Avoidable cost:
Any cost that can be eliminated (in whole or in part) by choosing one alternative over another in a decision-making situation. In managerial accounting, this term is synonymous with relevant cost and differential cost.
Bottleneck:
A machine or process that limits total output because it is operating at capacity.
Constraint:
A limitation under which a company must operate, such as limited machine time available or limited raw materials available that restricts the company's ability to satisfy demand.
Differential cost:
Any cost that differs between alternatives in a decision-making situation. In managerial accounting, this term is synonymous with avoidable cost and relevant cost. Also see Incremental cost.
Joint product costs:
Costs that are incurred up to the split-off point in producing joint products.
Joint products:
Two or more items that are produced from a common input.
Make or buy decision:
A decision as to whether an item should be produced internally or purchased from an outside supplier.
Relaxing (or elevating) the constraint:
An action that increases the capacity of a bottleneck.
Relevant cost:
A cost that differs between alternatives in a particular decision. In managerial accounting, this term is synonymous with avoidable cost and differential cost.
Sell or process further decision:
A decision as to whether a joint product should be sold at the split-off point or processed further and sold at a later time in a different form.
Special order:
A one-time order that is not considered part of the company's normal ongoing business.
Split-off point:
That point in the manufacturing process where some or all of the joint products can be recognized as individual products.
Sunk cost:
Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Vertical integration:
The involvement by a company in more than one of the steps from production of basic raw materials to the manufacture and distribution of a finished product.
