Managerial Accounting For Dummies
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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

About This Article

This article is from the book:

About the book author:

Mark P. Holtzman, PhD, CPA, is Chair of the Department of Accounting and Taxation at Seton Hall University. He has taught accounting at the college level for 17 years and runs the Accountinator website at www.accountinator.com, which gives practical accounting advice to entrepreneurs.

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