1.5 Cost Classification

Question 1

Controllable costs

Answer 1

Costs under the discretion of a particular manager

Question 2

Noncontrollable costs

Answer 2

Costs which another level of the organization has committed to

Question 3

Avoidable costs

Answer 3

Costs that can be eliminated by not engaging in an activity or by doing it more efficiently. ex. direct material

Question 4

Committed costs

Answer 4

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

Question 5

Incremental cost

Answer 5

The additional cost inherent in a given decision

Question 6

Differential Cost

Answer 6

The total cost difference between two decisions

Question 7

Engineered costs

Answer 7

Costs with a direct quantifiable cause and effect relationship between output level and the quantity of resources consumed.

ex. Direct labor and materials

Question 8

Discretionary costs

Answer 8

Costs with an uncertainty in the degree of causation between the level of output and the quantity of resources consumed

ex. R&D costs

Question 9

Outlay costs

Answer 9

Require actual cash payments (also called explicit)

Question 10

Opportunity costs

Answer 10

The maximum benefit forgone, by using a limited resource for a particular purpose instead of the next best alternative (Also know as implicit cost)

Question 11

Economic cost

Answer 11

The sum of implicit and explicit costs

Question 12

Imputed cost

Answer 12

Costs that should be used in decision making even though no transaction occurs.

ex.profit lost from not being able to fill orders

Question 13

Relevant costs

Answer 13

Future costs that will vary depending on the action taken

Question 14

Sunk costs

Answer 14

Costs that cannot be avoid because they have already been paid can’t be canceled. Should be ignored in decision making

Question 15

Historical costs

Answer 15

Actual price paid for an asset. Are a form of sunk

Question 16

Split-off point

Answer 16

The process at which multiple separate products become identifiable after processing a single input

Question 17

Joint costs

Answer 17

Costs incurred before the split off point. Must be allocated because they cannot be traced to an individual product

Question 18

Separable costs

Answer 18

Costs incurred beyond the split off point

Question 19

By-products

Answer 19

Products of small value that are produced during a common manufacturing process

Question 20

Normal spoilage

Answer 20

Spoilage expected under efficient operations. It is treated as a product cost and is therefore inventoriable

Question 21

Abnormal spoilage

Answer 21

Spoilage that is not expected to occur under efficient conditions and is generally treated as a period cost

Question 22

Rework

Answer 22

End products that do not conform to standards of salability but can be brought to those conditions with additional work

Question 23

Scrap

Answer 23

Leftover material that can be used for other purposes

Question 24

Waste

Answer 24

Left over raw material with no further use

Question 25

Carrying costs

Answer 25

Cost of storing or holding inventory

ex. cost of capital, insurance

Question 26

Transferred in costs

Answer 26

Costs incurred in a previous department that are received in the next department in an organization with multiple departments

Question 27

Value-adding costs

Answer 27

Costs of activities that cannot be eliminate degrading the output needed by the customer or organization

Question 28

Normal capcity

Answer 28

Long-term average level of activity that will approximate demand over a period of time. Includes cyclical and seasonal variations

Question 29

Practical capity

Answer 29

Maximum level of output at which output if produced efficiently. It allows for unavoidable delays in production

Question 30

Theoretical (ideal) capacity

Answer 30

Maximum capacity assuming continuous operations