CHSE Odisha Cost Accounting flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Cost unit

A unit of product or service in relation to which cost is ascertained, such as a tonne of cement, a passenger-kilometre of transport or one shirt in garment manufacture.

Cost centre

A location, person or item of equipment for which costs are accumulated and controlled; it may be a personal or impersonal centre, and a production or service centre.

Prime cost

The total of direct material cost, direct labour cost and direct expenses incurred on a product; it is the first subtotal shown in a cost sheet.

Semi-variable cost

A cost containing both a fixed and a variable element, such as electricity charges with a fixed demand charge plus a rate per unit consumed; also called a mixed cost.

Opportunity cost

The value of the benefit sacrificed when one alternative is chosen in preference to the next best alternative; it is not recorded in financial accounts but is used in decision making.

Economic order quantity

The order size at which ordering cost and carrying cost together are minimum, computed as the square root of twice annual consumption multiplied by ordering cost, divided by carrying cost per unit per year.

Re-order level

The stock level at which a fresh order is placed; normally maximum consumption multiplied by maximum re-order period, so that stock lasts until the new consignment arrives.

Halsey premium plan

A time-saving bonus plan in which the worker receives time wages for hours actually worked plus a bonus of 50 per cent of the time saved valued at the time rate.

Rowan premium plan

A bonus plan where bonus equals time saved divided by standard time, multiplied by time taken and the hourly rate; the bonus grows with efficiency but never exceeds time wages.

Labour turnover rate

The number of workers leaving during a period divided by the average number employed, expressed as a percentage and computed by the separation, replacement or flux method.

Weighted average issue price

A stores pricing method in which issues are valued at the total cost of materials in stock divided by total quantity in stock, the rate being recalculated after every receipt.

Allocation of overheads

Charging the whole of an overhead item directly to the cost department or cost centre that caused it, where the item is clearly identifiable with that centre.

Apportionment of overheads

Distribution of a common overhead among several cost centres on an equitable basis such as floor area, machine hours, direct wages, number of employees or value of assets.

Predetermined overhead rate

Budgeted overhead for a period divided by the budgeted base such as labour hours, machine hours or direct wages, used to absorb overhead to production before actual figures are known.

Under-absorption of overheads

The excess of overhead actually incurred over overhead absorbed, arising when actual activity or actual expense exceeds the budget; it is written off or recovered by a supplementary rate.

Machine hour rate

The overhead cost of running a machine for one hour, obtained by dividing total machine overhead, including standing charges and depreciation, by the budgeted machine hours.

Economic batch quantity

The batch size minimising total set-up cost and carrying cost in batch production, calculated as the square root of twice annual demand multiplied by set-up cost per batch, divided by carrying cost per unit per year.

Notional profit on contract

The excess of the value of work certified plus work uncertified over the cost incurred to date on a contract, calculated before taking credit for cash actually received.

Work uncertified

Work completed by the contractor but not yet approved and certified by the architect or engineer at the reporting date; it is included in work-in-progress at cost.

Abnormal loss in process

Loss above the expected normal level, valued at the normal cost per unit of normal output and shown separately in the process account; its scrap value is credited to the abnormal loss account.

Equivalent production

Partly completed work expressed in terms of fully completed units, computed as units completed plus closing work-in-progress multiplied by its degree of completion.

Composite cost unit

A cost unit used in operating costing that combines two measures, such as passenger-kilometre in passenger transport or tonne-kilometre in goods transport.

Cost control

The process of setting cost standards or budgets, comparing actual performance with them and taking corrective action so that costs do not exceed the predetermined levels.

Cost reduction

The achievement of a permanent and genuine reduction in the unit cost of a product or service without impairing its suitability, through improvements in design, methods and organisation.

ABC analysis of inventory

An inventory classification technique in which items are ranked by annual consumption value; A items are few but account for the largest value and receive the tightest control.

Cost audit

A systematic examination of cost accounting records and statements to verify their accuracy and report on adherence to cost accounting standards and the efficiency of cost control.

Responsibility centre

A segment of an organisation whose manager is accountable for specified activities and results; it is classified as a cost, revenue, profit or investment centre by the performance measure used.

Break-even point

The level of sales at which total revenue equals total cost and there is neither profit nor loss; in units it equals fixed cost divided by contribution per unit.

Margin of safety

The excess of actual or budgeted sales over break-even sales; it measures how far sales can fall before a loss arises and is often expressed as a percentage of sales.

Flexible budget

A budget prepared for a range of activity levels, showing costs and revenues at each level and recast to the actual activity achieved for comparison with actual results.

Zero-base budgeting

A budgeting approach in which every activity and every amount of expenditure must be justified afresh from a zero base in each budget period, using ranked decision packages.

Relevant cost

A future, incremental cash cost that differs between the alternatives being compared; sunk costs, committed costs and non-cash charges are excluded from the decision.