1. An accounting information system is a system consisting of interrelated manual and computer parts, using processes such as collecting, recording, classifying, summarizing, analyzing, and managing data to provide output information to users. 2. The financial accounting information system is primarily concerned with producing outputs for external users using well-specified economic events as inputs and processes that meet certain rules. The cost management system, on the other hand, produces outputs for internal users, and the criteria that govern inputs and processes are directly related to management objectives. As a result, the cost management system is more flexible than the financial system. 3. The three broad objectives of a cost management information system are: (1) to cost out products, services, and other cost objects; (2) to provide information for planning and control; and (3) to provide information for decision making. 4. A cost object is anything for which costs are measured and assigned. Examples include activities, products, plants, and projects. 5. An activity is a basic unit of work performed within an organization. Examples include materials handling, inspection, purchasing, billing, and maintenance. 6. A direct cost is a cost that can be easily and accurately traced to a cost object. An indirect cost is a cost that cannot be easily and accurately traced to cost objects. 7. Traceability is the ability to assign a cost directly to a cost object in an economically feasible way using physical observation or a causal relationship. 8. Allocation is the assignment of indirect costs to cost objects based on convenience or assumed linkages. 9. Driver tracing uses drivers based on a causal relationship to trace costs to cost objects. Often, this means that costs are first traced to activities using resource drivers and then to cost objects using activity drivers. 10. Tangible products are goods that are made by converting raw materials into a final product through the use of labour and capital inputs. 11. A service is a task or activity performed for a customer or an activity performed by a customer using an organization’s products or facilities. Services differ from tangible products on three important dimensions: intangibility, perishability, and inseparability. Intangibility means that buyers of services cannot see, feel, taste, or hear a service before it is bought. Perishability means that services cannot be stored. Inseparability means that producers of services and buyers of services must be in direct contact (not true for tangible products). 12. The three cost elements are direct materials, direct labour, and overhead. 13. The income statement for a service firm does not need a supporting cost of goods manufactured schedule. Since services cannot be stored, the cost of services produced equals the cost of services sold (not necessarily true for a manufacturing firm).