Cost

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. The cost of land includes all costs to get
the land ready for its use.

Cost Accounting
The accounting focused on determining the cost per unit of a manufacturer
in order to value inventory and cost of goods sold. It is also used to
determine unit costs of items processed in service businesses, such as a
bank's cost to process a check or deposit.

Managerial accounting
The field of study within accounting that is devoted to information needed by
the management of the company (as opposed to financial accounting to
external parties). Topics covered in managerial accounting include cost
behavior, product costing for manufacturers, budgeting, amounts needed for
decision making, transfer pricing, capital budgeting, etc.

Cost Center
Usually a department within a company that is responsible for its costs but
not revenues or profit.

Semi-Variable Cost
A semi-variable cost, also known as a semi-fixed cost or a mixed cost, is a
cost composed of a mixture of fixed and variable components. Costs are
fixed for a set level of production or consumption and become variable after
this production level is exceeded. If no production occurs, a fixed cost is still
incurred.

Product cost
In manufacturing, the product cost includes direct materials, direct labor, and
manufacturing overhead. A retailer's product cost is the net cost from

suppliers plus costs to get the product in place and ready for use (e.g.
freight-in).

Period Cost
General administration and selling expenses incurred and identified in an
accounting period and then charged against the sales revenue in the same
period.

Controllable cost
These are variable costs such as raw materials, labour, and other overheads
deemed controllable by management. A certain portion of fixed costs can
also be considered controllable. For example, marketing costs attributable to
a specific department would be classified as a controllable expense, whereas
marketing expenses that benefit many departments or products would
normally fall under non-controllable costs.

Non-controllable Costs
Non-controllable costs, sometimes called uncontrollable costs, are expenses
that a manager does not have power or authority to influence. Based on the
company's hierarchy, some managers might have costs that are required to
be paid out of their department, but they have no control over how much
these costs are or when they need to be paid

Direct Material
All items such as raw materials, standard and specialized parts, and subassemblies required to assemble or manufacture a complete product. Direct
material costs are assignable to a specific product, cost center, or work
order.

Indirect material
Consumables (such as cleaning chemicals, disposable tools, protective
devices) not used as raw materials, but which make the production of a good

or service possible, more efficient, or safer. Indirect material costs are not
readily identifiable with a specific product or job.

Direct Labor
Employees or workers who are directly involved in the production of goods or
services.

Indirect Labor
Employees or workers (such as accountants, supervisors, security guards)
who do not directly produce goods or services, but who make their
production possible or more efficient.

Factory Overhead
Factory overhead, also called manufacturing overhead or work overhead, s
the total cost involved in operating all production facilities of a
manufacturing business.

Job Order Costing

Job order costing or job costing is a system for assigning
manufacturing costs to an individual product or batches of products.
Generally, the job order costing system is used only when the products
manufactured are sufficiently different from each other

Process Costing
Process costing is a term used in cost accounting to describe one method for
collecting and assigning manufacturing costs to the units produced.
Processing costis used when nearly identical units are mass produced.

Standard Costing
Cost control and performance measurement method that employs standard
costs as a basis for cost comparison.

Absorption Costing
A method of costing a product in which all fixed and variable costs are
apportioned to cost centers where they are accounted for using absorption
rates. This method ensures that all incurred costs are recovered from the
selling price of a good or service

Marginal Costing
Marginal cost is the change in the total cost when the quantity produced is
incremented by one. That is, it is the cost of producing one more unit of a
good.

Activity based Costing

Activity-based costing (ABC) is a costing methodology that identifies
activities in an organization and assigns the cost of each activity with
resources to all products and services according to the actual consumption
by each. This model assigns more indirect costs (overhead) into direct
costs compared to conventional costing.

Prime Cost
The total of direct material costs, direct labor costs, and direct expenses.

Conversion Cost
Direct and indirect expenditure incurred in converting a currency, material,
or security from one form or type into another.

Opportunity Cost
A benefit, profit, or value of something that must be given up to acquire or
achieve something else. Since every resource (land, money, time, etc.) can
be put to alternative uses, every action, choice, or decision has an
associated opportunity cost

Sunk Cost
A sunk cost is a cost that has already been incurred and thus cannot be
recovered. A sunk cost differs from future costs that a business may face,
such as decisions about inventory purchase costs or product pricing.

Differences between cost and financial accounting

Legalization

FINANCIAL ACCOUNTING - Financial accounting for a limited company

is a legal requirement. Subject to audits and other strict regulatory
requirements
COST ACCOUNTING - Not made compulsory by law and audits, etc are
not needed.
Emphasis on the future
Financial accounting what has happened in the past
Cost accounting concerned with future and past information.
Frequency of reporting
Financial accounting published annually.
Cost accounting May be required daily.
Approximations
Financial accounting must be accurate.
Cost accounting requires information rapidly with more approximate
information.
Principal objective
FINANCIAL ACCOUNTING - Stewardship of business for benefit of
shareholders
COST ACCOUNTING seek to improve economy

Difference between cost and expense

Cost can be defined as the monetary value of the utility (or benefit) which is
yet to be derived from the resources used by the business to earn income.
In simple words it is the benefit that we are expecting to have in future from
the asset(s) by using such asset(s) for business purposes or by selling such
asset in an arms length transaction.
Expense can be defined as the monetary value of the utility that has
already expired because of the use of the resources in business activities
directed towards generating income.
In simple words it is the monetary amount of the benefit used up in the
asset(s). So, basically it is the consideration that we have paid in generating
income
Direct Cost vs Indirect Cost

Meaning
Direct: A cost that is easily attributable to a cost object is known as Direct
Cost.
Indirect: Indirect Cost is defined as the cost that cannot be allocated to a
particular cost object.
Benefits
Direct: Specific projects
Indirect: Multiple projects

Aggregate
Direct: When all the direct costs are taken together they are known as prime
costs.
Indirect: Total of all the indirect costs is called as overheads or oncost.
Traceable
Direct: No
Indirect: Yes
Classification
Direct: Direct material, direct labor, direct expenses.
Indirect: Indirect material, indirect labor, indirect overheads.
Fixed Cost Vs Variable Cost
Following are the key differences between fixed cost and variable cost.

Fixed cost is a cost that remains same regardless of volume of

production while variable cost changes with the level of production.

Fixed cost is a time related while variable cost is a volume related.

Fixed cost are required to pay whether there is production or not.

Variable costs only occurred when there is production.

Variable costs remains same per unit while fixed cost per unit changes.
In case of large production, per unit fixed cost decrease and vice versa.

Fixed production is combination of fixed production overhead, fixed

administration overhead and fixed selling and distribution overhead.
Variable cost is combination of direct material, direct labor, direct
expenses,

variable

production

overhead,

variable

selling

and

distribution overhead.

Examples of fixed costs are: depreciation, rent, salary, insurance, tax

etc. Examples of variable costs are: material consumed, wages,
commission on sales, packaging expenses, etc.