WBCHSE Costing & Taxation key terms

A location, person, or item of equipment for which costs are separately collected and recorded. It lets management assign responsibility and measure the cost of a specific activity or function.

The quantitative basis used to express the cost of a product or service, such as one tonne of steel or one passenger-kilometre. Choosing a suitable unit makes costs comparable across periods and volumes.

The total of direct material, direct labour, and direct expenses incurred to make a product. It represents costs that can be traced directly to the cost unit without apportionment.

Prime cost plus factory or works overheads. It shows the total cost incurred inside the production function before administration, selling, and distribution costs are added.

An expense other than direct material or direct labour that is incurred specifically for a particular cost unit, such as hire of a special machine for one contract. It forms part of prime cost.

A responsibility centre whose performance is measured by both the costs it incurs and the revenue it earns. Managers are judged on the margin or profit generated by their segment.

The purchase quantity that minimises the combined annual cost of ordering and holding inventory. At this point, ordering cost and carrying cost are equal, so total relevant cost is lowest.

The inventory balance at which a fresh purchase order must be placed so that stock does not run out before the new consignment arrives. It depends on maximum usage and maximum lead time.

The interval between raising a purchase order and receiving the materials into stores. It is used with consumption rates to fix reorder levels and safety stock.

Extra inventory held to cover unexpected delays in delivery or sudden rises in consumption. It protects production from stock-outs but increases carrying cost.

The cost of holding inventory, including storage, insurance, obsolescence, and the interest on funds tied up in stock. It usually rises in proportion to the average quantity held.

A pricing rule for material issues that assumes the oldest stock is consumed first. Issues are valued at the earliest purchase prices, leaving recent prices in closing inventory.

A pricing rule that values issues at a rate recalculated after each receipt, dividing total value of stock by total quantity. It smooths out price fluctuations over the period.

A pricing rule that assumes the latest stock received is issued first. Issues are charged at recent prices, so closing inventory is valued at older prices; it is not permitted under Indian accounting standards.

A record kept at each storage bin showing quantities received, issued, and on hand. It tracks quantity only, while the stores ledger also records value.

A record maintained for each material item showing receipts, issues, and balance in both quantity and value. It is kept in the costing department, separate from the bin card.

A wage system that pays workers a fixed rate per hour or day worked, irrespective of output. It suits work where quality matters more than speed or output cannot be measured easily.

A wage system that pays a fixed amount for each unit produced, so earnings vary directly with output. It rewards speed but may encourage careless work and ignores waiting time.

An incentive scheme that pays a guaranteed time wage plus a bonus of half the time saved, valued at the time rate. It shares the benefit of efficiency between worker and employer.

An incentive scheme that pays a bonus equal to time taken divided by standard time, multiplied by time saved and the time rate. The bonus is capped as time saved grows.

The rate at which workers leave and are replaced during a period, usually expressed as a percentage of average workforce. High turnover signals recruitment, training, and morale problems.

Paid time during which a worker produces no output because of machine breakdown, material shortage, or other causes. Normal idle time is treated as overhead, while abnormal idle time is charged to profit and loss.

The process of charging indirect costs to cost units using a predetermined rate, such as a rate per labour hour or per machine hour. It converts pooled overheads into product cost.

The distribution of an overhead cost among several cost centres on a reasonable basis, such as floor area for rent or machine hours for power. It applies where a cost serves more than one centre.

The direct charging of an entire overhead cost to a single cost centre because the cost is wholly attributable to it. No sharing between centres is involved.

The situation where overhead recovered through predetermined rates is less than the overhead actually incurred. The shortfall is usually written off to profit and loss or carried forward.

The situation where overhead recovered through predetermined rates exceeds the overhead actually incurred. The excess is credited to profit and loss or adjusted in the next period.

A statement that assembles prime cost, works cost, cost of production, and cost of sales for a period in a standard format. It helps fix selling prices and compare actual costs with estimates.

The cost of units actually sold during a period, calculated as opening finished stock plus cost of production minus closing finished stock. It excludes selling and distribution costs.

Works cost plus administration overheads, adjusted for opening and closing work-in-progress. It represents the cost of goods completed and ready for sale.

A method of costing used where work is carried out to customer order in distinct, identifiable jobs. Costs are collected against each job number, often using a job cost sheet.

A method used for large, long-duration projects such as construction, where each contract is a separate cost unit. Revenue and profit are recognised by stage of completion.

The difference between the value of work certified plus work uncertified and the cost incurred to date on an incomplete contract. Only a prudent portion is transferred to profit and loss.

The value of work completed on a contract and approved by the customer's surveyor or architect. It forms the basis for progress payments to the contractor.

The unavoidable loss of input expected in a process under normal operating conditions. It is absorbed by the good output, raising the effective cost per unit.

Loss in a process that exceeds the normal level and is not expected in ordinary operations. It is valued at full cost and written off to profit and loss.

The conversion of partly finished units into an equivalent number of fully completed units, based on degree of completion. It allows correct valuation of work-in-progress in process costing.

A statement that explains the difference between profit shown by cost accounts and profit shown by financial accounts. It lists items recorded in one set of books but not the other.

A cost included in cost accounts for comparison or decision-making that involves no actual cash outlay, such as notional rent on owned premises. It is excluded from financial accounts.

The classification of a taxpayer as resident or non-resident for a financial year, determined by days of stay and other tests. It decides the scope of income taxable in India.

The financial year in which income is earned and which immediately precedes the assessment year. Income of the previous year is taxed in the following assessment year.

The twelve-month period beginning on 1 April in which the income of the preceding previous year is assessed and taxed. For income earned in 2024-25, it is 2025-26.

The sum of income under all heads after applying permissible deductions, rounded off as required. Tax liability is computed on this figure using the applicable slab rates.

The threshold of total income up to which no income tax is payable by an individual. Income above it is taxed at slab rates, and it also affects rebate eligibility.

A deduction available to individuals and Hindu undivided families for specified investments and payments, such as provident fund and life insurance premiums, within an overall ceiling. It reduces total income.