Cost terms concepts and classifications
Cost terms concepts and classifications are cost is defined as price of any object. Cost terms include direct & indirect cost, fixed & variable costs. Cost is classified as direct & indirect material, direct & indirect labor which also includes factory overhead.
Absorbed cost in a business can be defined as the indirect cost related to the manufacturing of products of the business. In order to understand absorbed cost let take an example of a building where overall manufacturing process of the business is going on.
Opportunity cost is a concept used for evaluation of alternative uses of resources. Decision makers select that alternative use of resources from which they expect the maximum net return. Opportunity cost is the net return that could be obtained from the second best alternative
Differential costs assist decision makers while making a choice between different alternatives. Differential costs are those items of total costs of two or more alternatives which have different magnitude under each alternative. Items of differential costs may be variable cost items or fixed cost
This cost concept is designed to fix responsibility of cost control for various levels of management. Therefore, it is always associated with a designated level in organizational hierarchy. Controllability of a cost means the degree of influence that a specific manager can exert over the
This classification is based on cost behaviour. It is one of the most useful classifications f.r the purpose of cost planning and control. Cost behaviour means how a cost will react or respond to changes in the level of business activity. Fixed Cost. A
Cost which is not related to production and is matched against revenues on a time period basis is called period cost, non manufacturing cost or non-inventoriable cost. Period cost includes marketing or selling cost and administrative cost. Marketing or Selling Cost. Marketing or selling
Product cost –includes costs incurred– for manufacturing or for purchasing goods. In case of manufacturing business product cost consists of direct materials, direct labour and factory overhead. In case of trading business, product cost involves purchase price plus transportation in plus other costs associated with
There are different measures of costs for different purposes. Therefore, costs are classified in a number of ways. An organization does not record costs by all possible classifications. However, in this modern age, computers have made it possible to record costs on multiple classification
Generally speaking by cost we mean total amount of money or other resources foregone or sacrificed to procure something or to achieve some objective. Word expense is also used to denote almost the same meaning. The difference between these two is that when benefit
Product Cost Versus Period Cost: Learning Objectives of this article: Define and explain the terms “product cost” and “period cost”. Give examples of each. What is the difference between product cost and period cost. In addition to the distinction between manufacturing and non-manufacturing costs,
Workplace Spirituality Definition: The recognition that people have an inner life that nourishes is nourished by meaningful work that takes place in the context of community.
Turnover Definition: Turnover is the amount of sales generated in an investment center for each dollar invested in operating assets. It is computed by dividing sales by the average operating assets figure.
Transfer Pricing Definition: The price charged when one division or segment provides goods or services to another division or segment of an organization.
Trend Analysis Definition: Trend analysis is a side-by-side comparison of two or more years’ financial statements.
Cost Classifications for Predicting Cost Behavior (Variable and Fixed Cost): Learning objectives of this article: Define and explain variable cost and fixed cost. Give examples of variable and fixed costs. What is the difference between variable and fixed cost. What are the types of
Trade Discount Definition: Trade discount is an allowance or rebate from the scheduled price granted by the seller to buyer. In other words, Trade discount is an allowance made from the full invoice price to a customer who buys goods in the ordinary course
Traceable Fixed Cost Definition: Traceable fixed cost is a fixed cost that is incurred because of the existence of a particular business segment.
Uses of Quality Cost Information (Report): Learning Objectives of this article: What are the advantages and limitations of a quality cost report? A quality cost report has several uses. First quality cost information helps managers see the financial significance of defects. Managers usually are