Some important glossary of cost accounting

1. Hamdard Nagar, Gazaria, Munshiganj

3. 11. Carrying Costs
Carrying costs are the costs of holding inventory and include
maintenance, specifically in regard to perishable items, and storage costs.
Insurance and less tangible expenses, such as opportunity costs, and losses
resulting from theft are also included. Most online stores stock inventory
as it is needed, or simply have it shipped from one centralized location
instead of keeping inventory in multiple physical locations.
Example
Examples of carrying costs include money tied up in inventory,
storage costs, insurance premiums, taxes, inventory obsolescence and
spoilage. Carrying costs increase as the inventory level increases.

4. 12. Contribution Margin
Contribution margin (CM), defined as selling price minus variable cost, is a
measure of the ability of a company to cover variable costs with revenue.
Contribution margin means a measurement of the profitability of a product.
In addition, express it as a dollar amount per unit or as a ratio. CM can be
calculated for a product line using total revenues and total variable costs. It
can also be calculated at the unit level by using unit sales price and
unit variable cost. The metric is commonly used in cost-volume-profit
analysis and break-even analysis.
Example
ABC Company manufactures retail storefront signs and has sales of
$100,000 for the year. Steve has variable costs of $75,000. Thus is margin is
$25,000 ($100,000 – $75,000).

5. 13. Conversion Cost
You can think of conversion costs as the manufacturing or production
costs necessary to convert raw materials into products. Expressed
another way, conversion costs are a manufacturer's product or
production costs other than the costs of raw materials.
A conversion cost is the amount incurred during the transformation of
raw materials inventory into finished goods. In other words, this is the
amount of direct labor and overhead costs that are required to turn raw
materials into an actual product.
Conversion cost is the production cost excluding the cost of direct
materials.

6. 14. Cost Accounting
Cost accounting is an accounting method that aims to capture a
company's costs of production by assessing the input costs of each step of
production as well as fixed costs, such as depreciation of capital
equipment.
Cost accounting is the art and science of recording, classifying,
summarizing, and analyzing costs to help management make prudent
business decisions.

7. 15 Cost
Cost is a measurement, in monetary terms, of the amount of resources used
for the purpose of production of goods or rendering services.
Cost is an amount that has to be paid or spent to buy or obtain something.
In accounting, cost is defined as the cash amount (or the cash equivalent)
given up for an asset. Cost includes all costs necessary to get an asset in
place and ready for use.
For example, the cost of an item in inventory also includes the item's freight-
in cost.

8. 16 Cost allocation
Cost allocation (also called cost assignment) is the process of finding cost of different
cost objects such as a project, a department, a branch, a customer, etc. It involves
identifying the cost object, identifying and accumulating the costs that are incurred
and assigning them to the cost object on some reasonable basis.
Cost allocation is the accounting process of assigning and categorizing business
expenses. This process requires accountants and management to identify and agree
upon the root causes of expenses. There are many reasons why cost allocation and
accounting benefits organizations.

9. 17. Cost Centre
A cost center is a department within a business to which costs can be
allocated.
For the purpose of ascertaining cost, the whole organization is divided into
small parts or sections. Each small section is treated as a cost center of
which cost is ascertained.
Examples of cost centers are as follows:
 Accounting department
 Human resources department
 IT department
 Maintenance department
 Research & development

10. 18. Cost pool
Cost pools is an accounting term that refers to groups of accounts serving to
express the cost of goods and service al locatable within a business or
manufacturing organization.
The principle behind the pool is to correlate direct and indirect costs with a
specified cost driver, so to find out the total sum of expenses related to the
manufacture of a product.
A cost pool is an aggregate of all the costs associated with performing a
particular business task, such as making a particular product. By pooling all
costs incurred in a particular task, it is simpler get an accurate estimate of the
cost of that task.
For example of cost pool are direct Costs are direct labor, direct materials,
commissions, piece rate wages, consumable supplies, freight in and out, and
manufacturing supplies.

11. 19. Cost of Transportation
Cost of transportation comprises of the cost of freight, cartage, transit
insurance and cost of operating fleet and other incidental charges whether
incurred internally or paid to an outside agency for transportation of goods
but does not include detention and demurrage charges.
Transport costs come as fixed and variable costs, depending on a variety of
conditions related to geography, infrastructure, administrative barriers,
energy, and on how passengers and freight are carried. Three
majors components, related to transactions, shipments and the friction of
distance, impact on transport costs.

12. 20. Cost object
An activity, contract, cost Centre, customer, product, process, project, service
or any other object for which costs are ascertained.
A cost object is often a product or department for which costs are accumulated
or measured or occurred.
For example, a product is the cost object for direct materials, direct labor and
manufacturing overhead.
The factory maintenance department is a cost object for the cost of the
maintenance employees and the maintenance supplies.
Later the factory maintenance department costs will be assigned to products,
which are also cost objects.

13. 21. Cost Driver
A cost driver is the unit of an activity that causes the change in activity's
cost. A cost driver triggers a change in the cost of an activity. The
concept is most commonly used to assign overhead costs to the number
of produced units. It can also be used in activity-based costing analysis
to determine the causes of overhead, which can be used to minimize
overhead costs
Examples of cost drivers are as follows:
 Direct labor hours worked
 Number of customer contacts
 Number of engineering change orders issued

14. 22. Cost Finding
Cost finding techniques produce cost data by analytical or sampling
methods. Cost finding techniques are appropriate for certain kinds of
costs, such as indirect costs, items with costs below set thresholds within
programs, or for some programs in their entirety. Cost finding techniques
support the overall managerial cost accounting process and can represent
non-recurring analysis of specific costs.

15. 23. Direct Cost
A direct cost is a price that can be completely attributed to the production of
specific goods or services. Direct costs are costs which are directly
accountable to a cost object (such as a particular project, facility, function or
product). Some overhead costs which can be directly attributed to a project (a
designated project manager) may also be classified as a direct cost.
Examples of direct costs. Direct costs are costs related to a specific cost object.
A cost object is an item for which costs are compiled, such as a product,
person, sales region, or customer.

16. 24. Direct Labor
.
Direct labor cost is a part of wage-bill or payroll that can be specifically and
consistently assigned to or associated with the manufacture of a product, a
particular work order, or provision of a service. Also, we can say it is
the cost of the work done by those workers who actually make the product
on the production line.
Direct labor costs are expenses that tie directly to production of specific
finished goods units. An assembly line worker's labor installing windows on
automobiles, for instance, is direct labor on particular product or service.
Examples of direct labor costs include the following:
In a manufacturing setting, wages paid to workers in an assembly line
In a service setting, wages paid to workers in the kitchen of a restaurant

17. 25. Differential Cost
Differential cost is the difference between the cost of two alternative
decisions, or of a change in output levels. 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. The concept can be particularly
useful in step costing situations, where producing one additional unit of
output may require a substantial additional cost.
Example of alternative decisions. If you have a decision to run a fully
automated operation that produces 100,000 widgets per year at a cost of
$1,200,000, or of using direct labor to manually produce the same number
of widgets for $1,400,000, then the differential cost between the two
alternatives is $200,000.