Costing Techniques Lecture Notes

Flashcards covering key concepts related to costing techniques, cost behaviors, and budgeting in management accounting.

Cost classification

Arrangement of cost items into logical groups by type, function, or nature.

Budgetary responsibilities

Accountability for the preparation and monitoring of budgets in an organization.

Variable costs

Costs that vary with output, e.g., material and labor costs.

Fixed costs

Costs that do not vary with output, such as rent.

Stepped fixed costs

Costs that remain fixed for a certain output level and increase at specific thresholds.

Semi-variable costs

Costs which have both fixed and variable components.

Direct costs

Costs that can be specifically identified with and allocated to a single cost unit.

Indirect costs

Costs incurred in producing a good or service that cannot be directly traced to a specific cost unit.

Absorption costing

Method of costing that includes all production costs (fixed and variable) in unit costs.

Marginal costing

Method of costing that only includes variable costs in unit costs; fixed costs are treated as period costs.

Contribution

The amount generated by a cost unit to cover fixed costs and contribute to profit.

Overhead absorption rate (OAR)

Estimated amount of fixed overhead assigned to each cost unit.

Profit centres

Departments responsible for costs and revenues.

Cost centres

Departments responsible solely for costs.

Investment centres

Departments responsible for costs, revenues, and capital investments.

High-low method

A method used to separate fixed and variable costs based on the highest and lowest activity levels.

Capital expenditure

Expenditure on non-current assets that provides benefits over a long period.

Revenue expenditure

Short-term expenditure incurred for day-to-day operations of the business.

Cost behaviour

The relationship between costs and activity levels, important for budgeting and forecasting.

Cost control

Management of costs to ensure they are within budget and to maximize efficiency.