Definition of activity

activity

a repetitive action performed in fulfillment of business functions

Asset activity ratios

Ratios that measure how effectively the firm is managing its assets.

Activity-based budgeting

A method of budgeting that develops budgets based on expected activities and cost drivers – see also activity-based costing.

Activity-based costing

A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.

Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

activity based costing (ABC)

A relatively new method advocated for the
allocation of indirect costs. The key idea is to classify indirect costs,
many of which are fixed in amount for a period of time, into separate
activities and to develop a measure for each activity called a cost driver.
The products or other functions in the business that benefit from the
activity are allocated shares of the total indirect cost for the period based
on their usage as measured by the cost driver.

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)

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 consumption
of those activities by the products and services

activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value

activity center

a segment of the production or service
process for which management wants to separately report
the costs of the activities performed

activity driver

a measure of the demands on activities and,
thus, the resources consumed by products and services;
often indicates an activity’s output

business-value-added activity

an activity that is necessary for the operation of the business but for which a customer would not want to pay

non-value-added (NVA) activity

an activity that increases the time spent on a product or service but that does not increase its worth or value to the customer

value-added (VA) activity

an activity that increases the worth of the product or service to the customer

Activity-based costing (ABC)

A cost allocation system that compiles costs and assigns
them to activities based on relevant activity drivers. The cost of these activities can
then be charged to products or customers to arrive at a much more relevant allocation
of costs than was previously the case.

Bank for International Settlements (BIS)

An international bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on international banking activity and promulgates rules concerning
international bank regulation.

Budget

A detailed schedule of financial activity, such as an advertising budget, a sales budget, or a capital budget.

Industry

The category describing a company's primary business activity. This category is usually determined
by the largest portion of revenue.

Liquidity

A market is liquid when it has a high level of trading activity, allowing buying and selling with
minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.

Market timing costs

Costs that arise from price movement of the stock during the time of the transaction
which is attributed to other activity in the stock.

SIC

Abbreviation for Standard Industrial Classification. Each 4-digit code represents a unique business activity.
Side effects Effects of a proposed project on other parts of the firm.

Turnover

Mutual Funds: A measure of trading activity during the previous year, expressed as a percentage of
the average total assets of the fund. A turnover ratio of 25% means that the value of trades represented onefourth
of the assets of the fund. Finance: The number of times a given asset, such as inventory, is replaced
during the accounting period, usually a year. Corporate: The ratio of annual sales to net worth, representing
the extent to which a company can growth without outside capital. Markets: The volume of shares traded as a
percent of total shares listed during a specified period, usually a day or a year. Great Britain: total revenue.

Watch list

A list of securities selected for special surveillance by a brokerage, exchange or regulatory
organization; firms on the list are often takeover targets, companies planning to issue new securities or stocks
showing unusual activity.

Budget

A plan expressed in monetary terms covering a future period of time and based on a defined
level of activity.

Cost driver

The most significant cause of the cost of an activity, a measure of the demand for an activity
by each product/service enabling the cost of activities to be assigned from cost pools to products/services.

Margin of safety

A measure of the difference between the anticipated and breakeven levels of activity.

Relevant range

The upper and lower levels of activity within which the business expects to be operating within the short-term planning horizon (the budget period).

Semi-fixed costs

Costs that are constant within a defined level of activity but that can increase or decrease when
activity reaches upper and lower levels.

fixed expenses (costs)

Expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.

operating activities

Includes all the sales and expense activities of a business.
But the term is very broad and inclusive; it is used to embrace all
types of activities engaged in by profit-motivated entities toward the
objective of earning profit. A bank, for instance, earns net income not
from sales revenue but from loaning money on which it receives interest
income. Making loans is the main revenue operating activity of banks.

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

applied overhead

the amount of overhead that has been assigned to Work in Process Inventory as a result of productive activity; credits for this amount are to an overhead account

attribute-based costing (ABC II)

an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
enhancements that the company wants to integrate into a product

break-even point (BEP)

the level of activity, in units or dollars, at which total revenues equal total costs

budget

a financial plan for the future based on a single level
of activity; the quantitative expression of a company’s commitment
to planned activities and resource acquisition and use

capacity

a measure of production volume or some other activity base

capital budgeting

a process of evaluating an entity’s proposed
long-range projects or courses of future activity for
the purpose of allocating limited resources to desirable
projects

contract vendor

an external party that has been granted an
outsourcing contract to provide a service activity for an entity

contribution margin

the difference between selling price and
variable cost per unit or in total for the level of activity; it
indicates the amount of each revenue dollar remaining
after variable costs have been covered and going toward
the coverage of fixed costs and the generation of profits

control chart

a graphical presentation of the results of a
specified activity; it indicates the upper and lower control
limits and those results that are out of control

core competency

a higher proficiency relative to competitors
in a critical function or activity; a root of competitiveness
and competitive advantage; anything that is not a
core competency is a viable candidate for outsourcing

cost driver

a factor that has a direct cause-effect relationship
to a cost; an activity creating a cost

discretionary cost

a cost that is periodically reviewed by a
decision maker in a process of determining whether it continues
to be in accord with ongoing policies; a cost that
arises from a management decision to fund an activity at
a specified cost amount for a specified period of time, generally
one year; a cost that can be reduced to zero in the
short run if necessity so dictates

e-commerce (electronic commerce)

any business activity that uses the Internet and World Wide Web to engage in financial transactions

engineered cost

a cost that has been found to bear an observable
and known relationship to a quantifiable activity base

fixed cost

a cost that remains constant in total within a specified
range of activity

flexible budget

a presentation of multiple budgets that
show costs according to their behavior at different levels
of activity

high-low method

a technique used to determine the fixed
and variable portions of a mixed cost; it uses only the highest
and lowest levels of activity within the relevant range

just-in-time (JIT)

a philosophy about when to do something;
the when is “as needed” and the something is a production,
purchasing, or delivery activity

mixed cost

a cost that has both a variable and a fixed component;
it varies with changes in activity, but not proportionately

predetermined overhead rate

an estimated constant charge per unit of activity used to assign overhead cost to production or services of the period; it is calculated by dividing total budgeted annual overhead at a selected level of volume or activity by that selected measure of volume or activity; it is also the standard overhead application rate

predictor

an activity measure that, when changed, is accompanied
by consistent, observable changes in another item

relevant range

the specified range of activity over which a
variable cost per unit remains constant or a fixed cost remains
fixed in total; it is generally assumed to be the normal
operating range of the organization

scarce resource

a resource that is essential to production
activity, but is available only in some limited quantity

scattergraph

a graph that plots all known activity observations
and the associated costs; it is used to separate mixed
costs into their variable and fixed components and to examine
patterns reflected by the plotted observations

step cost

a cost that increases in distinct amounts because of increased activity

variable cost

a cost that varies in total in direct proportion
to changes in activity; it is constant on a per unit basis

variable overhead efficiency variance

the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production

variable overhead spending variance

the difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity

Allocation

The process of storing costs in one account and shifting them to other
accounts, based on some relevant measure of activity.

Cost driver

A factor that directly impacts the incidence of a cost, and which is generally
based on varying levels of activity.

Cost object

An item for which a cost is compiled. For example, this can be a product,
a service, a project, a customer, or an activity.

Fixed cost

A cost that does not vary in the short run, irrespective of changes in any
cost drivers. For example, the rent on a building will not change until the lease
runs out or is re-negotiated, irrespective of the level of business activity within
that building.

Fixed overhead

That portion of total overhead costs which remains constant in size
irrespective of changes in activity within a certain range.

Indirect cost

A cost that is not directly associated with a single activity or event. Such
costs are frequently clumped into an overhead pool and allocated to various activities,
based on an allocation method that has a perceived or actual linkage between
the indirect cost and the activity.

Operating income

The net income of a business, less the impact of any financial activity,
such as interest expense or investment income, as well as taxes and extraordinary
items.

Pareto analysis

The 80:20 ratio that states that 20% of the variables included in an
analysis are responsible for 80% of the results. For example, 20% of all customers
are responsible for 80% of all customer service activity, or 20% of all inventory
items comprise 80% of the inventory value.

Variable cost

A cost that changes in amount in relation to changes in a related activity.
Variance
The difference between an actual measured result and a basis, such as a budgeted amount.

Depression

A prolonged period of very low economic activity with large-scale unemployment.

Fiscal Policy

A change in government spending or taxing, designed to influence economic activity.

Implicit Contract

An unwritten understanding between two groups, such as an understanding between an employer and employees that employees will receive a stable wage despite business cycle activity.

Infrastructure

Basic facilities, such as transportation, communication, and legal systems, on which economic activity depends.

Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.

National Income and Product Accounts

The national accounting system that records economic activity such as GDP and related measures.

Recession

Loosely speaking, a period of less-than-normal economic growth. Technically, a downturn in economic activity in which real GDP falls in two consecutive quarters.

Secondary Market

New security issues are first sold directly to the public by the issuing firm or the government. After this initial sale, the owners of the securities can trade them among themselves or others; such activity is said to take place on the secondary market.

Supply-Side Economics

View that incentives to work, save, and invest play an important role in determining economic activity by affecting the supply side of the economy.

Underground Economy

Economic activity not observed by tax collectors and government statisticians.

Velocity

The number of times during a year that the money supply turns over in supporting that year's economic activity, measured as the ratio of nominal income to the money supply.

Aggressive Cost Capitalization

Cost capitalization that stretches the flexibility within generally
accepted accounting principles beyond its intended limits, resulting in reporting as assets
items that more reasonably should have been expensed. The purpose of this activity is likely to
alter financial results and financial position in order to create a potentially misleading impression
of a firm's business performance or financial position.

Waiver of Premium

This is an option available to the applicant for life insurance which sets certain conditions under which an insurance policy will be kept in full force by the insurance company without the payment of premiums. Very specifically, a life insured would have to become totally disabled through injury or illness for a period of six months before the benefit kicks in. When it does, the insurance company retroactively pays premiums from the beginning of the disability until the time the insured is able to perform some form of regular activity. 'Totally disabled' is highlited here, because that is what is required to receive this benefit.

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