocation base should result in more costs being allocated to products, service, or departments that are more profitable.

Absorption costing (5) An approach to product costing that includes direct material, direct labor, and both fixed and variable manufacturing overhead in product cost. Also referred to as full costing. The alternative to absorption costing is variable costing, which includes direct material, direct labor, and variable (but not fixed) manufacturing overhead.

Account analysis (4) A method of estimating cost behavior that requires professional judgment to classify costs as either fixed or variable. The total of the costs classified as variable are divided by a measure of activity to calculate the variable cost per unit of activity. The total of the costs classified as fixed provides the estimate of fixed cost.

Accounting rate of return (9) The average after-tax income from a project divided by the average investment.

Activity-based costing (ABC) (2, 6) A method of assigning overhead costs that identifies key activities and accumulates the costs associated with them. Cost drivers (volume- or nonvolume-related measure of activity) are used to assign the various cost categories to products or services.

Activity-based management (ABM) (6) A management approach that involves analyzing and costing activities with the goal of improving efficiency and effectiveness. See also activity-based costing. ...