Method of assigning indirect costs to products or services based on the activities they require.
All actions that managers take to improve operations or reduce costs based on ABC data.
A percentage used to assign indirect costs to products and services in activity-based costing. Computed by dividing the activity cost driver for each product or service by the total activity cost driver.
A rate used to assign indirect costs to products and services in activity-based costing. Computed by dividing total activity cost by total activity driver.
Appraisal or Inspection Costs
Costs incurred to identify defective products before shipping them to customers.
Activities performed for a group of units all at once. (Also called group-level activities)
Pricing approach in which the company first determines how much a product or service costs and then adds a mark-up percentage (profit) to arrive at the sales price.
Cost of Quality Report
A report that summarizes the cost incurred to prevent, detect, and correct quality problems generated by companies using a total quality management approach.
External Failure Costs
Costs that occur when a defective product makes its way into the customer's hands.
Activities performed to benefit the organization as a whole.
Internal Failure Costs
Costs from defects caught during the inspection process.
Justin-in-Time (JIT) System
Demand-pull system in which materials are purchased and units manufactured as needed to satisfy demand
Activity that, if eliminated, would not reduce the perceived value of the product or service to the customer.
Non-Volume-Based Cost Driver
Allocation base that is not directly related to the number of units produced or customers served.
Costs incurred to prevent quality problems from occurring.
Activities performed to support a specific product line. (Also called service-level activities)
Product Life Cycle
Represents the life of the product from its infancy (an idea) through design, development, product introduction, growth, maturity, and eventual decline.
The network of organizations and activities required to move goods and services from suppliers to consumers.
Cost management approach t determines what target cost is required to meet the market price and provide a profit for a company's shareholders.
Total Quality Management (TQM)
A management approach that aims to improve product quality by reducing and eliminating errors, streamlining activities, and continuously improving production processes.
Activities performed for each individual unit or customer. (also called customer-level activities)
Activity that enhances the perceived value of the product or service to the customer.
The linked set of activities required to design, develop, produce, market, and deliver a product to customers; includes after-market customer service.
A process for determining how much value consumers receive from a product or service based on its features and functionality.
Volume-Based Cost Drivers
Allocation base that is directly related to the number of units produced or customers served.
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