Cost Definitions - Weber State University



Absorption Costs: Direct labor plus direct materials plus factory overhead.

Avoidable Cost: A cost that can be eliminated by choosing one alternative over another.

Committed Fixed Costs: Organizational investments with a multiyear planning horizon that cannot be significantly reduced even for short periods of time without making fundamental changes. Compare with Discretionary Fixed Costs.

Common Cost: A cost that is incurred to support a number of cost objects but cannot be traced to them individually. A common cost is a type of indirect cost.

Conversion Costs: Direct labor plus factory overhead. The cost of converting direct materials into a finished product.

Cost: An amount paid or required in payment for a purchase; a price, or the expenditure of something, such as time or labor, necessary for the attainment of a goal:

Cost of Goods Manufactured: The production cost (direct labor plus direct materials plus overhead) of work-in-process finished this period and transferred from the factory to the finished goods storeroom.

Cost of Goods Sold: The production cost (direct labor plus direct materials plus overhead) of goods sold this period.

Differential Costs: The difference in costs between two alternatives.

Direct Cost: A cost that can be easily traced to a specific cost object.

Direct Labor: Labor that can easily be identified with a specific cost object.

Direct Materials: Materials that can easily be identified with a specific cost object.

Discretionary Fixed Costs: Costs that arise from annual decisions of management to spend on certain fixed costs items. Compare with Committed Fixed Costs.

Expense: A cost that has been matched with revenue and has therefore been recognized on the income statement.

Factory Burden: Synonym for overhead.

Factory Overhead Applied: The amount of overhead that has been assigned to work-in-process through the use of a predetermined overhead rate in a normal costing system.

Factory Overhead Costs: Synonym with Overhead.

Finished Goods: Work-in-process that has been completed and is ready for sale.

Fixed Cost: A cost that remains constant in total regardless of the level of activity.

Full Cost: Synonym for absorption cost.

Incremental Cost: An increase in cost from one alternative to another or the cost to produce the next product unit.

Indirect Costs: Costs that cannot easily be identified with a final cost object.

Indirect Labor: Labor costs (within the factory) that cannot easily be identified with a final cost object,

Indirect Materials: Material cost (within the factory) that cannot easily be identified with a final cost object.

Inventoriable Costs: Direct labor, direct materials and overhead.

Joint Costs: Cost incurred by a joint process prior to the time products are separately identifiable.

Manufacturing Costs: Synonym for product costs.

Manufacturing Costs Added: The sum of direct labor, direct materials and overhead incurred during the accounting period.

Manufacturing Overhead Costs: Synonym for overhead.

Marginal Cost: Synonym for incremental cost.

Mixed Cost: Costs that have both a fixed and variable element.

Nonmanufacturing Costs: Administrative and marketing costs.

Opportunity Cost: The potential benefit given up when one alternative is selected over another.

Out of Pocket Costs: Actual cash outlay costs.

Overhead Costs: Indirect costs (within the factory)..

Period Costs: The sum of administrative and marketing costs. Costs that appear on the income statement in the period in which they are incurred.

Prime Costs: Direct labor plus direct materials.

Product Costs: The sum of direct labor, direct materials and overhead. Synonymous with inventoriable costs, manufacturing costs and production costs.

Production Costs: Synonymous with inventoriable costs, manufacturing costs and product costs.

Raw Materials: Materials in the raw materials storeroom which have not been put into production or applied to an overhead account.

Relevant Costs: Costs that differ between alternatives.

Selling and Administrative Costs: Synonymous with period costs.

Semi-variable Costs: Costs that vary non-proportionally with activity or volume.

Standard Cost: In a standard costing system, what a cost “should be.”

Sunk Costs: A cost that has been incurred and cannot be changed by any decision now or in the future.

Variable Costs: A cost that varies proportionally with the level of activity.

Work-in-Process: Units of product that are only partially complete and will require further work before they are ready for sale to the customer.

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