Cost Accounting – 12^th Edition

Ch 20 Terms

Backflush costing – Costing system that omits recording some or all of the journal entries relating to the cycle from purchase of direct material to the sale of finished goods.

Carrying cost – Costs tat arise while holding inventory of goods for sale.

Economic order quantity (EOQ) – Decision model that calculates the optimal quantity of inventory to order under a set of assumptions.

Inventory management– The planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization.

Just-in-time (JIT) production – Demand-pull manufacturing system in which each component in a production line produced as soon as and only when needed by the next step in the production line. Also called lean production.

Just-in-time (JIT) purchasing – The purchase of goods or materials so that they are delivered just as needed for production.

Lean production – See just-in-time (JIT) production

Manufacturing cells – Grouping of all the different types of equipment used to make a given product.

Materials requirements planning (MRP)- Push through system that manufactures finished good for inventory on the basis of demand forecasts.

Ordering costs – Costs of preparing, issuing, and paying purchase orders, plus receiving and inspecting the items included in the orders.

Purchasing costs– Cost of goods acquired from suppliers including incoming freight or transportation costs.

Purchase-order lead time- The time between placing an order and its delivery.

Quality costs – See costs of quality.

Reorder point – The quantity level of the inventory on hand that triggers a new order.

Safety stock– Inventory held at all times regardless of the quantity of inventory ordered using the EOQ model.

Sequential tracking- Approach in a product-costing method in which recording of the journal entries occurs in the same order as actual purchases and progress in production.

Stockout costs- Costs that result when a company runs out of a particular item for which there is customer demand. The company must act to meet that demand or suffer the costs of not meeting it.

Trigger point- Refers to a stage in the cycle from purchase of direct materials to sale of finished goods at which journal entries are made3 in the accounting system.