costs that are generated by non–revenue generating portions of the business, such as corporate headquarters, that are assigned based on some formula to the revenue generating portions of the business
avoidable cost
cost that can be eliminated (in whole or in part) by choosing one alternative over another
bottleneck
point at which a constraint slows production
constraint
scarce resource that limits output or productive capacity of an organization
differential analysis
type of analysis that considers only the differences between variables that are important to the analysis
differential cost
difference between costs for alternatives
differential revenue
difference between revenues for alternatives
irrelevant cost
cost that has no effect on the decision being made because it is the same under either alternative
irrelevant revenue
revenue that has no effect on the decision being made
joint costs
costs that have been shared by products up to the split-off point
normal capacity
company’s maximum production level, without adding additional production resources, or within the company’s relevant range
opportunity costs
costs associated with not choosing the other alternative
outsourcing
act of using another company to provide goods or services that your company requires
qualitative factor
component of a decision-making process that cannot be measured numerically
quantitative factor
component of a decision-making process that can be measured numerically
relevant cost
cost that influences the decision being made
relevant range
quantitative range of units that can be produced based on the company’s current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units
relevant revenue
revenue that influences the decision being made
segment
portion of the business that management believes has sufficient similarities in product lines, geographic locations, or customers to warrant reporting that portion of the company as a distinct part of the entire company
short-term decision analysis
determining the appropriate elements of information necessary for making a decision that will impact the company in the short term, usually 12 months or fewer, and using that information in a proper analysis in order to reach an informed decision among alternatives
special order
one-time order that does not typically affect current sales
split-off point
point at which some products are removed from production and sold while others receive additional processing
sunk cost
cost that cannot be avoided because it has already occurred
unavoidable cost
cost that does not go away in the short-run by choosing one alternative over another
unit contribution margin
selling price per unit minus variable cost per unit
unit contribution margin per production restraint
unit contribution margin divided by the production restrain