The document defines several types of costs that are important to consider in business: Differential cost is the difference in cost between alternative decisions or options. Marginal cost is the additional cost of producing one more unit of a product or service. Standard cost is a predetermined cost that takes into account all factors affecting production costs. Estimated costs are predetermined costs that consider past costs and future cost factors. Cost control involves monitoring actual costs against budgets and taking action if actual costs are higher than planned. Conversion cost refers to the costs of transforming raw materials into finished goods.

1. ALBI THANKACHAN
MBA B Batch

2.  Differential cost is the difference between
the cost of two alternative decisions.
 The concept is used when there are multiple
possible options to pursue, and a choice
must be made to select one option and
drop the others.

3.  Marginal cost is termed as the additional
cost incurred for the production of an
additional unit
MC = C(n+1) – C(n)
C – cost of production

4.  Cost per unit of a product or service, or the
annual cost incurred on a continuous
process.
 Operating costs do not include capital outlays
or the costs incurred in design and
implementation phases of a new process.

5.  Standard cost is a predetermined cost after
taking into account all the factors affecting
the cost.
 The standard cost of a product consists of
standard material cost, standard labour
cost, standard overhead cost,..

6.  Estimated or predetermined costs are
estimated costs after considering all the
factors influencing cost
 These are computed in advance of
production, after taking into consideration
the cost of previous periods and the factors
likely to affect such costs.

7.  Cost control is the practice of identifying
and reducing business expenses to increase
profits, and it starts with the budgeting
process.
 A business owner compares actual results
with the budgeted expectations, and if
actual costs are higher than planned,
adequate action should be taken by to
control its costs.

8.  It comprises of verification of
cost accounting records such as, the
accuracy of the cost accounts, cost reports,
cost statements, cost data, costing
techniques, and examining these records to
ensure that they adhere to the
cost accounting principles, plans,
procedures and objectives.

9.  It refers to the cost of converting direct
materials into partly or fully finished
products or from one stage of production to
the next.
 Conversion cost is the sum of direct wages,
direct expenses and overhead expenses of
converting raw materials into finished
products.

10.  This cost takes place when a stock shortage
occurs.
 includes loss of sales, loss of goodwill, etc

11.  A carrying cost is the expense associated
with holding inventory over a period of
time.
 Interest on money locked up in the
inventory, storage space rent, cost of stores
operation,..
 JIT can be adopted to reduce the carrying
cost of firms.

12.  These are the estimates of expenditure for
different stages of business operation such as
manufacturing, administration, sales,
research and development, etc.

13.  These costs are to be incurred immediately
in order to avoid the hampering of
production line
 Eg. Purchase of raw materials, labour costs,
etc.
POSTPONABLE COSTS
 Such costs can be postponed or shifted to
the future period.
 Eg. Routine repairs, employee training,
personal withdrawal

14.  It is the cost of abnormal idleness of fixed
assets or available resources.
INCREMENTAL REVENUE
 The additional revenues obtained by
producing an additional quantity.
 TR for 10 units = 100, TR for 20 units =
200
IR= 200-100= 100