Cost Definitions
Absorption Costs: Direct labor plus direct materials plus factory overhead.
Avoidable Cost: A cost that can be eliminated by choosing one alternative over another.
Committed Fixed Costs:Organizational investments with a multiyear planning horizon that cannot be significantly reduced even for short periods of time without making fundamental changes. Compare with Discretionary Fixed Costs.
Common Cost: A cost that is incurred to support a number of cost objects but cannot be traced to them individually. A common cost is a type of indirect cost.
Conversion Costs: Direct labor plus factory overhead. The cost of converting direct materials into a finished product.
Cost: An amount paid or required in payment for a purchase; a price, or the expenditure of something, such as time or labor, necessary for the attainment of a goal:
Cost of Goods Manufactured: The production cost (direct labor plus direct materials plus overhead) of work-in-process finished this period and transferred from the factory to the finished goods storeroom.
Cost of Goods Sold: The production cost (direct labor plus direct materials plus overhead) of goods sold this period.
Differential Costs: The difference in costs between two alternatives.
Direct Cost: A cost that can be easily traced to a specific cost object.
Direct Labor: Labor that can easily be identified with a specific cost object.
Direct Materials: Materials that can easily be identified with a specific cost object.
Discretionary Fixed Costs: Costs that arise from annual decisions of management to spend on certain fixed costs items. Compare with Committed Fixed Costs.
Expense: A cost that has been matched with revenue and has therefore been recognized on the income statement.
Factory Burden: Synonym for overhead.
Factory Overhead Applied: The amount of overhead that has been assigned to work-in-process through the use of a predetermined overhead rate in a normal costing system.
Factory Overhead Costs: Synonym with Overhead.
Finished Goods: Work-in-process that has been completed and is ready for sale.
Fixed Cost: A cost that remains constant in total regardless of the level of activity.
Full Cost: Synonym for absorption cost.
Incremental Cost: An increase in cost from one alternative to another or the cost to produce the next product unit.
Indirect Costs: Costs that cannot easily be identified with a final cost object.
Indirect Labor: Labor costs (within the factory) that cannot easily be identified with a final cost object,
Indirect Materials: Material cost (within the factory) that cannot easily be identified with a final cost object.
Inventoriable Costs: Direct labor, direct materials and overhead.
Joint Costs: Cost incurred by a joint process prior to the time products are separately identifiable.
Manufacturing Costs: Synonym for product costs.
Manufacturing Costs Added: The sum of direct labor, direct materials and overhead incurred during the accounting period.
Manufacturing Overhead Costs: Synonym for overhead.
Marginal Cost: Synonym for incremental cost.
Mixed Cost: Costs that have both a fixed and variable element.
Nonmanufacturing Costs: Administrative and marketing costs.
Opportunity Cost: The potential benefit given up when one alternative is selected over another.
Out of Pocket Costs: Actual cash outlay costs.
Overhead Costs: Indirect costs (within the factory)..
Period Costs: The sum of administrative and marketing costs. Costs that appear on the income statement in the period in which they are incurred.
Prime Costs: Direct labor plus direct materials.
Product Costs: The sum of direct labor, direct materials and overhead. Synonymous with inventoriable costs, manufacturing costs and production costs.
Production Costs: Synonymous with inventoriable costs, manufacturing costs and product costs.
Raw Materials: Materials in the raw materials storeroom which have not been put into production or applied to an overhead account.
Relevant Costs:Costs that differ between alternatives.
Selling and Administrative Costs: Synonymous with period costs.
Semi-variable Costs: Costs that vary non-proportionally with activity or volume.
Standard Cost: In a standard costing system, what a cost “should be.”
Sunk Costs: A cost that has been incurred and cannot be changed by any decision now or in the future.
Variable Costs: A cost that varies proportionally with the level of activity.
Work-in-Process: Units of product that are only partially complete and will require further work before they are ready for sale to the customer.
Compiled by Richard E. McDermott, January 3, 2012.Page 1