Cost Accounting & Management Flashcards

What is target costing?

Answer: A technique that starts with the market price and subtracts desired profit to determine the maximum allowable cost

Target costing works backward from the competitive market price minus the desired profit margin to establish a cost target that product designers must meet.

Which costing method is required under US GAAP for external financial reporting of manufacturing companies?

Answer: Absorption costing

US GAAP requires absorption costing for external financial reporting, meaning all manufacturing costs (including fixed overhead) must be included in inventory valuation.

What is kaizen costing?

Answer: A continuous improvement approach that seeks incremental cost reductions throughout the product life cycle

Kaizen costing applies the philosophy of continuous improvement (kaizen) to cost reduction, setting ongoing incremental targets to reduce costs over time.

In joint product costing, what is the split-off point?

Answer: The point in production where joint products become separately identifiable

The split-off point is the stage in a joint production process where two or more products become individually distinguishable and can be separately accounted for.

What is the relevant cost concept in decision-making?

Answer: Only future, differential costs that change as a result of a specific decision

Relevant costs are future costs that differ between decision alternatives; sunk costs and costs that remain the same regardless of the decision are irrelevant.

What does 'throughput' represent in the theory of constraints (TOC)?

Answer: Revenue minus totally variable costs (direct material cost)

In the theory of constraints, throughput is defined as revenue minus totally variable costs (primarily direct materials), representing the rate at which the system generates money.