| A | B |
|---|
| Absorption Costing | This is a costing method that assigns all manufacturing costs (both direct and indirect) to individual units of product. It's also known as full costing. |
| Direct Costs | These are costs that can be directly traced to a specific cost object |
| Indirect Costs These are costs that cannot be directly linked to a specific cost object. They are often referred to as overheads and include expenses such as factory rent | utilities |
| Cost Allocation | This is the process of distributing total costs across multiple cost objects (products |
| Overhead Rate | The rate used to allocate indirect costs to cost objects. It is often calculated as total indirect costs divided by a chosen allocation base |
| Variable Costs | Costs that change in direct proportion to changes in the level of activity or volume of output. Raw materials and direct labor are common examples of variable costs. |
| Contribution Costing | Also known as variable or marginal costing |
| Contribution Margin | The difference between total sales revenue and total variable costs. It represents the portion of sales revenue that contributes to the coverage of fixed costs and the generation of profit. |
| Fixed Costs | Costs that remain constant |
| Make or Buy Analysis | A decision-making process used by companies to determine whether it would be more cost-effective to produce a product or service in-house (make) |
| Opportunity CostThe cost | of forgoing the next best alternative when making a decision. In make or buy analysis |
| Outsourcing | The practice of having certain job functions done outside a company instead of having an in-house department or employee handle them; functions can be outsourced to either a company or an individual. |
| Sunk Costs | Costs that have already been incurred and cannot be recovered. Sunk costs should not be considered in make or buy decisions because they cannot be changed by future actions. |
| Marginal Cost This refers to the increase or decrease in the total cost of a product line when the volume produced is increased by one unit. In other words | it is the cost of producing one more unit of a good or service. This concept is often key in contribution costing |
