Cost Terms, Classification, and Segregation

Vocabulary flashcards covering key cost terms, classifications, and analytical methods from the lecture notes.

Cost

The value foregone or sacrifice of resources for the purpose of achieving an economic benefit; the monetary measure of resources consumed to attain an objective.

Cost Pools

Groups of costs collected into meaningful categories for analysis.

Cost Object

Any product, service, or organizational unit to which costs are assigned for management purposes.

Cost Drivers

Factors that cause changes in the level of total cost (e.g., direct labor hours, machine hours, customer contacts).

Cost Accumulation

The process of assigning costs to cost pools or from cost pools to cost objects.

Cost Assignment

The assignment of indirect costs to cost pools; allocation bases move costs from pools to objects.

Cost Function Y=a+bx

Y is total cost; a is total fixed costs; b is variable cost per unit; x is the number of units.

Manufacturing Cost

Costs associated with production of goods, including direct material, direct labor, and manufacturing overhead.

Direct Material

Materials that become part of the product and can be traced to it.

Direct Labor

Wages and salaries of workers directly involved in producing the product.

Manufacturing Overhead

Indirect production costs allocated to products (not directly traceable to a single unit).

Nonmanufacturing Cost

Costs not related to production; typically selling and administrative expenses.

Marketing or Selling Expenses

Costs to secure customer orders and deliver products (e.g., commissions, travel, sales salaries).

Administrative or General Expenses

Executive, organizational, and clerical expenses not tied to production or selling.

Product (Inventoriable) Cost

Costs involved in acquiring or making a product; attached to units produced and inventoried until sold.

Period Cost

Costs identified with accounting periods and expensed when incurred, not tied to inventory.

Fixed Cost

Costs that stay constant in total within the relevant range; per-unit cost changes with volume.

Committed Fixed Costs

Long-term fixed costs arising from past decisions (e.g., depreciation).

Managed/Discretionary Fixed Costs

Fixed costs incurred on a short-term basis and modifiable in response to objectives.

Variable Cost

Costs that vary with production volume in total; per-unit cost remains constant within the relevant range.

Mixed Cost

Costs with both fixed and variable components.

Semi-variable Costs

Costs with a fixed portion plus a variable portion (e.g., basic electricity plus usage charge).

Step-cost

Costs that remain fixed over a range and then jump to a higher fixed amount at certain activity levels.

Producing Department

Department where manual and machine operations are performed directly on the product.

Service Department

Department that provides services to other departments; its costs are part of overhead.

Direct Department Charge

Cost traceable to the department of origin (e.g., salary of department head).

Indirect Departmental Charge

Cost shared by several departments that benefit from it (e.g., building rent).

Capital Expenditure

Expenditure intended to benefit future periods; recorded as an asset with depreciation, amortization, or depletion.

Revenue Expenditure

Expenditure that benefits the current period and is expensed as incurred.

Common Costs

Costs of facilities or services used by two or more operations or departments.

Joint Costs

Costs arising from the common processing of products produced from a shared raw material before splitting into identifiable products.

Differential Cost

Cost that differs between alternatives; includes incremental and decremental changes.

Marginal Cost

The increase in total cost when one more unit is produced.

Incremental Costs

Costs that increase when moving from one alternative to another.

Decremental Costs

Costs that decrease when moving from one alternative to another.

Standard Cost

Predetermined costs for direct materials, direct labor, and overhead based on past data and studies.

Opportunity Cost

Benefit foregone by choosing a different alternative; the value of the best unchosen option.

Out-Of-Pocket Cost

A cash outlay required as a result of incurrence.

Relevant Cost

A future cost that differs between alternatives and affects decision-making.

Sunk Cost

A cost already incurred that cannot be changed by current or future decisions; all historical costs are sunk.

Controllable Cost

A cost that a manager can influence or control at a given level of responsibility.

Non-controllable Cost

A cost that cannot be influenced by a particular manager at a given level.

High-Low Method

A method to estimate variable and fixed costs using the highest and lowest activity levels; uVC = (Cost at High − Cost at Low) / (High activity − Low activity); FC = TC − uVC×Highest activity.

Least Squares Method

A statistical technique to determine a regression line by minimizing the sum of squared deviations.

Regression Line

The line that best fits data in the least-squares sense for cost versus activity data.

Y = a + bx

Equation of the simple linear regression: intercept a and slope b.

B (slope) Formula

B = [Σxy − n( x̄)(ȳ )] / [Σx² − n(x̄)²] (coeff. of x in regression).

A (intercept) Formula

A = ȳ − B(x̄) (y-intercept of the regression line).

Scattergraph or Visual Fit

Plotting costs (Y) against cost drivers (X) to visually assess fit and estimate fixed and variable components.

Dependent Variable (Cost)

The cost figure plotted on the vertical axis in cost-driver plots.

Cost Driver

A measurable factor that causes changes in cost, used in activity-based costing and regression analysis.