Cost Definitions Flashcards
Outputs
Amount of goods or services produced and delivered. It is measured in absolute numbers (e.g. students, meals, surgeries, investigations, sentences) or quantities (e.g. kg, doses).
Outcomes
Results from the delivery of goods or services to the public. It provides the ratinhale behind the supply of
Marginal Cost
The additional cost incurred as a result of the production of one additional unit of production. It usually equates to the direct costs plus the variable overhead costs.
Direct Costs
Product costs that can be directly traced to a product. They are usually made up of direct materials costs (which can be charged directly to the product by means of materials requisitions), direct labour costs (charged by means of time sheets, time cards, or computer*direct data entries), and direct expenses (which are subcontract costs charged by means of an invoice from the subcontractor).
Variable overhead cost
The elements of an entity’s indirect costs for a product that vary in total in proportion to changes in the levels of production.
Marginal costing
(direct costing; variable costing)
A costing and decision-making technique that charges only the*marginal costs to the cost units and treats the fixed costs as a lump sum to be deducted from the total contribution, in obtaining the profit or loss for the period.
Contribution
(contribution margin)
In marginal-costing systems, the additional profit that will be earned by an organization when the breakeven-point production has been exceeded. The unit contribution is the difference between the unit selling price of a product and its marginal cost of production. The total contribution is the product of the unit contribution and the number of units produced. This is based on the assumptions that the marginal cost and the sales value will be constant.
Fixed cost
(fixed expense)
An item of expenditure that remains unchanged, in total, irrespective of changes in the levels of production or sales. Examples are business rates, rent, and some salaries.
Product
An item, sub-assembly, part, or cost unit manufactured or sold by an organization.
Efficiency
Achieving maximum output from a given level of resources used to
carry out an activity.
An efficiency indicator can be used to show when a service is being provided more (or less) efficiently compared to previous reporting periods, expectations, comparable service providers, or benchmarks derived, for example, from best practices within a group of comparable service providers.
Effectiveness
The relationship between actual results and service performance
objectives in terms of outputs or outcomes. Effectiveness describes the relationship between an organisation’s actual results and its service performance objectives.
Input(s)
Resources used to generate and deliver services to achieve intended outcomes.
Output(s)
An organisations products and services.
Outcome(s)
The impacts on society, which occur as a result of the organisation’s outputs, its existence, and operations. There may be a strong, direct causal link between an organisation’s actions and its achievements with respect to outcomes, but this will not always be the case. Factors beyond the organisation’s control may intervene to either hinder or facilitate the achievement of outcomes.
Relevant cost
An expected future cost that varies with alternative courses of action. Costs that have already been incurred as a result of past decisions (sunk costs) are not relevant for decision making. Likewise, a future cost that will not be changed by a decision is irrelevant to that decision (committed cost)
