Cost Terms And Concepts Flashcards
What is Management Accounting?
Management Accounting is concerned with providing financial and non-financial information to managers to assist in decision-making, planning, and control.
Management Accounting differs from Financial Accounting in its purpose and audience.
What is the primary purpose of Financial Accounting?
External reporting (shareholders, creditors)
Financial Accounting focuses on providing information to external parties.
What is the primary purpose of Management Accounting?
Internal use (managers)
Management Accounting is designed for the needs of internal management.
How does Management Accounting differ from Financial Accounting in terms of regulation?
Management Accounting has no strict regulatory framework.
Financial Accounting must follow GAAP/IFRS.
What type of data does Management Accounting focus on?
Future-oriented, decision-making
Unlike Financial Accounting, which focuses on historical data.
How often is Management Accounting information provided?
As needed (daily, weekly, monthly)
This is in contrast to the periodic nature of Financial Accounting.
List the functions of Management Accounting.
- Planning
- Controlling
- Decision-making
- Performance evaluation
Each function plays a crucial role in managerial responsibilities.
What is the definition of Costing?
Costing is the process of determining the cost of a product, service, or activity.
Costing is essential for pricing and financial analysis.
What are Fixed Costs?
Costs that do not change with production level (e.g., rent, salaries)
Fixed Costs remain constant regardless of output.
What are Variable Costs?
Costs that change directly with production level (e.g., raw materials, wages)
Variable Costs fluctuate based on the volume of production.
Define Semi-Variable Costs.
Costs that contain both fixed and variable components (e.g., utility bills)
Semi-Variable Costs can vary to an extent based on usage.
What are Direct Costs?
Costs that can be directly traced to a product (e.g., direct materials, direct labor)
Direct Costs are essential for accurate product costing.
What are Indirect Costs?
Costs that cannot be directly traced to a product (e.g., factory overheads)
Indirect Costs are typically allocated across multiple products.
What are Production Costs?
- Direct materials
- Direct labor
- Factory overheads
These costs are directly associated with manufacturing a product.
What are Selling & Distribution Costs?
Costs related to marketing, advertising, transportation
These costs are essential for getting products to market.
What are Administrative Costs?
Office expenses, managerial salaries
Administrative Costs support overall business operations.
What are Finance Costs?
Interest on loans, bank charges
Finance Costs are incurred through financing activities.
What is Job Costing?
Used when products are made to order (e.g., custom furniture)
Job Costing tracks costs for individual projects.
What is Process Costing?
Used for mass production (e.g., chemicals, food processing)
Process Costing averages costs over large quantities.
What is Batch Costing?
Used when goods are produced in batches (e.g., clothing production)
Batch Costing is suitable for similar products produced together.
What is Activity-Based Costing (ABC)?
Allocates overheads based on activities rather than volume
ABC provides a more accurate method of cost allocation.
What is Marginal Costing?
Considers only variable costs for decision-making
Marginal Costing is useful for short-term financial decisions.
What are Relevant Costs?
Costs that affect decision-making (e.g., material costs for a new product)
Relevant Costs are crucial for evaluating alternatives.
What is Opportunity Cost?
The cost of the next best alternative foregone
Opportunity Cost is a key concept in economic decision-making.
