AAT MATS key terms

The branch of accounting that supplies managers with financial and non-financial information for planning, controlling operations and making decisions inside an organisation.

Accounting that produces periodic reports and financial statements for external users such as shareholders, lenders and tax authorities, following prescribed rules rather than internal management needs.

Any product, service, activity, department or customer for which costs are separately gathered and measured so that its total cost can be determined.

A system that assigns revenues and costs to individual managers or centres and judges performance on the items those managers can control.

A responsibility centre whose manager is accountable mainly for the costs incurred, such as a production department or an administrative function.

A responsibility centre whose manager is accountable for both revenues and costs, and therefore for the profit earned by that unit.

A cost that a particular manager can influence or decide on within a given period through their own actions and authority.

A cost that can be traced specifically and economically to a particular cost object, such as raw material used in making a product.

A cost that cannot be traced specifically to a cost object and is therefore shared across products or departments, often called overhead.

A cost that stays constant in total over a relevant range of activity, regardless of changes in output or sales volume.

A cost that changes in total in direct proportion to changes in activity while remaining constant per unit within the relevant range.

A cost containing both a fixed element and a variable element, so it changes with activity but not in strict proportion.

A rate used to charge indirect costs to cost units, calculated by dividing estimated overhead by an estimated activity base such as labour hours.

A costing method that includes both direct costs and a share of production overhead in the value of inventory and cost of sales.

A costing method that values inventory at variable production cost only, treating fixed production overhead as a period cost charged against contribution.

Sales revenue minus all variable costs for a period, being the amount available to cover fixed costs and then produce profit.

An inventory valuation method that assumes the oldest items are sold or used first, leaving the most recent costs in closing inventory.

A costing method for continuous production of identical items, where costs are averaged over the units produced during a period.

A measure that converts partly completed work into the number of fully completed units it represents, used to share process costs.

A quantified plan for a future period, expressed in money or units, setting out expected revenues, costs and resource requirements.

The process of preparing budgets, comparing actual results with them and taking corrective action on significant differences.

The consolidated set of budgets for an organisation covering sales, production, costs, cash and the resulting budgeted financial statements.

A budget adjusted to the actual level of activity achieved, allowing fair comparison of costs at the same volume.

A budgeting approach where each activity must be justified from a nil base each period rather than using last year's figures as a starting point.

A budget continually updated by adding a new period as the current one expires, so it always covers a fixed future horizon.

The constraint that limits the organisation's activity in the budget period, such as sales demand or machine capacity, and is budgeted first.

A predetermined cost for a unit of product or service, built from expected quantities and prices for materials, labour and overhead.

The difference between a planned, standard or budgeted figure and the actual figure, which may be favourable or adverse.

The difference between the actual price paid for materials and the standard price, multiplied by the actual quantity purchased or used.

The difference between the actual quantity of material used and the standard quantity allowed for output, valued at standard price.

The difference between the actual rate paid per hour and the standard rate, multiplied by the actual hours worked.

The difference between actual hours worked and standard hours allowed for output, valued at the standard labour rate.

The difference between budgeted and actual sales volume, valued at standard profit per unit, showing the profit effect of selling more or fewer units.

A future cash cost that differs between the alternatives being considered and should therefore be included in the decision.

The benefit forgone by choosing one course of action instead of the next best alternative, measured as the value of that alternative.

A cost already incurred that cannot be changed by any future decision and should be ignored when comparing alternatives.

The level of sales at which total revenue equals total costs, so the business makes neither a profit nor a loss.

The amount by which current or budgeted sales exceed break-even sales, showing how far sales can fall before a loss arises.

A scarce resource or constraint that restricts output or sales, so decisions must maximise contribution per unit of that factor.

A choice between producing a component internally and purchasing it externally, based on relevant costs and qualitative factors.