Glossary
ABC see activity-based costing ABM see activity-based management abnormal loss a decline in units in excess of normal expectations during a production process absorption costing a cost accumulation and reporting method that treats the costs of all manufacturing components (direct material, direct labor, variable overhead, and fixed overhead) as inventoriable or product costs; it is the traditional approach to product costing; it must be used for external financial statements and tax returns accepted quality level (AQL) the maximum limit for the number of defects or errors in a process accounting rate of return (ARR) the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow accretion an increase in units or volume caused by the addition of material or by factors inherent in the production process activity a repetitive action performed in fulfillment of business functions activity analysis the process of detailing the various repetitive actions that are performed in making a product or providing a service, classifying them as value-added and non-value-added, and devising ways of minimizing or eliminating non-value-added activities activity-based budgeting (ABB) a planning approach applying activity drivers to estimate the levels and costs of activities necessary to provide the budgeted quantity and quality of production activity-based costing (ABC) a process using multiple cost drivers to predict and allocate costs to products and services; an accounting system collecting financial and operational data on the basis of the underlying nature and extent of business activities; an accounting information and costing system that identifies the various activities performed in an organization, collects costs on the basis of the underlying nature and extent of those activities, and assigns costs to products and services based on