Cost accounting helps managers understand what it costs to operate an organization and produce goods or services. This lesson introduces its purpose, historical development, relationship to financial accounting, and basic cost elements.
Cost accounting is the process of recording, classifying, analyzing, allocating, and reporting an organization's costs. It is primarily an internal management tool. Managers use cost information to plan activities, control operations, evaluate performance, set prices, and make other business decisions.
All flashcards
Cost object
An item, activity, or entity—such as a product, service, department, or project—for which costs are measured.
Marginal cost
The change in total cost caused by producing or reducing output by one unit.
Opportunity cost
The value of the benefit sacrificed by choosing one course of action over the next-best alternative.
Activity-based costing (ABC)
A method that assigns costs to products or services based on the activities they require.
Throughput
Sales revenue minus the cost of materials used to make the products sold.
Quiz questions
How does throughput accounting define throughput?Answer: Sales revenue minus the cost of materials used to make products sold.
What is the basis for assigning costs to products in activity-based costing?Answer: The activities required by each product or service.
Why is a sunk cost generally not relevant when choosing between future alternatives?Answer: It has already been incurred and cannot be changed by the current choice.
What does a cost realism analysis assess in a government procurement proposal?Answer: Whether proposed costs are realistic for the work and consistent with the technical approach.
What does the contribution margin ratio express?Answer: Contribution margin as a proportion of sales revenue.
Based on the Wikipedia article Cost accounting, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.