Activity-based budgeting
A budgeting approach that focuses on the cost of activities required to produce and sell products. It is an extension of activity-based costing.

Avoidable costs
Costs that will not continue to be incurred if a department or product is terminated.

Benchmarking
Requires that products, services, and activities be continually measured against the best levels of performance either inside or outside the organization.

Budget
Quantification of the plan for operations. A flexible budget is a budget that is adjusted for changes in volume. 

Performance reports
Compare budgeted and actual performance.

Budgetary slack
The practice of underestimating revenues and overestimating expenses to make budgeted targets more easily achievable.

Committed costs
Arise from a company’s basic commitment to open its doors and engage in business (e.g., depreciation, property taxes, management salaries, etc.).

Contribution margin
Equals revenue less all variable costs.

Controllable costs
Can be affected by a manager during the current period (e.g., amount of direct manufacturing labor per unit of production is usually under the control of a production supervisor). Uncontrollable costs are those that cannot be affected by the individual in question (e.g., depreciation is not usually controllable by the production supervisor).

Cost management
Refers to the approaches and activities used by management to make planning and control decisions for the firm.

Cost-volume-profit (CVP) analysis
A planning tool is used to analyze the effects of changes in volume, sales mix, selling price, variable expense, fixed expense, and profit.

Differential (incremental) cost
The difference in cost between the two alternatives.

Discretionary costs
Fixed costs whose level is set by current management decisions (e.g., advertising, research, and development, etc.).

Financial planning models
Support the financial planning process by making it easier to construct projected financial scenarios. These models incorporate the interrelationships among operating activities, financial activities, and other factors that affect the business, and range from simple models to those that incorporate hundreds of equations.

Financial budget
The cash budget, the capital budget, the budgeted balance sheet, and the budgeted statement of cash flows.

Fixed costs
Costs that do not vary with the level of activity within the relevant range for a given period of time (usually one year), for example, plant depreciation.

Incremental budgeting
Involves developing budgets that require only justification for increases in the funding over the prior period.

Life-cycle budgeting
Involves estimating the revenues and costs attributable to each product from initial research and development to its final customer and support.

Management by exception
Focuses attention on material deviations from plans (e.g., variances in a performance report) while allowing areas operating as expected to continue to operate without interference.

Master budget
A comprehensive expression of management’s operating and financial plans for a future period that is summarized as budgeted financial statements. It consists of the operating and financial budgets.

Mixed costs (semivariable)
Costs that have a fixed component and a variable component. These components are separated by using the scattergraph, high-low, or linear regression methods.

Multiple regression
A model that estimates the relationship between a dependent variable and two or more independent variables. It may be used to develop sales forecasts.

Operating budget
The budgeted income statement and related schedules.

Opportunity cost
The maximum income or savings (benefit) is forgone by rejecting an alternative.

Outlay (out-of-pocket) costs
The cash disbursement is associated with a specific project.

Planning
Involves selecting goals and choosing methods to attain those goals. Control is the implementation of the plans and evaluation of their effectiveness in attaining goals.

Relevant costs
Future costs will change as a result of a specific decision.

Relevant range
The operating range of activity in which cost behavior patterns are valid. Thus, it is the product range for which fixed costs remain constant (e.g., if production doubles, an additional shift of salaried foremen would be added and fixed costs would increase).

Responsibility Accounting
Measures subunit performance based on the costs and/or revenues assigned to responsibility centers.

Standard costs
Predetermined target costs.

Sunk, past, or unavoidable costs
Committed costs are not avoidable and are therefore irrelevant to the decision process.

Tactical profit plan
A defined short-term financial plan that includes assigned responsibilities at all levels.

Target costing
Identifies the estimated cost of a new product that must be achieved for that product to be priced competitively and still produce an acceptable profit. Often the product is redesigned and the production process simplified several times before the target cost can be met.

Transfer pricing
The determination of the price at which goods and services will be “sold” to profit or investment centers via internal company transfers.

Variable costs
Costs that vary proportionately in total with the activity level throughout the relevant range (e.g., direct materials).

Variances
Differences between standards and actual results.

Zero-based budgeting
Involves developing budgets from the ground up by requiring each program or department to justify its level of funding.