CHSE Odisha Cost Accounting key terms

The expenditure, actual or notional, incurred on or attributable to a product, service or activity. Cost includes material, labour and expenses used to create the output.

The process of collecting, classifying, recording and reporting cost information for products, services or activities. It supports cost ascertainment, cost control and management decisions.

A unit of product, service or time for which cost is measured, such as one tonne, one machine hour or one passenger-kilometre.

A person, place, machine or group of these for which costs are collected and controlled. A cost centre may be production or service.

A cost that can be identified wholly and conveniently with a particular cost unit or cost centre, such as direct material, direct labour or direct expenses.

A cost that cannot be traced conveniently to a particular cost unit and is therefore apportioned or absorbed, such as factory rent, supervision or depreciation.

A cost that stays constant in total over a relevant range of activity but falls per unit as output increases, such as factory rent.

A cost that changes in total in direct proportion to activity while remaining constant per unit, such as direct material or direct labour.

The benefit lost by choosing one alternative instead of the next best one. It is relevant for decisions but is not recorded in financial accounts.

A cost already incurred that no future decision can change. It is irrelevant for decision making and should be excluded from relevant cost analysis.

The stock level at which a new purchase order is placed. It is set so that material arriving after the normal lead time avoids stock-out.

The order size at which total annual ordering cost and total annual carrying cost are equal and combined cost is minimum. It balances ordering and holding costs.

A material control technique that divides inventory into A, B and C categories according to annual value, so that high-value items receive the closest monitoring and control.

A material valuation method in which the earliest purchased units are assumed to be issued first, so issues are priced at older costs and closing stock at recent prices.

The proportion of employees leaving an organisation and being replaced during a period, usually shown as a percentage of average employees. High turnover increases recruitment and training costs.

A wage incentive scheme that guarantees a time wage and adds a bonus, commonly 50 percent of the time saved multiplied by the time rate.

A premium plan in which the bonus is the time rate multiplied by time taken and by the ratio of time saved to standard time, protecting the employer against overpayment.

The sum of direct material cost, direct labour cost and direct expenses. It is the first stage in a cost sheet.

Indirect material, indirect labour and indirect expenses together. Overheads are grouped by function as production, administration, selling and distribution overheads.

Charging the whole amount of an overhead item to the cost centre that caused it, without dividing it between centres.

Distributing an overhead cost among two or more cost centres on a fair basis, such as rent by floor area or insurance by asset value.

Charging the overhead of a cost centre to cost units using a predetermined rate based on a suitable base such as labour hours, machine hours or wages.

An overhead absorption rate found by dividing a machine centre's total overhead by its machine hours. It is suitable where production is highly mechanised.

A statement that builds up the total cost of a product, service or job for a period in stages, including prime cost, works cost and cost of sales.

A method used for customer-specific orders in which each job is separately costed on a job cost sheet. It suits engineering, printing and repair work.

A method used for large, long-term construction contracts, collecting costs by contract and recognising profit according to the work certified and completed.

A method for continuous or mass production in which costs are accumulated by process or department and averaged over output, with losses and gains treated separately.

The number of complete units that the work done on partly finished units represents. It is used to value work in progress in process costing.

A technique that charges only variable costs to products and treats fixed costs as period costs, focusing on contribution for decisions.

Sales revenue minus variable cost. It is the amount available first to cover fixed costs and then to provide profit.

The sales level at which total revenue equals total cost, so there is neither profit nor loss. It is expressed in units or in sales value.

Actual or expected sales minus break-even sales. It measures how far sales may fall before the business makes a loss.

A control technique that sets predetermined costs for materials, labour and overhead, compares them with actual costs and analyses the differences as variances.

The difference between a standard or budgeted cost and the actual cost. Favorable or adverse variances are analysed to find causes and take corrective action.

A written quantitative plan for a future period, stating expected revenue, costs and resource use for a department or the whole organisation.

The process of setting budgets, comparing actual results with them and taking corrective action to achieve the planned organisational objectives.

A budget designed for more than one level of activity, with costs adjusted according to the actual output produced.

A budgeting method in which each activity starts from a nil base and must justify its full budget afresh, rather than using the previous year's figures.

A decision whether to produce a component in-house or buy it outside, based on relevant costs such as variable cost and avoidable fixed cost.

A future cost that differs between the alternatives being compared. Only such costs are typically considered in short-term management decisions.