Activity-Based Costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.
Absorbed overhead (also known as applied overhead or recovered overhead) refers to the amount of overhead costs allocated to a specific production process or cost unit within an organization during an accounting period, using the technique of absorption costing.
An absorption account is utilized in double-entry cost accounting to track the amount of overhead costs absorbed by production activities.
Administration expenses are the overhead costs incurred for the general operation of a business. These include salaries of administrative staff, utilities, office supplies, and other indirect expenses.
Administrative expenses refer to the costs that are not directly tied to specific business operations, such as manufacturing or sales, but are necessary for the overall administration and operation of a company.
The basis used for the equitable apportionment of costs between several cost centres when direct assignment is not feasible.
Cost absorption involves assigning all costs, both fixed and variable, to the product or service being produced or delivered.
Direct overhead refers to the portion of overhead costs allocated to manufacturing through a standard application of burden rate, impacting inventory costs and ultimately reflected in the cost of goods sold.
In activity-based costing, a facility-sustaining activity is an activity that is performed to sustain the organization as a whole. Examples of such activities include security, safety, maintenance, and plant management. These costs cannot be directly traced to specific products.
General expenses are those expenditures by an organization that cannot be conveniently categorized into any other specific cost classifications, encompassing a wide variety of costs essential for business operations.
An indirect cost centre refers to a division or department within an organization that incurs costs but does not directly generate revenue. These centres typically support the production of goods or services.
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.
A comprehensive report detailing the cost of production in a manufacturing firm, prepared to assess the financial performance of the company's production activities.
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.
Overhead Efficiency Variance is an accounting concept used in standard costing systems to measure the variance in overhead costs due to the efficiency or inefficiency of actual production time compared to the standard time allocated.
The Overhead Efficiency Variance measures the difference between the standard overhead cost allocated based on standard hours and the actual overhead cost incurred based on actual hours worked.
Period costs are expenses that are incurred over a specific period of time and are not directly tied to a specific product or production activity. These costs are typically fixed, such as rent, insurance, and business rates.
Product-sustaining-level activities are activities that are necessary to support a specific product regardless of the volume of production. These activities ensure the possible production and effective marketing of the product.
An accounting term related to overhead costs that have been recovered or anticipated to be recovered through cost allocation.
A support cost centre refers to a department or unit within an organization that provides essential services to other departments, enabling them to operate smoothly and efficiently without directly contributing to the final product or service.
In absorption costing, the circumstance in which the absorbed overhead is less than the overhead costs incurred for a period. This adverse variance represents a reduction of the budgeted profits of the organization.
