Definition of the terms of Costing for interview preparation:
(i) Responsibility Accounting: Responsibility accounting refers to the principles, practices and procedures under which costs and revenues are classified according to the responsibility centres that are responsible for incurring costs and generating the revenue.
(ii) Budget: Budget is a qualified plan of action relating to a given period of time. It is a comprehensive and co – ordinated plan of action, expressed in monetary terms, for the operations and utilisation of resources of an organisation for some specified period in the future.
(iii) Standard cost: Standard cost is a scientifically predetermined cost, which is arrived at after assuming a particular level of efficiency in utilisation of material, men & other resources. Standard cost is like a model, which provides basis of comparison of actual cost.
(iv) Enterprise Resource Planning: Enterprise Resource Planning (ERP) is the latest high and solution that information technology has lent to Business application. The ERP seeks to streamline and integrate operation processes and information flows in the company to synergies the resources of an organisation namely men, materials money and machine through information.
(v) Cost Reduction: Cost reduction represents achievement of real and permanent reduction in the unit cost of goods/ services without impairing suitability for the for intended.
(i) Target costing: Target costing is the establishment of a maximum target cost for a product by working backward from an estimated market price. Often it is the long run cost taking into account learning and other long run factors.
(ii) MRP: Material requirement planning (MRP) is a technique which aims at the ensure that material resources – raw material, bought – in – components and in – house subassemblies are made available just before they are needed by the next stage of production of dispatch.
(iii) Management by objectives (MBO): Management by Objectives involves systematic formal goal setting and review process, which is conducted jointly by managers and subordinates throughout various levels of an organisation.
(iv) Cost Driver: Cost Driver is the underlying factor that causes incurrence of cost relating to the activity. It is used in the context of Activity Based Costing (ABC).
(i) Balanced Scorecard approach: is an approach to the provision of information to Management to assists strategic policy formulation & achievement.
(ii) Margin of Safety: The excess of the actual sales revenue over the sales revenue at BEP is called the Margin of safety.
(iii) Total Quantity Management (TQM): is a term used to describe a situation where all business functions are involved in a process of continuous quality improvement.
(iv) Activity Based Costing (ABC): is a product costing technique, which attributes overhead costs to products on an activity basis.
(v) Basic Theorem in LP: States that for a system of ‘m’ equations and ‘n’ variables (where n>m), a solution in which at least (n – m) of the variables have value of zero, a vertex exists. This solution is called the basic solution.
(i) Benchmark: General rule of thumb specifying appropriate levels for financial and cost rations.
(ii) Cost of Capital: What a firm must pay to acquire more capital, whether or not it actually has to acquire more capital to take on a project.
(iii) Decision Model: Any method for making a choice sometimes requiring labor rate quantitative procedures.
(iv) Investment Centre: A responsibility centre whose success is measured not only by its income but also by relating that income to its invested capital as in a ratio of income to the value of the capital employed.
(v) Product Life Cycle: The various stages through the product passes, from conception and development through introduction into the market through maturity and finally withdrawal from the market.
i) Absorption Costing: A costing approach that considers all factory overhead, both variable and fixed, to be product cost that become an expenses in the form of manufacturing cost of goods sold only as sales occur.
ii) Back flush costing: An accounting system that applies cost to products only when the production is complete.
iii) Capacity cost: The fixed cost of being able to achieve a desired level of production or to provide a desired level of service while maintaining products or service attributes, such as quality.
iv) High-Low method of costing: A simple method for measuring a linear cost function from past cost data, focusing on the highest activity and lowest activity points and fitting a line through these two points.
(i) Goal Congruence: A condition where employees, working in their own personal interests make decisions that help meet the overall goals of the organization.
(ii) Break Even point: The level of sales at which revenue equals expenses and net income is zero.
(iii) Incremental Effect: The change in total results such as revenue, expenses or income, under a new condition in comparison with some given or known condition.
(iv) Activity Based Accounting: A system that accumulates overhead costs for each of the activities of an organization and then assigns the cost of activities to the product, services and other cost objects that caused that activity.
(v) Target Costing: A strategy in which companies first determine the price at which they can sell a new product or service and then design a product or service that can be produced at a low enough cost to provide an adequate profit margin.
(i) TQM: TQM defined as continuous improvement in quality, productivity and effectiveness obtained by establishing management responsibility for process as well as output. It is the application of quality principles to all of the organization endeavor to satisfy customers.
(ii) Slack variable: A variable which is added to convert an in equation to an equation. It is an idle or unused resource represented by a constraint.
(iii) ERP: ERP seek to streamline and integrate operation processes and information flows to synergize the resources of an organization namely, men, material, money and machine through information.
(iv) Benchmarking:It is defined as the continuous process of measuring the products/Services and business practices of a company against the toughest competitors or industry leaders. It is a standard of excellence or achievement against which performance must be measured or judged.
(i) Backflush Costing: Backflush Costing is an accounting system that applies cost to products only when the production is complete.
(ii) Value-Added Activities (VA): The Value-added activities are those activities which are necessary for the performance of the process. Such activities represent work that is valued by the external or internal customer.
(iii) Value Engineering: Value Engineering is a Systematic inter-disciplinary examination of factors affecting the cost of a product or service, in order to devise means of achieving the specified purpose at the required standard of quality and reliability at the target cost.
(iv) Cost Driver: Cost Driver is the underlying factor that cause incurrence of cost relating to the activity. It is used in the context of Activity Based Costing (ABC).
(i) Perfection Standards: Expression for the most efficient performance possible under the best conceivable conditions, using existing specifications and equipments.
(ii) Capacity Cost: The fixed cost of being able to achieve a desired level of production or to provide a desired level of service while maintaining product or service attributes, such as quality.
(iii) Cross Sectional comparison: comparison of a company’s financial and cost rations with ratios of other companies or with industry averages for the same period.
(iv) Financial Planning Model: Mathematical model of the master budget that can react to any set of assumptions about sales, costs or product mix.
(v) Economic Value added (EVA): Accounting profit minus opportunity cost.