Cost & Management Accounting Vocabulary

Flashcards covering key accounting terminology, concepts, techniques, and formulas from the Cost & Management Accounting course.

Management Accounting

A system of accounting for management that provides necessary financial and operational information to assist management in planning, organizing, directing, controlling, and decision-making.

Cost Accounting

A specialized branch of accounting that involves the classification, accumulation, assignment, and control of costs from the point expenditure is incurred to the establishment of its ultimate relationship with cost centers and cost units.

Costing

The techniques and processes of ascertaining costs, governed by specific principles and rules.

Elements of Cost

The classification of total expenditure into three primary categories: Materials, Labour, and Other Expenses, each subdivided into direct and indirect costs.

Cost Unit

A unit of quantity of a product, service, or time in relation to which costs may be ascertained or expressed (e.g., tonne, passenger-kilometre, or brick count).

Cost Centre

A location, person, or item of equipment (or group of these) for which costs may be ascertained and used for the purpose of cost control.

Profit Centre

A segment of business activity responsible for both revenues and expenses, disclosing profit to delegate responsibility and measure performance.

Direct Costs

Costs incurred for a particular product or service that can be conveniently identified and traced directly to a specific cost centre or cost unit.

Indirect Costs

Costs incurred for the benefit of multiple cost centres or cost units that cannot be conveniently or directly identified with a single cost centre or cost unit.

Fixed Costs

Costs that remain constant in total amount irrespective of changes in output or volume of production for a given period of time.

Variable Costs

Costs that vary in direct proportion to the volume of output, fluctuating in total but remaining constant per unit as activity changes.

Semi-variable Costs

Costs that contain both fixed and variable elements, changing with output variations but not in direct proportion.

Product Costs

Costs traceable directly to the product and included in inventory valuation (full factory cost).

Period Costs

Costs incurred on the basis of time (such as administration and selling expenses) treated as revenue expenses for the period in which they occur.

Controllable Cost

A cost that can be directly influenced or managed by the action of a specified member of an undertaking.

Job Costing

A system of costing in which costs are accumulated and ascertained for specific, distinct non-repetitive jobs or orders.

Process Costing

A method of costing applied in continuous mass production where products pass through distinct sequential stages or processes.

Operating Costing

A method of costing designed to ascertain the cost of rendering or operating a service rather than manufacturing commodities.

Prime Cost

The sum of all direct expenses incurred in production: $\text{Prime Cost} = \text{Direct Materials} + \text{Direct Labour} + \text{Direct Expenses}$.

Overheads

The aggregate cost of indirect materials, indirect labour, and indirect expenses that cannot be charged directly to specific cost units.

Re-ordering Level

The stock level at which a purchase requisition is initiated for fresh supplies, calculated as $\text{Re-ordering Level} = \text{Maximum Consumption} \times \text{Maximum Re-order Period}$.

Economic Ordering Quantity (EOQ)

The optimal order quantity that minimizes the sum of total ordering costs and inventory carrying costs, calculated as \text{EOQ} = \frac{\begin{equation}2 \times C \times O\begin{end}{case}}{\begin{equation}I\begin{end}{case}}.

Bin Card

A quantitative stock record maintained by the storekeeper, attached to or placed near the store rack to record receipts, issues, and balances of an item.

Stores Ledger

A ledger kept in the costing department containing quantitative and monetary records of stock receipts, issues, and balances for pricing and valuation.

Perpetual Inventory System

A system of continuous stock records (bin cards and stores ledger) reflecting physical stock movements and current balances after every receipt and issue.

ABC Analysis

An inventory control technique that classifies stock items into three categories ('A', 'B', 'C') in descending order of monetary consumption value.

First In First Out (FIFO)

A material issue pricing method where materials are issued from the earliest available consignment on hand and priced at original acquisition cost.

Last In First Out (LIFO)

A material issue pricing method where issues are priced based on the cost of the latest available consignment purchased.

Time-keeping

The process of recording workers' exact time of entry and exit at the factory gate for payroll, discipline, and statutory requirements.

Time Booking

The process of recording the specific time spent by a worker on individual jobs or work orders during factory attendance hours.

Idle Time

The difference between time recorded at the factory gate and time booked to specific production jobs.

Overtime Premium

The extra rate paid to workers over and above standard hourly wages for work performed beyond normal working hours.

Time Wage System

A wage system where workers are remunerated based on time spent on the job regardless of total output produced.

Piece Rate System

A wage system where compensation is paid at a fixed rate per unit produced or job completed, regardless of time taken.

Halsey Premium Plan

An incentive system guaranteeing time wages and awarding a bonus equal to $50$% of the time saved: $\text{Earnings} = (T \times R) + 0.5 \times (S - T) \times R$.

Rowan Plan

An incentive wage scheme awarding a bonus proportional to the time saved relative to standard time: $\text{Earnings} = (T \times R) + \frac{S - T}{S} \times T \times R$.

Allocation of Overhead

The direct identification and allotment of complete items of overhead costs to specific cost centres or departments.

Apportionment of Overhead

The distribution of common or shared overhead expenses across multiple cost centres on an equitable basis.

Absorption of Overhead

The process of distributing allotted and apportioned departmental overhead costs over the units produced in that department.

Machine Hour Rate

An overhead absorption rate representing the cost of operating a machine or group of machines per working hour.

Contract Costing

A form of specific order costing (also called terminal costing) applied to large-scale, long-duration construction or fabrication orders carried out on site.

Work Certified

The portion of work completed on a contract that has been inspected and approved by an architect or surveyor.

Work Uncertified

Work completed on a contract by the contractor that has not yet been certified or evaluated by the architect at the accounting date.

Retention Money

The portion of work certified value retained by the contractee as security against future non-fulfillment of contract terms.

Notional Profit

The interim profit calculated on an incomplete contract at the end of an accounting period.

Equivalent Production

The expression of incomplete work-in-progress units in terms of fully completed units based on their estimated percentage stage of completion.

Budget

A quantitative statement prepared for a defined future period detailing planned revenues, expenses, assets, liabilities, and cash flows.

Budgetary Control

A management system that uses continuous comparison of actual results against budgeted figures to regulate operations and enforce policy.

Flexible Budget

A dynamic budget designed to adjust its cost figures according to varying levels of output activity attained.

Zero Base Budgeting (ZBB)

A budgeting technique requiring every cost element and activity to be justified completely from a zero base for each budget period.

Standard Costing

A cost control technique that sets predetermined benchmark standard costs and compares them with actual costs to identify and analyze variances.

Variance

The monetary deviation or difference between a predetermined standard cost and the actual cost incurred.

Material Cost Variance

The total difference between the standard material cost allowed for actual output and the actual material cost incurred: $\text{MCV} = \text{Standard Cost} - \text{Actual Cost}$.

Marginal Costing

A costing technique where variable costs are charged to cost units while fixed costs are written off in full against contribution for the period.

Contribution

The surplus generated from sales revenue over variable costs: $\text{Contribution} = \text{Sales} - \text{Variable Cost} = \text{Fixed Cost} + \text{Profit}$.

Profit/Volume Ratio (P/V Ratio)

The proportion or percentage ratio of contribution relative to sales revenue: $\text{P/V Ratio} = \frac{\text{Contribution}}{\text{Sales}} \times 100$.

Break-Even Point (BEP)

The output volume or sales revenue level at which total revenues equal total costs, resulting in neither profit nor loss.

Break-Even Chart

A graphical depiction of cost volume profit relationships where the intersection of the sales line and total cost line marks the break-even point.

Contribution Break-Even Chart

A variation of the break-even chart where variable costs are plotted first, with fixed cost lines drawn parallel above them to highlight contribution.

Profit Volume Graph

A simplified break-even graph plotting sales volume on the X-axis and profit/loss on the Y-axis to illustrate profit variations directly.

Margin of Safety

The excess of actual sales volume or value over the break-even sales volume: $\text{Margin of Safety} = \text{Sales} - \text{Break-Even Sales}$.

Angle of Incidence

The angle formed at the intersection of the total sales line and total cost line at the break-even point on a graph, indicating profit-earning capacity.

Key Factor

A factor in an organization (such as raw material supply, labour hours, or plant capacity) that restricts total production volume and profitability.