1.5 Cost Classification Flashcards
Controllable costs
Costs under the discretion of a particular manager
Noncontrollable costs
Costs which another level of the organization has committed to
Avoidable costs
Costs that can be eliminated by not engaging in an activity or by doing it more efficiently. ex. direct material
Committed costs
Costs that come from holding property, plant, and equipment, and cannot belowered by reducing the short-term level of production. ex.insurance, real estate taxes
Incremental cost
The additional cost inherent in a given decision
Differential Cost
The total cost difference between two decisions
Engineered costs
Costs with a direct quantifiable cause and effect relationship between output level and the quantity of resources consumed.
ex. Direct labor and materials
Discretionary costs
Costs with an uncertainty in the degree of causation between the level of output and the quantity of resources consumed
ex. R&D costs
Outlay costs
Require actual cash payments (also called explicit)
Opportunity costs
The maximum benefit forgone, by using a limited resource for a particular purpose instead of the next best alternative (Also know as implicit cost)
Economic cost
The sum of implicit and explicit costs
Imputed cost
Costs that should be used in decision making even though no transaction occurs.
ex.profit lost from not being able to fill orders
Relevant costs
Future costs that will vary depending on the action taken
Sunk costs
Costs that cannot be avoid because they have already been paid can’t be canceled. Should be ignored in decision making
Historical costs
Actual price paid for an asset. Are a form of sunk
Split-off point
The process at which multiple separate products become identifiable after processing a single input
Joint costs
Costs incurred before the split off point. Must be allocated because they cannot be traced to an individual product
Separable costs
Costs incurred beyond the split off point
By-products
Products of small value that are produced during a common manufacturing process
Normal spoilage
Spoilage expected under efficient operations. It is treated as a product cost and is therefore inventoriable
Abnormal spoilage
Spoilage that is not expected to occur under efficient conditions and is generally treated as a period cost
Rework
End products that do not conform to standards of salability but can be brought to those conditions with additional work
Scrap
Leftover material that can be used for other purposes
Waste
Left over raw material with no further use
Carrying costs
Cost of storing or holding inventory
ex. cost of capital, insurance
Transferred in costs
Costs incurred in a previous department that are received in the next department in an organization with multiple departments
Value-adding costs
Costs of activities that cannot be eliminate degrading the output needed by the customer or organization
Normal capcity
Long-term average level of activity that will approximate demand over a period of time. Includes cyclical and seasonal variations
Practical capity
Maximum level of output at which output if produced efficiently. It allows for unavoidable delays in production
Theoretical (ideal) capacity
Maximum capacity assuming continuous operations
