Cost and Management Accounting Glossary

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Transcript of Cost and Management Accounting Glossary







Submitted To Mr. R Murali Submitted By:Deependra Netam Vamshi Krishna 215109030 215109050 Pratyoosh Kumar Chinthala Praveen 215109063 215109086




We the group no 19 have completed the assignment (Glossary of Costing terms and concepts) and have circulated the assignment to all the groups by email.

Thanking you Group 19


GlossaryABC Analysis: Activity based costing ,an inventory method where by firms exercise different degree of control over different items of inventories depending upon their cost and rate of moving. Abnormal cost : It is the cost which is not normally incurred at a given level of output in the conditions in which that level of output is normally attained. Absolute cost : It is the total cost of any product or process. For e.g.: in a cost sheet, both absolute cost and cost per unit are depicted. Absorption costing : It is the technique of assigning all costs i.e. both fixed and variable, to the respective product/service. Actual Cost: An amount determined on the basis of cost incurred including standard cost properly adjusted for applicable variance. Administrative cost : It is the indirect cost pertaining to the administrative function which involves formulation of policies, directing the organisation and controlling the operations of an undertaking. Avoidable Cost: A cost associated with an activity that would not be incurred if the activity were not performed. Batch costing: This method of costing is used where small parts/components of the same kind are required to be manufactured in large quantities. Here a batch of similar products is treated as a job and the cost of such a job is ascertained. Budgeted cost: Cost or quantitative expression of objectives and a means of monitoring progress towards achievement of those objectives for a specific period. Committed cost: It is a fixed cost which results from decisions of prior period and is not subject to managerial control in the present. Examples of committed cost are depreciation, insurance premium and rent.

COST AND MANAGEMENT ACCOUNTING Glossary 2009Common Cost: The cost of resources employed jointly in the production of two or more outputs and the cost cannot be directly traced to any one of those outputs. Contract costing : If a job is very big and takes a long time for its completion, then the method appropriate for costing is called contract costing. Here the cost of each contract is ascertained separately.It is suitable for firms engaged in erection activities like construction of bridges, roads, buildings, dams etc. Contribution centres : Profit centres whose expenditure are reported on a marginal cost basis, are called contribution centres. Controllable cost : The cost, which can be influenced by the action of a specified person in an organisation, is known as controllable cost. Conversion cost : It is the cost incurred for converting the raw material into finished product. It comprises of direct labour cost, direct expenses and factory overheads. Cost: Cost represents the amount of expenditure (actual or notional) incurred on or attributable to a given thing. It represents the resources that have been or must be sacrificed to attain a particular objective. Cost absorption :It is the process of absorbing the overhead costs (indirect costs) allocated to or apportioned over a particular cost centre. Cost Accounting Practice: Any disclosed or established accounting method or technique which is used for measurement of cost, assignment of cost to accounting periods, and assignment of cost to cost objects. Cost Driver: Any factor that causes a change in the cost of an activity or output. For example, the quality of parts received by an activity, or the degree of complexity of tax returns to be reviewed. Cost allocation : Cost allocation refers to the allotment of whole items of costs to cost centres. Cost apportionment : It is the process of distributing an item of cost over several cost centres or cost units

COST AND MANAGEMENT ACCOUNTING Glossary 2009Cost Assignment: A process that identifies costs with activities, outputs, or other cost objects. In a broad sense, costs can be assigned to processes, activities, organizational divisions, products, and services. Cost centre: Cost centre is the smallest organisational sub-unit for which separate cost collection is attempted. It is defined as a location, a person or an item of equipment (or group of these) for which cost may be ascertained and used for the purpose of cost control. Cost unit: A cost unit is defined as a unit of quantity of product, service or time (or a combination of these) in relation to which costs may be ascertained or expressed. Cost units are usually units of physical measurement like number, weight, time, area, length, volume etc. Differential cost: Difference in the total cost between alternatives calculated to assist decision making and represents the change in total cost (both fixed and variable) due to a change in the level of activity, technology, process or method of production, etc. Distribution cost : It is the cost of the sequence of operations which begins with making the packed product available for despatch and ends with making the reconditioned returned empty package, if any available, for re-use. Direct cost :Direct cost is that cost which can be identified with a cost centre or a cost unit. For e.g. cost of direct materials, cost of direct labour. Direct costing : Under direct costing, a unit cost is assigned only the direct cost, i.e., all the direct costs are charged to the relevant operations, products or processes. Direct Labour : Labour which can be attributed wholly to a particular product, process or job is called direct labour. For eg. labour employed in the c rushing department of an oil mill. Direct Materials : Materials which are present in the finished product or can be identified in the finished product are called direct materials. For eg. coconuts in case of coconut oil or wood in a wooden cupboard.

COST AND MANAGEMENT ACCOUNTING Glossary 2009Direct Expenses : Expenses incurred (except direct materials and direct labour) specifically for a product, process or job is known as direct expenses. They are also called "chargeable expenses". For eg. hiring charges for a machine. Discretionary cost: It is an "escapable" or "avoidable" cost. In other words, it is that cost which is not essential for the accomplishment of a particular objective. Decision driven cost: It is that cost which is incurred following a policy decision and continues to be incurred till that decision is altered. It does not vary with changes in output or with operational activities. Economic order quantity: The level of inventory order that minimises total cost associated with inventory management. Estimated cost : It is an approximate assessment of what the cost will be. It is based on past data adjusted to anticipated future changes. Expired cost: Costs which cannot contribute to the production of future revenues. FIFO: Method (of process costing) the method of cost assignment that computes an average cost per equivalent unit of production for the current period; keeps beginning inventory units and costs separate from current period production and costs. Fixed cost : Fixed cost is that cost which remains constant at all levels of production. For e.g. rent, insurance. Historical Costing : It is the ascertainment of costs after they have been incurred. This costing is based on recorded data and the cost arrived at are verifiable by past events. Indirect cost : Cost which cannot be identified with a particular cost centre or cost unit is called indirect costs. For e.g. wages paid to indirect labour. Indirect Expenses : Expenses incurred other than direct expenses are called indirect expenses. For eg. factory rent & insurance, power, general repairs.

COST AND MANAGEMENT ACCOUNTING Glossary 2009Indirect Labour : Labour which cannot be identified with a particular product, process or job is called indirect labour. For eg. maintenance workers. Indirect Materials : Indirect materials are those materials which do not normally form part of the finished products or which cannot be directly traced to the finished product. For eg. stores, oil, grease, cotton wool etc. Impersonal cost centre : consisting of a location or an item of equipment Imputed / Notional cost : Imputed cost is that cost which does not involve any cash outlay. Though it is a hypothetical cost, it is relevant for decision making. Interest on capital, the payment for which is not actually made, is an example of imputed cost. Inventoriable / Product cost : It is the cost which is assigned to the product. Investment centres :Centres which are responsible for earning an optimum return on investments are termed as investment centres. Irrelevant cost: They are not relevant cost and are not affected by management action. Job Costing : A job card is prepared for each job to accumulate costs. The cost of the jobs is determined by adding all the costs against the job when it is completed. This method of costing is used in printing press, foundries, motor- workshops, advertising etc. Joint cost :It is the cost of the process which results in more than one main product. Labour efficiency variance: The number of hours actually worked minus the standard hours allowed for the production achieved multiplied by the standard rate to establish a value for efficiency (favorable) or inefficiency (unfavorable) of the work force. La