Abnormal loss is the loss arising from a manufacturing or chemical process through abnormal waste, shrinkage, seepage, or spoilage in excess of the normal loss. It is usually valued on the same basis as the good output.
Absorption costing, also known as full absorption costing or total absorption costing, is a cost accounting method where all overheads of an organization are charged to production by means of absorption.
Activity Analysis is an essential component of Activity-Based Costing (ABC) that involves identifying and describing activities within an organization, alongside their resource requirements.
Average costing, also known as weighted average costing, is a method of cost accounting that assigns an average cost to each unit of production when items have a high degree of similarity. It is useful for inventory management and financial reporting.
A cost or income standard set in standard costing to form the basis on which other standards are set. It is a foundational metric from which other variances and standards can be derived.
The basis used for the equitable apportionment of costs between several cost centres when direct assignment is not feasible.
Batch costing is a method of costing in which unit costs are expressed based on the cost of producing a specific batch, particularly useful in scenarios where individual unit costs are extremely low and production units are homogeneous.
A production overhead absorption rate used uniformly across a factory, often serving as an alternative to calculating a rate for each individual cost centre.
Materials that are used in a production process but do not form part of the direct cost of sales, such as lubricants and sanding discs.
A system of costing applied to industries where production methods are continuous, such as in electricity generation and bottling. This system uses average costing to determine unit cost by dividing the total production cost by the number of items produced.
Contract cost refers to the total cost incurred in fulfilling a long-term contract, typically calculated using contract costing techniques.
The contribution margin ratio, also known as the contribution-to-sales ratio, production-volume ratio, or profit-volume ratio, is a financial metric that shows the relationship between a product’s contribution margin and its sales value. This ratio is essential for ranking products based on their relative profitability.
In cost accounting, Contribution Profit Margin is the excess of sales price over variable costs. It provides an amount to offset fixed costs, thus contributing to gross profit.
The costs incurred in a production process as a result of which raw material is converted into finished goods. The conversion costs usually include direct labor and manufacturing overheads but exclude the costs of direct material itself.
The techniques used in collecting, processing, and presenting financial and quantitative data within an organization to ascertain the cost of cost centres and cost units and the various operations.
The Cost Accounting Standards Board (CASB) is a regulatory board established in the USA in 1970 by Congress to promote consistency and uniformity in cost-accounting practices among government contractors, facilitating accurate reporting of costs associated with government contracts.
Cost accumulation is the systematic process of gathering costs associated with production activities, allowing businesses to determine the total cost required to manufacture products in an organized manner.
Cost Application refers to the allocation of costs to a product, process, or department using a rational allocation basis. For example, rent expense can be allocated to each department based on its square footage.
The process of determining the costs of the operations, processes, cost centres, and cost units within an organization.
The cost convention refers to the basis used for recording costs charged against profit during an accounting period, which can be based on historical cost, current cost, or replacement cost.
A comprehensive record-keeping system to maintain the transactions associated with a company's cost accounting. It facilitates detailed tracking of costs and aids in financial control and reporting.
The Cost Ledger Control Account, also known as the Cost Control Account, is an essential component of an accounting system where separate books are maintained for financial and cost records, ensuring the accuracy and integrity of the overall accounting system.
A cost pool is an accounting term referring to a grouping of individual costs typically by department or service center. These groupings are used to allocate and better manage indirect costs.
A cost unit represents a unit of production for which costs are aggregated. It can vary from a single item like a chair or light bulb to a sub-assembly in more complex products like an aircraft wing or gearbox. In cases where individual unit costs are minimal, cost units might be expressed as batches.
Techniques and procedures in cost accounting and management accounting to obtain the costs of services, products, processes, and cost centers for decision making, planning, and control.
Customer-level activities are tasks carried out to support specific customers and generate customer-related value.
A prime document utilized to record purchases of parts and materials that are directly chargeable to specific jobs or processes, bypassing the organization's stores. The document specifies item descriptions, commodity codes, item values, and corresponding accounting or cost codes.
Direct costing, also known as marginal costing, is a crucial accounting technique that outlines the variable costs incurred in the production process. This method focuses on the costs directly tied to the production of goods and services.
Product costs that can be directly traced to a product or cost unit. They encompass direct materials, direct labor, and direct expenses that are attributable to the product without the need for cost apportionment.
Direct expenses are expenditures that are directly attributable to the production of a particular cost unit, excluding direct labor and materials.
Direct labor refers to the cost of personnel that can be directly identified in the production of a product, such as the salary of workers operating machines on a production line but not including administrative or janitorial staff.
An hour spent working on a product, service, or cost unit produced by an organization by those operators whose time can be directly traced to the production. Direct labour hours are sometimes used as a basis for absorbing manufacturing overheads to the cost unit in absorption costing.
The Direct Labour Total Cost Variance is a key metric used in cost accounting to analyze the difference between the actual cost of direct labour and the standard cost allocated for the production of goods.
Direct material refers to the cost of material that can be specifically identified with the production of a product, such as wood and nails in furniture manufacturing. It does not include materials used indirectly in the production process, like gasoline for power saws used to fell trees for lumber.
Direct materials are those materials that are directly incorporated into the final product or cost unit of an organization. These raw materials are integral to the manufacturing process and can be easily traced back to the finished product.
Direct materials inventory refers to the raw materials that a company keeps in stock for future use in the production process. These materials are a critical part of cost accounting and inventory management.
Direct Materials Usage Variance measures the efficiency of a company's use of materials in the production process by comparing the actual quantity used to the standard quantity expected to be used.
The Direct Production Cost of Sales refers to the expenses directly attributable to the manufacturing of goods sold by a company. This includes the costs of raw materials, labor, and other expenses directly involved in production.
Direct wages refer to the payments made to laborers who are directly involved in the production process of a good or service. These wages are part of the direct labor costs and play a crucial role in cost accounting and financial analysis.
An operator in an organization whose time is spent working on the product or cost unit to such an extent that the operator's time is traceable to the product as a direct cost.
Double-entry cost accounting involves maintaining cost accounting records using the principles of double-entry bookkeeping, which ensures that every financial transaction is recorded in at least two accounts, balancing debits and credits.
Duration Driver refers to a measure of the amount of time required to perform an activity, especially when there is significant variance in the time taken to complete different activities.
Effective Units, a concept closely linked with Equivalent Units, are used in cost accounting to determine the cost per unit in a production process, especially when dealing with incomplete goods. The aim is to assign accurate costs to partially completed items.
Efficiency variances measure the difference between the actual amount of resources used in production and the standard amount that should have been used, focusing particularly on labor and overhead costs.
A detailed overview of equivalent units, explaining how unfinished units of production at the end of a period are measured and valued.
Factory costs, also known as factory expenses, are expenditures incurred by the manufacturing section of an organization. This includes direct materials, direct labor, direct expenses, and manufacturing overheads. It excludes markup or profit.
Factory overhead, also known as indirect manufacturing costs or factory burden, includes the expenses associated with manufacturing that cannot be directly traced to a specific product. Examples include factory rent, maintenance wages, and general machinery depreciation.
FIFO, or First In, First Out, is an inventory valuation method where the oldest inventory items are recorded as sold first. This method is commonly used in accounting and finance to manage inventory costs.
A fixed charge is the portion of an expense that remains constant, regardless of the amount of a commodity or service used or consumed.
A fixed cost is a type of business expense that is constant and does not fluctuate with changes in the level of goods or services produced. These costs are incurred regularly, regardless of the business's activity level.
The fixed overhead absorption rate is calculated by dividing the budgeted fixed overheads by the budgeted production units or other budgeted production measures, reflecting the allocation of fixed manufacturing overheads to individual units of production.
Fixed Overhead Expenditure Variance in standard costing refers to the difference between the fixed overhead budgeted and the actual fixed overhead incurred.
In a system of standard costing, the fixed overhead total variance represents the difference between the standard fixed overhead absorbed for the actual units produced and the actual fixed overhead expenditure incurred.
Full costing, also known as absorption costing, is an accounting method where all fixed and variable manufacturing costs are considered to be product costs.
This technique involves collecting the costs of an organization by function and presenting them to the functional management in operating statements on a regular basis.
Explores the concept of idle capacity variance, a key metric in understanding the efficiency and utilization of resources in manufacturing and service settings.
Wages and related costs of factory employees, such as inspectors and maintenance crews, whose time is not charged to specific finished products; sometimes combined with indirect materials costs, such as supplies, to derive indirect costs.
Personnel not directly engaged in the production of a product or cost unit manufactured by an organization. Examples of indirect labour include maintenance personnel, cleaning staff, and senior supervisors, such as foremen.
Indirect labour costs are the wages, bonuses, and other forms of remuneration paid to employees whose work does not directly contribute to the production of goods or services but supports the overall operations of a business.
Indirect materials are those materials that do not feature in the final product but are necessary to carry out the production process. Examples include machine oil, cleaning materials, and consumable materials.
Indirect materials cost refers to the expenses incurred in providing materials that are not directly traceable to a specific product or job but are necessary for the manufacturing process.
Indirect overhead refers specifically to overhead costs that cannot be directly attributed to the production of a specific product but are necessary for the overall operation of the business.
Integrated accounts refer to a comprehensive set of accounting records that seamlessly combines both financial accounting and cost accounting into a single coherent system. This integration eliminates the need for reconciling separate financial and cost records, ensuring consistency, accuracy, and efficiency in data management.
An accounting system that maintains cost accounting and financial accounting information separately, regularly reconciling the two by use of control accounts.
An identifiable, discrete piece of work carried out by an organization. For costing purposes, a job is usually given a job number.
A job cost sheet is a detailed record of the budgeted or actual costs of materials and labor required to produce a specific product. It plays a critical role in job costing systems used primarily in manufacturing.
Job costing involves tracking the expenses linked to specific projects or jobs which are typically broken down into direct materials costs, direct labour costs, and overheads.
Job costing, also known as job order costing or specific order costing, is a costing methodology used to accurately assess the costs associated with individual jobs within an organization—essential for businesses that produce a diverse range of products or services.
A number assigned to each job where job costing is in operation; it enables the costs to be charged to this number so that all the individual costs for a job can be collected.
Labour costs refer to the total expenditure on wages paid to workers who are directly or indirectly involved in the production of a product, service, or cost unit. This includes both direct and indirect labour costs.
Labour hour rate refers to the cost of one hour of labour, which includes direct and indirect costs tied to the labour force.
Labour variances are a critical measure in cost accounting, used to analyze the difference between the actual labor costs and the standard labor costs. They help in identifying areas where inefficiencies and cost overruns occur.
Machine Hour Rate is an absorption rate used in absorption costing, calculated to allocate overheads to products based on the hours machines are used in the manufacturing process.
Management accounting involves techniques used to collect, process, and present financial and quantitative data within an organization to aid in performance measurement, cost control, planning, pricing, and decision making. The Chartered Institute of Management Accountants (CIMA) is the major professional body for management accountants in the UK.
The manufacturing cost of finished goods refers to the total expense incurred to produce a finished product. This includes the direct materials, direct labor, and manufacturing overhead costs associated with the production process.
Marginal cost represents the cost of producing one additional unit of a product. It includes both direct costs and variable overhead costs associated with the production process.
Material control is the management term referring to the process of ensuring that the necessary materials for production are available at the required place, time, and quantity while maintaining proper accountability and avoiding overstocking.
Materials cost is the expenditure incurred by an organization on direct or indirect materials. The expenditure on direct materials is part of the direct cost of sales, whereas the expenditure on indirect materials is categorized as manufacturing overhead.
Materials oncost represents the additional expenses associated with materials beyond their initial purchase price, including handling, storage, and transportation.
Mix variances are a set of accounting metrics that assess the financial impact of differences between actual and standard input combinations used in production or sales. These measures help identify inefficiencies or deviations that may affect profitability.
Net Realizable Value (NRV) represents the estimated selling price of an asset in the ordinary course of business, minus any predictable costs associated with the completion and sale of the asset. It is a critical metric in inventory valuation and accounting practices, ensuring realistic asset values are reflected in financial statements.
Net Realizable Value (NRV) is the net amount that an entity expects to realize from the sale of an asset after deducting any costs involved in its sale or disposal.
An accounting method where the most recently acquired or produced items are used first for financial measurement and inventory management.
Non-production overhead costs refer to the indirect costs that are not classified as manufacturing overheads, such as administration, selling, distribution overheads, and sometimes research and development costs.
Normal capacity is a measure of production that reflects the average level of operating activity needed to meet production demands over a long period. It considers both seasonal fluctuations and normal occurrences of idle time.
Normal loss refers to the predictable and usual loss of materials in a manufacturing or chemical process due to factors like waste, seepage, shrinkage, or spoilage. These losses are considered a standard part of the production process and are accounted for in manufacturing costs.
Normal Volume refers to the volume of activity used to determine the overhead absorption rate in a system of absorption costing. It is generally the budgeted volume of production for a specific period.
Overhead absorption, also known as overhead allocation, involves distributing indirect costs to different cost units or products. It's a crucial part of cost accounting, ensuring all production costs are appropriately assigned.
An overhead absorption rate (OAR) is a method used in cost accounting to allocate overhead costs to products or services based on a predefined absorption basis.
An Overhead Analysis Sheet, also known as an Overhead Distribution Summary, is used to allocate manufacturing overhead costs to various cost centers within an organization using appropriate allocation or apportionment techniques.
The overhead distribution summary provides an overview of how indirect costs are allocated across various departments or cost centers within an organization. It is a crucial aspect of cost accounting that helps in accurate product costing and budgeting.
Overhead Volume Variance is a budgetary metric used in cost accounting to measure the difference between the budgeted and actual fixed overhead allocated based on the actual volume of production.
A basis used in absorption costing for allocating manufacturing overhead to the cost units produced. This method involves applying a percentage of the prime cost to determine the overhead allocation.
The percentage-of-completion method is an accounting practice used principally for long-term contracts, in which revenue and expenses are recognized proportionally over the term of the project.
In standard costing, a performance standard refers to the predetermined level of performance to be achieved during a specific period, which is used to calculate standard costs for processes, typically direct labor and materials.
A predetermined overhead rate is an estimated rate used to allocate overhead costs to products or job orders before actual costs are known. This rate is usually computed in advance of operations and often covers a fiscal year.
Price variance is a common term in cost accounting that represents the difference between the actual cost of acquiring an asset or service and the budgeted or standard cost. It highlights whether an organization is paying more or less than previously anticipated for a particular expense.
Prime cost is a crucial accounting term reflecting the direct costs of production, typically including direct materials and direct labor expenses.
Process costing is a method of costing used primarily in manufacturing where goods or services result from a sequence of continuous or repetitive operations.
A costing system applied to production carried out by a series of chemical or operational stages or processes. Characterized by the accumulation of costs for the whole production process and computation of average unit costs at each stage.
