Cost

• Variable costs are those that vary with the level of output, while fixed costs remain constant.
• Variable costs are those that vary with changes in output, such as direct materials or labour.
• Direct costs are those that can be directly traced to a specific product or service.
• Cost can be classified as direct or indirect, variable or fixed, relevant or irrelevant, opportunity or sunk.
• The cost of an activity is the total amount spent on it.
• The cost of an item is the total amount paid to acquire it.
• Fixed costs are expenses that remain constant regardless of the number of products produced or sold.
• Fixed costs are not affected by changes in production levels, while variable costs change with output.
• Fixed costs do not change as production levels increase or decrease.
• Indirect costs are those that cannot be easily identified with a particular product or service.
• Direct costs can be traced to specific units of product or services.
• Total fixed costs remain unchanged at different levels of production.
• Variable costs vary directly with the level of activity.
• Cost behavior refers to whether a cost varies directly with changes in another factor such as volume of production or sales.
• Average cost per unit is calculated by dividing total cost by the quantity produced.
• Total cost is the sum of all costs associated with producing goods or services.
• Variable costs vary directly with the level of output, while fixed costs do not depend on the volume of output.
• Irrelevant costs do not vary with decisions being considered and have no effect on future cash flows.
• Sunk costs have already been paid and cannot be recovered.
• Opportunity costs represent what could have been gained from an alternative choice.
• The contribution margin per unit is calculated by subtracting the variable cost per unit from the selling price per unit.
• The total variable cost is equal to the sum of all individual variable costs.
• Fixed costs are expenses that do not change based on output, while variable costs fluctuate depending on the amount of output.
• The contribution margin is the difference between revenue and variable costs.
• Opportunity costs are the benefits forgone when choosing one alternative over others.
• Contribution margin = Revenue - Variable costs
• Sunk costs are past expenditures that cannot be recovered regardless of what happens now.
• Contribution margin is the difference between revenue and variable costs.
• Opportunity costs represent the value of the next best alternative forgone when making a choice.
• Cost Assignment

  Designation of cost object to aid in decision making
• Cost Behavior

  How a cost changes with variations in the cost driver
• Cost behavior is the way in which a cost reacts or responds to changes in the level of business activity
• Cost Driver

  A factor, such as machine-hours, beds occupied, computer time, or object flight-hours, which causes overhead costs
• Cost driver examples

  • Units produced or sold
• Relevant Range

  The range of activity within which assumptions about variable and fixed cost behavior are valid
• Cost Classifications for Financial Reporting

  Manufacturing and Non-manufacturing
• Manufacturing firms

  • Involved in acquiring raw materials, producing finished goods, and then administrative, marketing and selling activities
  • All these activities require costs to be incurred
• Manufacturing Costs

  Costs that are directly involved in manufacturing of products and services
• Categories of Manufacturing Costs

  • Direct materials cost
  • Direct labor cost
  • Manufacturing overhead cost (Factory Overhead)
• Direct Materials Cost

  Materials that go into final product (raw materials)