Cost types

Question 1

Fixed Cost

Answer 1

fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. Does not change when activity changes

Question 2

Variable Cost

Answer 2

Variable costs are costs that change in proportion to the good or service that a business produces.

Question 3

Avoidable Cost

Answer 3

An expense that will not be incurred if a particular activity is not performed. Avoidable cost refers to variable costs that can be avoided, unlike most fixed costs, which are typically unavoidable.While avoidable costs are often viewed as negative costs, they may be necessary to achieve certain goals or thresholds.

Question 4

Differential Cost

Answer 4

Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. The concept is used to reach decisions about which alternatives to pursue, and which to drop.

Question 5

Relevant Cost

Answer 5

A relevant cost (also called avoidable cost or differential cost)[1] is a cost that differs between alternatives in a particular decision.

Question 6

Oppertunity Cost

Answer 6

opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the “cost” incurred by not enjoying the benefit that would be had by taking the second best choice available

Question 7

Direct Cost

Answer 7

A direct cost can easily and coventiently be traced to the particular cost object under consideration

Question 8

Cost Bbject

Answer 8

A cost object is anything for which cost data are desired - including products, product lines, customers, jobs and organizational subunits.

Question 9

Indirect cost

Answer 9

An cost that cannot esily and conveniently be traced to the particular cost object under consideration

Question 10

Common cost

Answer 10

Common cost is common to a number of costing objects but cannot be traced to them individually.

Question 11

Incremental Cost

Answer 11

Opposite of decremental cost ->Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. If is is an increase it is called incremental cost.

Question 12

Manufacturing overhhead

Answer 12

Include all costs of manfacturing except direct materials and direct labour. Include things like: Heat, light, property taxes, insurane etc.

Question 13

Conversion cost

Answer 13

Manufacturing overhead + direct labour.

Question 14

Prime cost

Answer 14

Direct labour with direct materials.

Question 15

Product cost

Answer 15

Product costs include all the costs that are involved in acquiring or making a product.

Question 16

Period cost

Answer 16

period cost are all cost not included in product cost. Ex, sales commissions and office rent.

Question 17

Cost behaviour

Answer 17

Means how a cost will react or respond to changes in the level of business activity.

Question 18

Fixed cost committed

Answer 18

Long term, cannot be reduced in short term - Ex. Drepreciation on buildings and equipment

Question 19

Fixed cost discretionary

Answer 19

May be altered in the short-term by current managerial decisions - ex. advertising, research and development.

Question 20

Administrative Cost

Answer 20

All executive, organizational and clerical costs associated with general management of an organization rather than with manufacturing marketing or selling.

Question 21

Appraisal costs (not part of curriculum)

Answer 21

Cost that are incurred to identify defective products before the products are shipped to cusomers. (not part of curriculum)

Question 22

Common fixed cost

Answer 22

A fixed cost that support more than one business segment, but is not traceable in whole or in part to one of the business segments.

Question 23

Curvilinear costs

Answer 23

A relationship between cost and activity that is a curve rather a straight line. (The fact that Volume and cost is not linear, but madeup linear by accountants to easier understand the connection)

Question 24

Discretionary fixed cost

Answer 24

Those fixed costs that arise from annual decision by management to spend in certain fixed cost areas, such as advertising and research. Ex. Advertising, research, public relations, internships for students etc.

Question 25

Full cost (approach)

Answer 25

Same as absorption costing

Question 26

Joint product costs

Answer 26

Costs that are incurred up to(before) the split-off point in producing joint products

Question 27

Kaizen costing

Answer 27

The reduction of cost during production through continuous improvements that reduce waste and increase efficientcy

Question 28

Life-cycling costing

Answer 28

Analyses costs incurred throughout the life of a product from development through to full production

Question 29

Mixed cost

Answer 29

A cost that both contain fixed- and variable cost.

Question 30

Quality costs

Answer 30

Cost that are incurred to prevent defective products from falling into the hands of customers or that are incurred as a result of defective units.

Question 31

Step-variable cost

Answer 31

A cost (such as the cost of a maintenance worker) that is obtainable only in large chunks and that increases and decreases only in response to fairly wide changes in the activity level.

Question 32

Stock-related cost

Answer 32

Synonym for product costs

Question 33

Sunk Cost

Answer 33

Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Question 34

Traceable fixed cost

Answer 34

A fixed cost that is incurred because of the existence of a particular business segment.

Question 35

Transferred-in cost

Answer 35

The cost attached to products that have been received from a prior processing deparment.

Question 36

Variable costing

Answer 36

A costing method that includes only variable manufacturing cost, direct materials, direct labour and variable manufacturing overhead in the cost of a unit of products. (also known as marginal costing or direct costing)