Applied Costing & Control Lecture Notes

Comprehensive vocabulary flashcards covering the University of Calicut Applied Costing & Control syllabus, including core costing concepts, methods for specific and process orders, service costing, and cost control techniques.

Cost Accounting

A system of accounting that identifies, records, analyses, and controls costs of products or services to assist management in decision-making.

Cost

The total expenditure incurred to produce a product or service.

Costing

The techniques and processes used for the purpose of ascertaining cost.

Cost Accountancy

The application of costing principles for cost control and managerial decision-making.

Cost Centre

A location, department, person, or activity where costs are collected for the purpose of controlling costs and assigning responsibility.

Cost Unit

A unit of product, service, or time for which cost is measured, such as per $\text{kg}$, per $\text{litre}$, or per $\text{passenger-km}$.

Direct Costs

Costs that are directly traceable to a specific product or service.

Indirect Costs

Costs that are not directly traceable to a product, also known as overheads.

Direct Material

Materials that can be directly identified with the product, such as wood in furniture or fabric in garments.

Indirect Material

Materials used not directly identifiable with the final product, such as lubricants, cleaning materials, or repair supplies.

Direct Labour

Labour that can be directly traced to specific products, such as machine operators or carpenters.

Indirect Labour

Labour not directly engaged in production, such as supervisors, maintenance workers, or storekeepers.

Overheads

All indirect costs other than direct material and direct labour, classified as factory, administration, or selling and distribution overheads.

Overhead Absorption

The method of charging overheads to production using labour hours, machine hours, or a percentage rate.

Composite Cost Unit

A cost unit that combines two or more units of measurement, such as $\text{passenger-kilometre}$ or $\text{tonne-kilometre}$.

Cost Object

Any item for which cost information is required, such as a product, service, department, job, project, or customer.

Profit Centre

A segment of the business responsible for both revenue and cost, evaluated based on the goal to maximise profit.

Investment Centre

A centre responsible for profit and the efficient use of assets, measured by $\text{Return on Investment (ROI)}$ or $\text{Return on Capital Employed (ROCE)}$.

Cost Sheet

A statement representing the total cost and cost per unit of production for a given period in a systematic format.

Job Costing

A costing method used for specific jobs or work orders where each job is distinct and production is not continuous.

Batch Costing

A costing method used when identical units are produced in groups, where the batch is treated as one cost unit.

Economic Batch Quantity (EBQ)

The optimum batch size that minimises the total cost of production, including setup (ordering) and carrying (holding) costs.

EBQ Formula

$EBQ = \text{the square root of } \frac{2DS}{H}$, where $D$ is annual demand, $S$ is setup cost per batch, and $H$ is carrying cost per unit per year.

Contract Costing

A costing method used for large, long-term, site-based projects such as the construction of buildings, roads, or bridges.

Work Certified

The portion of contract work completed and certified by an architect or engineer.

Work Uncertified

Work completed on a contract but not yet certified, valued at cost.

Retention Money

An amount withheld by the contractee (client) as security for performance, to be paid after full completion.

Cost-Plus Contracts

An agreement where the contractor is reimbursed for actual costs incurred plus an agreed percentage of profit or fee.

Escalation Clause

A clause allowing revision of the contract price when costs of materials, labour, or other inputs rise beyond an agreed limit.

Process Costing

A costing method used for continuous production of identical units passing through several stages, such as oil refining or paper manufacturing.

Normal Loss

Unavoidable loss due to nature (evaporation, breakage, shrinkage) absorbed by good units in the process.

Abnormal Loss

Loss above the expected level due to inefficiency, which is treated separately in the Costing \text{P&L} Account.

Abnormal Gain

A situation where actual loss is less than the normal loss, resulting in extra good units credited to the Costing \text{P&L} Account.

Joint Products

Two or more main products produced simultaneously from the same raw material and process, each having significant economic value.

By-Products

Incidental or secondary products generated during joint production that have relatively low economic value.

Equivalent Production

The process of converting partially completed units ($\text{WIP}$) into equivalent fully completed units to calculate cost per unit.

Service Costing (Operating Costing)

A method used to determine the cost of providing intangible services rather than physical goods, used in transport, hospitals, and hotels.

Standard Costing

A technique where predetermined costs are set and actual costs are compared with them to identify and analyse variances.

Variance

The difference between standard cost and actual cost, classified as favourable or unfavourable.

Material Cost Variance (MCV)

The difference between the standard cost of materials for actual output and the actual cost incurred; $MCV = (SQ \times SP) - (AQ \times AP)$.

Budget

A financial plan that estimates income and expenditure for a specified future period, expressed in monetary or quantitative terms.

Flexible Budget

A budget that is adjusted according to different levels of activity or output, separating costs into fixed, variable, and semi-variable.

Master Budget

A comprehensive budget that consolidates all functional and financial budgets into an overall financial plan for the business.

Performance Budgeting

A budgeting method that links expenditure with results and successes rather than just spending.

Zero-Based Budgeting (ZBB)

A method where every activity must be justified from zero for each new period, rather than being based on previous budgets.