Marginal Costing

Marginal Costing

A costing technique that considers only variable costs when making decisions.

Fixed Costs

Costs that do not change with the level of output in the short term.

Variable Costs

Costs that vary directly with the level of output.

Stepped Fixed Costs

Costs that remain fixed within a certain range of activity but increase when a certain level of activity is exceeded.

Semi-Variable Costs

Costs that have both fixed and variable components.

Direct Costs

Costs that can be directly attributed to a specific product or service.

Indirect Costs

Costs that cannot be directly traced to a specific product or service.

Prime Costs

The total of all direct costs associated with the production of goods.

Break-even Point

The level of sales at which total revenues equal total costs.

Total fixed costs/ contribution per unit

Contribution Margin

Selling price per unit minus variable cost per unit.

Margin of Safety

The difference between actual sales and sales at the break-even point.

Cost Behaviour

The way that costs change in relation to changes in an organization's level of activity.

Direct Labour

The cost of wages for employees directly involved in the production process.

Indirect Labour

The cost of wages for employees who support the production process but are not directly involved.

Direct Materials

Raw materials that can be directly traced to the finished product.

Indirect Materials

Materials that are not directly traceable to specific products but are necessary for production.

Cost Allocation

The process of identifying, aggregating, and assigning costs to cost objects.

Cost Control

The practice of managing costs to keep them within the established budget.

Operating Leverage

The extent to which a company uses fixed costs in its cost structure.

Special Order Pricing

Setting prices for orders that are outside of the regular pricing structure and often below usual costs.

Capacity Constraint

A limitation in an organization’s ability to produce or deliver goods or services.

Contribution to Sales Ratio

The ratio of contribution margin to total sales revenue, expressed as a percentage.

Total Variable Overheads

Total costs of variable supplies and services that vary with production levels.

Fixed Overheads

Costs that do not change in total regardless of the level of production.

Economies of Scale

The cost advantage that arises with increased output of a product.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Budgeting

The process of creating a plan to spend your money.

Cost Efficiency

A measure of how well a company uses its resources to produce goods or services.

Qualitative Factors

Non-numeric factors that can affect decision making processes.

Quantitative Factors

Numeric factors that can be directly measured and analyzed.

Cost Variance Analysis

The process of comparing actual costs to budgeted costs to evaluate performance.

Cash Flow Analysis

The process of examining the cash inflows and outflows to determine the financial health of a business.

Capital Budgeting

The process of planning and managing a firm's long-term investments.

Operational Strategy

A plan that outlines how a company will execute its business plan and achieve its objectives.

Target Profit Pricing

Setting prices with the goal of achieving a specific profit.

Sales Forecasting

Estimating future sales based on historical data and market analysis.

Profit Margin

The amount by which revenue from sales exceeds costs in a business.

Activity-Based Costing (ABC)

A accounting method that identifies and assigns costs to overhead activities and then assigns those costs to products.

Target Profit