Process costing is a method of cost accounting used where production is continuous, and the cost per unit is derived by spreading production costs equally across all units produced in a specific time period.
The costs of production when charged to the cost units and expressed as costs of individual products. Product costs may include both direct costs and indirect costs (overhead); many different costing methods, such as absorption costing, activity-based costing, and process costing, are used in computing product costs.
Product-sustaining-level activities are activities that are necessary to support a specific product regardless of the volume of production. These activities ensure the possible production and effective marketing of the product.
Production overhead, also known as manufacturing overhead, refers to the indirect costs associated with manufacturing a product. These costs are not directly tied to the production process but are necessary expenses for running a manufacturing operation.
The Retail Inventory Method is an inventory valuation technique used within the cost method of accounting, where similar merchandise is pooled to estimate the average percentage of cost to retail price.
Semi-variable costs, also known as mixed costs, are costs that contain both fixed and variable components. They change in response to changes in volume but by less than a proportionate amount.
In process costing, the separation point, also known as the split-off point, is where by-products or joint products emerge and begin their independent processing paths.
The Specific Identification inventory method considers the sale and cost of each item specifically. It is particularly useful for investors managing securities acquired at different costs, providing flexibility in reporting taxable income.
Specific Order Costing, often compared to job costing, is a method of assigning production costs to a distinct batch or order. It provides a bespoke way to track the profitability and efficiency of unique production runs.
The split-off point refers to the stage in the production process where jointly produced products become separately identifiable and can be sold or further processed.
Standard cost refers to the predetermined unit cost of a product or service within a standard costing system. It is used for budgeting, performance evaluation, and cost control by providing a basis for comparison against actual costs.
An essential component in a standard costing system, the standard cost card provides a detailed record of how the standard cost of a product is built up, encompassing materials, labor, and overheads.
Standard costing is a cost accounting system that uses predetermined costs and income benchmarks for products and operations, comparing them with actual results to establish variances.
In standard costing, the standard direct labour cost is derived from the standard time allowed for the performance of an operation and the standard direct labor rate for the operators specified for that operation.
In standard costing, a predetermined price for direct materials used for establishing standard direct materials costs in order to provide a basis for comparison with the actual direct material prices paid.
In standard costing, a standard fixed overhead cost is derived from the standard time allowed for the performance of an operation or the production of a product and the standard fixed overhead absorption rate per unit of time for that operation or product.
Standard Marginal Costing involves the determination and control of predetermined standards for marginal costs and income that are used for products and operations, with periodic comparisons to actual outcomes to identify and analyze variances.
Standard variable overhead cost refers to a specific type of standard cost derived from the standard time allowed for an operation or product production and the standard variable overhead absorption rate per unit time for that operation or product.
A stepped cost, also known as a semi-fixed cost, is an expense that remains fixed over a certain level of activity or production but changes by a fixed amount when the activity level significantly increases or decreases beyond specific thresholds.
In accounting, stores oncost refers to the indirect costs or overheads associated with handling and storing materials used in production. These costs are not directly attributed to the cost of the raw materials themselves but are necessary for the overall production process.
A support cost centre refers to a department or unit within an organization that provides essential services to other departments, enabling them to operate smoothly and efficiently without directly contributing to the final product or service.
Total Absorption Costing allocates all manufacturing costs to products, ensuring all costs related to production are accounted for in the valuation of inventory and cost of goods sold.
Total cost refers to the sum of all costs incurred by a business in the production of goods or services, combining both fixed and variable costs.
Total cost represents the comprehensive expenses incurred by a firm to produce a specific level of output, encompassing both fixed and variable costs.
The Total Standard Cost is the sum of the Total Standard Production Cost and the Standard Cost Allowance for non-production overhead, which provides a comprehensive measure of the standard expenses incurred during the production process.
A comprehensive look at the Total Standard Production Cost, including standard direct materials cost, standard direct labor cost, standard fixed overhead cost, and standard variable overhead cost.
In cost accounting, the situation where an insufficient amount of factory overhead was charged to the products manufactured.
In absorption costing, the circumstance in which the absorbed overhead is less than the overhead costs incurred for a period. This adverse variance represents a reduction of the budgeted profits of the organization.
Uniform Capitalization Rules (UNICAP) are a method of valuing inventory for tax purposes, requiring the capitalization of direct costs and an allocable portion of indirect costs related to production or resale activities. These costs must be included in the basis of property produced or in inventory costs and are then recoverable through depreciation, amortization, or as cost of goods sold.
Uniform costing entails the use of a standard costing system by multiple organizations within the same industry, ensuring consistency and comparability in cost accounting.
Expenditure incurred by an organization expressed as a rate per unit of production or sales. While the unit cost is fundamental for understanding profitability, it can be challenging to make valid comparisons between organizations due to arbitrary allocation of fixed overhead costs.
Unit Standard Operating Profit represents the standard operating profit expressed as a rate per unit of production or sales, crucial for assessing profitability on a per-item basis.
The unit standard production cost is the cost per unit of production, incorporating all standard overheads, direct labor, and direct materials, used to measure efficiency and control costs in manufacturing.
In cost accounting, unit-level activities are those that are performed each time a unit is produced. These include tasks directly correlated with the production volume, such as machine operation and direct labor.
Variable cost refers to expenses that change in proportion to the production output or sales volume. They fluctuate based on the operational activity, such as material costs, labor costs, and utility expenses.
Variable costs are expenses that change in proportion to the level of activity or volume of production a business undertakes.
Variable costing, also known as direct or marginal costing, is a managerial accounting method where only variable costs are included in the cost of a product.
Variable costs, or variable expenses, are business costs that fluctuate in direct proportion to changes in production or sales volume. They contrast with fixed costs, which remain constant regardless of production levels.
Variable overhead expenditure variance in standard costing is the difference between the budgeted variable overhead expenses and the actual variable overhead expenses incurred.
The elements of an organization's indirect manufacturing costs that vary in total in proportion to changes in the level of production or sales.
Waste (also referred to as spoilage) is the amount of material lost as part of a production process. Acceptable levels of waste, known as normal loss, are part of the cost of production and are allowed for in the product costs. Any process or activity that does not add value is also considered waste.
Work in Process (WIP) refers to the materials and components that have begun their journey in the production process but are not yet completed products. It is an essential concept in manufacturing and inventory management.
Work in Process (WIP), also known as work in progress, refers to the partially finished goods within a manufacturing operation. These items are in the production line but are not yet complete. The valuation of WIP typically follows financial principles and methods such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or average cost method.
Work in Progress (WIP) refers to the goods that are partially completed in a manufacturing process and are still undergoing the necessary transformation to become full-fledged finished products. It is a vital part of inventory management and accounting in production-focused industries.
