Key Costs Related to Managerial Accounting - dummies

Key Costs Related to Managerial Accounting

By Mark P. Holtzman

Part of Managerial Accounting For Dummies Cheat Sheet

In accounting, a cost measures how much you pay/sacrifice for something. Managerial accounting must give managers accurate cost information relevant to their management decisions. Here are several cost-related terms you encounter in managerial accounting:

  • Direct cost: Cost that you can trace to a specific product

  • Indirect cost: Cost that you can’t easily trace to a specific product

  • Materials: Physical things you need to make products

  • Labor: Work needed to make products

  • Overhead: Indirect materials, indirect labor, and other miscellaneous costs needed to make products

  • Variable costs: Costs that change in direct proportion with activity level

  • Fixed costs: Costs that don’t change with activity level

  • Mixed costs: Combination of fixed and variable costs

  • Contribution margin: Sales less variable costs

  • Product costs: Costs needed to make goods; considered part of inventory until sold

  • Period costs: Costs not needed to make goods; recorded as expenses when incurred

  • Work-in-process cost: How much you paid for goods that are started but not yet completed

  • Finished goods cost: How much you paid for goods completed but not yet sold

  • Cost of goods manufactured: The cost of the goods completed during a period

  • Cost of goods sold: The cost of making goods that you sold

  • Controllable costs: Costs that you can change

  • Noncontrollable costs: Costs that you can’t change

  • Conversion costs: Direct labor and overhead

  • Incremental costs: Costs that change depending on which alternative you choose; also known as relevant costs and marginal costs

  • Irrelevant costs: Costs that don’t change depending on which alternative you choose

  • Opportunity costs: Costs of income lost because you chose a different alternative

  • Sunk costs: Costs you’ve already paid or committed to paying

  • Historical cost: How much you originally paid for something

  • Cost per unit: Cost of a single unit of product

  • Expense: Costs deducted from revenues on the income statement

  • Cost driver: Factor thought to affect costs

  • Process cost: Cost of similar goods made in large quantities on an assembly line

  • Job order cost: Cost of a batch of specially made goods

  • Absorption cost: Cost that includes fixed and variable product costs

  • Target cost: Cost goal set for engineers designing a product