Cost Accounting – 12^th Edition

Ch 9 Terms

Absorption costing – method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs

Direct costing – see variable costing

Downward demand spiral – pricing context where prices are raised to spread capacity costs over a smaller number of output units. Continuing reduction in the demand for products that occurs when the prices of competitors’ products are not met and as demand drops further higher and higher unit costs result in more and more reluctance to meet competitors’ prices

Master-budget capacity utilization – the expected level of capacity utilization for the current budget period (typically one year)

Normal capacity utilization – the level of capacity utilization that satisfies average customer demand over a period (say, 2-3 years) that includes seasonal, cyclical, and trend factors

Practical capacity – the level of capacity that reduces theoretical capacity by unavoidable operating interruptions such as scheduled maintenance time, shutdowns for holidays, and so on

Super-variable costing – see throughput costing

Theoretical capacity – the level of capacity based on producing at full efficiency all the time

Throughput costing – method of inventory costing in which only variable direct material costs are included as inventoriable costs. Also called super-variable costing

Variable costing – method of inventory costing in which all-variable manufacturing costs are included as inventoriable costs. Also called direct costing