U2

• Cost

  A sacrifice made to achieve a particular purpose
• Cost occur, if and when valuable resources are consumed or used by a business entity
• Resource consumption constitutes costs if it happens for a purpose
• Cost accounting


  Allocates resource consumption to specific accounting periods
• Cost incurred


  Value of resources consumed
• Value of resources consumed

  Price of the resource
• Different accounting measures


  • Cash at hand
  • Receivables
  • Payables
  • Monetary assets
  • Non-monetary assets
  • Total assets
• Receipts


  Cash inflow
• Payments


  Cash outflow
• Cash flow statement


  Summarizes the balance of all cash inflows and outflows in an accounting period
• Proceeds


  Changes in monetary assets
• Expenditures


  Changes in monetary assets
• Income


  Increase in total assets
• Expenses


  Decrease in total assets
• Revenues


  Value a company generates with its regular business operations
• Costs


  Resources consumed during the company's regular business operations
• Cost concepts and cost categories

  • Differential cost
  • Sunk cost
  • Committed cost
  • Opportunity cost
  • Out-of-pocket cost
  • Variable cost
  • Fixed cost
  • Step-fixed cost
  • Throughput cost
  • Product cost
  • Direct material cost
  • Direct labor cost
  • Manufacturing overhead
  • Period cost
  • Marketing & selling cost
  • Administrative cost
  • Actual cost
  • Planned cost
  • Standard cost
  • Predicted cost
  • Total cost
  • Average cost
  • Marginal cost
  • Direct cost
  • Indirect cost (overhead cost)
  • Pagatoric cost
  • Accrual cost
• Variable cost


  • Vary with the level of economic activity: the higher the activity level, the higher the cost incurred
• Fixed cost


  • Do not depend on the level of activity: they are fixed
• Step-fixed cost


  • Remain constant within a given capacity interval, increase when capacity is beyond this interval, and remain constant again until a new maximum capacity is reached
• Cost driver


  Any factor that causes a change in the level of a certain cost item
• Output level increases


  Variable costs and step-fixed costs increase, fixed costs remain constant
• Unit cost


  The average of total costs incurred to total output
• Marginal (or incremental) cost


  The additional cost incurred when producing one additional unit of output
• An increase in output is sometimes possible without further increasing costs. This effect is known as "economies of scale".
• Unit cost


  Cost per unit of output
• Total cost


  Total cost of production
• Output units


  Number of units produced
• Marginal cost


  Additional cost of producing one more unit
• Cost concepts for comparing costs
• Variable costs


  Costs that vary with output level
• Step-fixed costs


  Costs that are fixed up to a certain output level, then increase in steps
• Fixed costs


  Costs that do not vary with output level
• Actual cost


  Cost that has actually been incurred by the company
• Future cost


  Cost that is expected to be incurred
• Predicted cost


  Future cost treated as being beyond the company's influence
• Standard cost


  Future cost treated as being influenceable to some extent by the company
• Actual cost versus predicted cost and standard cost

  1. Actual cost

  2. Predicted cost

  3. Standard cost
• Opportunity cost


  Foregone benefit of an alternative use of a resource
• Committed cost


  Costs that are investments the company made in the past that lead to resource consumption today