BA-2202 Cost Accounting: Lecture 1 - Introduction to Cost Accounting

Comprehensive vocabulary flashcards covering basic concepts, cost classifications, cost behaviors, cost assignments, product/period costs, and relevant cost decision-making from Lecture 1 of BA-2202 Cost Accounting.

Accounting

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.

Management Accounting

Measures and reports financial and non financial information that helps managers make decisions to fulfill the goals of an organization, used to choose, communicate and implement strategy, as well as coordinating product design, production and marketing decisions.

Financial Accounting

Focuses on reporting to external parties by measuring and recording business transactions and providing financial statements based on generally accepted accounting principle (GAAP).

Cost Accounting

Provides info for management and financial accounting by measuring and reporting financial and non-financial information relating to the cost of acquiring and utilizing resources in an organization.

Cost Accountant Functions Framework

A dual-function structure encompassing traditional functions (internal operations focused on ascertaining costs) and strategic functions (external environment focused on managing costs and winning/retaining customers).

Cost

The amount of expenditure incurred on, or attributable to a specified thing or activity.

Cost Units

Quantitative unit to which costs can be associated, such as litre, metre, or kilograms.

Cost Centre

Sections or departments to which costs can be related, such as a production or service cost centre.

Actual Cost

The amount of cost incurred, also called historical cost, distinguished from a budgeted or forecasted cost.

Cost Object

Anything for which a measurement of costs is desired, such as a product, machine, service, customer, brand-category, or department.

Cost Accumulation

Collection of cost data in some organized way by means of an accounting system.

Cost Tracing

Used to describe the assignment of direct costs to a particular cost object.

Cost Allocation

Process of assigning indirect costs to cost objects that involve the use of substitute, rather than direct measures.

Cost Assignment

General term that encompasses both tracing accumulated costs that have a direct relationship to a cost object and allocating accumulated costs that have an indirect relationship to a cost object.

Cost Classification Structure

Categorization of costs based on four primary criteria: Behavior (Fixed, Variable, Semi-VC/FC, Direct/Indirect), Function (Production, Administration, Selling and Distribution, Research and Development), Controllability (Controllable, Non-Controllable), and Normality (Normal, Abnormal).

Variable Costs

Costs that vary in direct proportion with activity, where total variable cost increases linearly with output while unit variable cost remains constant.

Fixed Costs

Costs that remain constant over wide ranges of activity, resulting in a unit fixed cost that decreases as activity level increases.

Semi-Variable Cost (Mixed Cost)

An expense which contains both a fixed-cost component and a variable-cost component, calculated using the formula $Y = a + bX$ where $Y$ is total mixed cost, $a$ is total fixed cost, $b$ is variable cost per unit, and $X$ is level of activity.

Semi-Fixed Cost

A cost that is fixed over a given, small range of activity, and above that level of activity, the cost suddenly jumps to stay fixed again for a while at the higher range, moving upward in a step fashion.

Direct Costs

Costs that can be specifically and exclusively identified with a given cost object and accurately traced as they are physically identified.

Indirect Costs

Costs that cannot be specifically and exclusively identified with a given cost object, assigned on the basis of cost allocations.

Direct Labour

Cost of wages/salaries of personnel working on the provision of the product or service to the customer.

Direct Material

Cost of materials, parts or components forming part of the product or service to the customer.

Direct Expenses

Cost of bought-in services that are specific to a product or service, for example design fees or hire charges.

Indirect Labour

Pay of any employee not engaged on the product or service supplied to the customer, such as supervisory, maintenance, cleaning, administrative, sales, distribution and management staff.

Indirect Materials

Materials often relatively insignificant in total value, including stationery, cleaning materials and maintenance parts.

Indirect Expenses

Expenses including power, depreciation, rent or insurance.

Prime Cost

The total of all direct costs, calculated as $\text{Direct Labour} + \text{Direct Materials} + \text{Direct Expense} = \text{PRIME COST}$.

Overheads

The total of all indirect costs, calculated as $\text{Indirect Labour} + \text{Indirect Materials} + \text{Indirect Expense} = \text{OVERHEADS}$.

Product Costs

Costs identified with goods purchased or produced for resale that attach to the product and are included in inventory valuation (balance sheet) until sold, becoming an expense in the profit and loss account when sold.

Period Costs

Non-manufacturing costs not attached to the product or included in inventory valuation, treated as expenses in the profit and loss account in the current accounting period in which they are incurred.

Sunk Costs

Costs of resources already acquired in the past (such as depreciation) that are unaffected by the choice between various alternatives and are irrelevant for decision-making.

Opportunity Costs

A cost that measures the opportunity lost or sacrificed (profit foregone) when selecting one course of action requires giving up an alternative course of action.