Cost Accounting – 12^th Edition

Ch 11 Terms

Book value – the original cost minus accumulated depreciation of an asset

Business function costs – the sum of all costs (variable and fixed) in a particular business function in the value chain

Constraint – a mathematical inequality or equality that must be satisfied by the variables in a mathematical model

Decision model – formal method for making a choice, often involving both quantitative and qualitative analyses

Differential cost – difference in total cost between two alternatives

Differential revenue – difference in total revenue between two alternatives

Full costs of the product – the sum of all variable and fixed costs in all business functions in the value chain (R&D, design, production, marketing, distribution, and customer service)

Incremental cost – additional total cost incurred for an activity

Incremental revenue – additional total revenue from an activity

Insourcing – process of producing goods or providing services within the organization rather than purchasing those same goods or services from outside vendors

Linear programming – optimization technique used to maximize an objective function (for example, contribution margin of a mix products), when there are multiple constraints

Make-or-buy decisions – decisions about whether a producer of goods or services will insource (produce goods or services within the firm) or outsource (purchase them from outside vendors)

Objective function – expresses the objective to be maximized (for example, operating income) or minimized (for example, operating costs) in a decision model (for example, a linear programming model)

One-time-only special order – orders that have no long-run implications

Opportunity cost – the contribution to income that is forgone or rejected by not using a limited resource in its next-best alternative use

Outsourcing – process of purchasing goods and services from outside vendors rather than producing the same goods or providing the same services within the organization

Product-mix decisions – decisions about which products to sell and in what quantities

Qualitative factors – outcomes that are difficult to measure accurately in numerical terms

Quantitative factors – outcomes that are measured in numerical terms

Relevant costs – expected future costs that differ among alternative courses of action being considered

Relevant revenues – expected future revenues that differ among alternative courses of action being considered

Sunk costs – past costs that are unavoidable because they cannot be changed no matter what action is taken