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ELCO

ELEMENTS OF COSTING TERMINOLOGY

TermDefinition
AVCO Weighted Average
FIFO First In First Out
LIFO Last In First Out
Financial Accounting External, historic, legal
Management Accounting Internal, future, when necessary
Cost Accounting It is concerned with establishing costs.
Cost Centre A small part of a business for which costs are determined
Cost Classification by function Cost of sales, Distribution costs, Administrative expenses
Cost Classification by element Materials, Labour, other expenses (overheads)
Cost Classification by relationship to cost units Direct, Indirect
Cost Classification by behaviour Fixed, Variable, Semi-variable, Stepped
Direct Cost An item of cost that is traceable directly to a cost unit
Indirect Cost A cost that cannot easily be identified with any one finished unit and are often referred to as overheads.
Variable Costs Are costs that vary (usually assumed in direct proportion) with changes in level of activity.
Fixed Costs These costs are not affected by changes in activity level.
Semi-variable Costs A fixed element and a variable element.
Stepped Costs Costs that remain fixed up to a particular level of activity, but which rise to a higher (fixed) level if activity goes beyond that range.
Total costs 1 = Fixed costs + Variable costs
Total costs 2 = Fixed costs + (number of units x variable cost per unit)
Coding - Numeric 100/310
Coding - Alphanumeric A230
Coding - Alphabetic AB/RT
Direct Materials (Raw) Materials that are used directly as part of the production of the goods.
Indirect Materials (Raw) Materials used in the production process which are not used in the actual products themselves.
Work in progress Units that have been started but are incomplete.
Finished goods These goods are completed.
Salaried Employee Where gross pay is agreed at a fixed amount for a period of time.
Hourly Rate Employee Payment for a set hourly rate for each hour that he works.
Overtime The number of hours worked over and above normal weekly hours.
Overtime Premium The amount over and above the normal hourly rate that employees are paid for overtime hours.
Output Related Pay This is known as piecework and is where a fixed amount is paid per unit of output.
Piece Rate with Guarantee A guaranteed amount so if they do not make enough units they will still be guaranteed a day rate.
Variance The difference between actual and expected (or budgeted) cost is known as a variance.
Favourable or FAV Is a variance when the actual cost is lower than expected,
Adverse or ADV Is a variance when actual cost is higher than expected.
Created by: donnaowen
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