Sample Documents

Glossary

AFC -- Average Fixed Cost. Total fixed cost devided by the total output of the activity or process

ATC -- Average Total Cost. Total cost devided by the total output of the activity or process

AVC -- Average Variable Cost. Total variable cost devided by the total output of the activity or process

COST ALLOCATION -- A method of assigning indirect and general and administrative costs to activities, functions, or outputs.

CAPITAL ASSETS -- Depreciable property, plant, equipment, and software developed, manufactured, transferred or acquired at a specific point in time for a determined cost of $50,000 or more; are used over some period (useful life), the length of which to be two years or greater; and generally, become economically worthless (except for residual value) at the end of their estimated useful lives.

COST -- A monetary measure of the amount of resources applied to a cost object. Within the DoD, "costs" are identified following General Accounting Office accounting principles and standards as implemented through the DoD Financial Management Regulation.

COST DRIVER -- Any factor that causes a change in the cost of a function or output.

CUSTOMER -- Organizations, either operational or support, who receive support goods or services from another activity. The customer is the originator of requirements, and hence, external to the organization that actually provides the support.

CUSTOMER DRIVEN DEMAND -- The requirement (demand) for production of goods or services (output) that originates from customers, not from the producing activity.

DEFENSE BUSINESS OPERATIONS FUND (DBOF) -- The Defense Business Operations Fund is a financial structure that was established by merging the former stock and industrial funds and several activities previously funded by operation and maintenance appropriations into a single revolving fund. The DBOF has multiple divisions identified by component and by business area. The DBOF operates with principles that provide improved cost visibility and accountability to ensure business management and improve the decision making process. The DBOF builds on revolving fund principles previously used for industrial and commercial-type activities.

DEPRECIATION -- Depreciation recognizes the allocation of cost of depreciable physical plant, property, or equipment as an operating expense over the periods in which the assets are expected to provide benefit.

DIRECT COSTS -- Costs that are specifically identified with a single cost object (output). The cost of resources directly consumed by producing an output. Direct costs are assigned to activities by direct tracing of resources consumed by individual outputs.

FIXED COST -- A cost or expense that does not vary in the short run with the quantity of output produced.

GENERAL & ADMINISTRATIVE (G&A) COSTS -- Labor and non-labor costs that cannot be reasonably associated with any single output or group of outputs and are therefore allocated over all outputs.

INDIRECT COSTS -- Costs that are related to two or more outputs, but not all outputs.

OPERATING COSTS -- Expenses incurred in connection with the production of outputs of an activity. Operating costs include direct, indirect and general and administrative costs.

OUTPUTS -- In general, any product or service generated from the consumption of resources. An output must be a quantifiable measure and generated as the result of customer requirements (customer driven demand).

PERFORMANCE MEASUREMENT -- The use of objective, quantifiable indicators of program effectiveness and efficiency to assess progress against stated goals and objectives. A balance of financial and nonfinancial indicators should be used to measure performance such as cost per output, cost per outcome, customer-oriented indicators of quality timeliness and customer satisfaction. Program accomplishments in terms of outputs and outcomes are integral elements of performance measurement.

PROCESS -- The organized method of converting inputs (people, equipment, methods, materials, and environments) to outputs (products or services). The natural aggregation of work activities and tasks performed for program delivery.

PRODUCER OR PROVIDER -- An activity that provides products or services to other activities.

REVOLVING FUND ACCOUNTS (REVOLVING FUNDS) -- Accounts authorized by specific provisions of law in which all income is derived from its operations and is available to finance a continuing cycle of business-type operations. These accounts are authorized to incur obligations and expenditures that generate receipts.

UNIT COST -- The relationship of resources consumed to outputs produced. A unit cost is the cost of producing one unit of output or providing one unit of service. Unit costs are determined by dividing the total cost (the sum of direct, indirect and G&A costs) of inputs used to produce outputs by the total quantity of units of output produced.

UNIT COST AUTHORITY -- The amount of resources an activity is authorized to use in the production of its output.

UNIT COST GOAL -- A unit cost target that is expected to be achievable for production of an output. The unit cost goal is based on historical data (cost and output) adjusted for future known or expected changes.

VARIABLE COST -- A cost that varies with changes in the quantity of output produced when other factors are held constant. The cost of material handling to an activity, for example, varies according to the number of material deliveries and pickups to and from that activity.

VARIANCE -- The amount, rate, extent, or degree of change, or the divergence from a desired characteristic or state.

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