1.

Cost Objects - These refer to activities and items for which we wish to
measure costs separately. Examples of cost objects include Activity, product,
service, project, geographic region, department, etc.

2. Cost-drivers - A cost driver causes the cost directly, and it has an impact on
the overall cost. Examples of cost drivers are direct labour hours worked, the
number of customer contacts made, the number of machine-hours utilized,
and the number of products customers returned, etc.

3. Marginal cost - This is the cost of producing one extra unit.

4. Average Cost - The total cost of producing a quantity divided by the quantity
produced.

5. Direct Cost - Direct costs can be directly associated with individual cost
objects. A direct cost may also be called a traceable cost because it can be
traced to a single cost object. They can be traced to individual cost objects.

6. Indirect Cost - They are costs that relate to more than one cost object. The
indirect cost may also be known as a common cost since it is common to
multiple cost objects. Tracing indirect cost to cost objects is impossible. As
such, their cost must be allocated to the cost object if we want to add the cost
to the cost objects at all.

7. Cost Behaviour: This refers to how costs change in response to fluctuations

in business activity. There are situations when activity changes so much that
cost behaviour also changes. For example, for a fixed cost, if the company
produces no units, there will be no need to rent a factory. Hence, the rent cost
is zero.

8. Fixed Cost - Regardless of the level of activity, these costs remain the same.
e.g. Insurance. In contrast, fixed costs per unit change as the level of activity
changes. As activity increases, fixed costs per unit decrease. Examples of
fixed costs in a factory are Factory rent, factory property taxes, factory
insurance, the factory’s general manager’s salary, etc.
9. Variable Cost - This changes proportionately to changes in activity level. e.g
The fuel in your car. The more km you drive, the more fuel you’ll need to buy
hence, the higher the cost. In contrast, despite changes in activity level,
variable costs per unit remain constant. In a factory setting, an example of
variable costs is direct material included in each unit of product and direct
manufacturing labour.

10. Mixed Cost - A mixed cost is a semi-variable cost (sometimes called

semi-fixed cost) that has the elements of both variable and fixed costs. Mixed
cost does not vary or fluctuate nor remain constant with change in activity, on
a per-unit basis. A proper example is the electricity cost. The cost per unit
consumed is variable at a fixed flat rate.
11. Relevant Range - The scope of an activity in which a cost behaviour
assumption is valid. In other words, both fixed and variable costs behave as
expected. In addition, it is the normal, expected range of activity for the
business. Most companies operate within the relevant range
12.Product (Inventoriable) Cost - This includes the invoice cost of products, the
cost of making the products available and ready to sell. For a fabrics retail
store, product cost is the cost of the fabrics, the freight to get the fabrics to the
store, and other costs involved in getting the fabrics ready to sell. Product
costs are also known as inventoriable costs because they become part of a
company’s inventory until the goods with those costs are sold.

13.Period Cost - These are those costs not associated with the product. They
include selling and administrative expenses, but no costs are associated with
acquiring products or getting them ready for sale. Period costs include costs
of employees in marketing, advertising, sales, accounting, finance, and
certain executives such as the company’s president. This expense is incurred
for the period, in which the charge was made.

14. Selling Cost - These include the cost of locating customers, attracting them,
convincing them to buy, and the cost of the necessary paperwork to document
and record sales. Examples of selling costs include Salaries paid to sales
staff, sales commissions, and advertising. There are two less obvious selling
costs.
a. Costs associated with delivering products to customers (also known as
freight-out)
b. The cost of storing inventory.

15.Manufacturing Costs - These are the costs associated with operating a

company's manufacturing division, i.e. the costs of transforming raw materials
into finished products using labor and facilities. It is also referred to as
“Factory Cost” or “Production Cost” which involves the addition of direct
material, direct labour, and factory overhead costs.

16.Administrative Cost - These include all costs that are not product or selling
costs. The costs typically stem from support functions such as accounting,
human resources, finance, executive functions, information technology.

17.Sunk Cost - Costs incurred that cannot be recovered. When deciding whether
to proceed with an investment project, they are no longer considered. This
means that as long as a decision is made now or later, the costs incurred in
the past cannot be changed.
18.Opportunity Cost - An opportunity cost is a potential benefit that is lost when
one alternative is chosen over another. In other words, resources are limited
and have alternatives. Since they represent only sacrifice alternatives,
Opportunity costs are not recorded in financial accounts.

19. Historical Costs: Historical costs or actual costs refer to the amount paid to
acquire an asset originally and may differ from its current market value.
History costs are historically incurred costs that are used for financial
accounting purposes. These costs are objective and quantifiable for income
statements and balance sheet valuations. It is a postmortem of the costs.
Often, historical costs are not meaningful for decision-making because
conditions have changed since the costs were incurred.

20.Contribution Margin - Contribution margin is a product's price minus all

associated variable costs, resulting in the incremental profit earned for each
unit sold. It is the focal point of cost and management accounting. From
applying a 5-Line Model, the contribution margin can be derived:

Total Revenue x
Less Total Variable Cost (x)
Total contribution x
Less Total Fixed Cost (x)
Profit or Loss X