Cost Accounting (short notes) - Previous Year Questions

Period cost: Costs incurred during a particular period of time. Expense that is not inventoriable; it is charged against sales revenue in the period in which the revenue is earned, also called period expense. Selling and general and administrative expenses are period costs. Zero base budgeting: A method of budgeting in which all expenses must be justified for each new period. Type of budgeting that assumes that there was no previous budget, and all expenditures need to be justified. Master budget: Master Budget is a summary of a company's plans in which specific targets are set for sales, production, distribution, and financing activities and that generally culminates in a cash budget, budgeted income statement, and budgeted balance sheet. Margin of safety: Margin of safety is used in break-even analysis to indicate the amount of sales that are above the breakeven point. In other words, the margin of safety indicates the amount by which a companys sales could decrease before the company will become unprofitable. C/M Ratio: The contribution margin ratio is the percentage of a firm's contribution margin to its sales. Contribution margin is a products price minus its variable costs, resulting in the incremental profit earned for each unit sold. Opportunity cost: The cost of best alternative that must be forgone in order to pursue a certain action. Limiting Factor: The success of an organism is limited by the presence or absence of the factors necessary for survival is called limiting factor. A Limiting factor is something that limits the growth, reproduction or distribution of organisms. Efficiency Variance: The difference between the actual quantity of input used (such as metres of materials) and the budgeted quantity of input that should have been used, multiplied by the budgeted price.

Split of point: The split-off point is the point in a production process where jointly manufactured products can be recognized as individual products. Full costing: Full costing is a costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - as part of the cost of a finished unit of product. Also know as Absorbing Costing. Relevance Range: The range of activity within which assumptions about variable and fixed cost behavior are valid. The relevant range refers to a specific activity level that is bounded by a minimum and maximum amount. Within that range of activities, certain revenue or cost levels can be expected to occur. Outside of that relevant range, revenues and expenses will likely differ from the expected amount.

Management By exception: Management by Exception is a "policy by which management devotes its time to investigating only those situations in which actual results differ significantly from planned results. Management by exception is the process of detecting problems and eliminating them so they do not occur again. Differential cost: Any cost that differs between alternatives in a decision-making situation. Feedback: Accounting and other reports that help managers monitor performance and focus on problems and/or opportunities that might otherwise go unnoticed.

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Cost Accounting (short notes) - Previous Year Questions

Financial Budget: Financial budgets are financial plans that are structured to detail projections on incomes and expenses on both a long-term and a short-term basis. Out of pocket cost: Out of Pocket Cost is actual cash outlays for salaries, advertising, repairs, and similar costs. Out-ofpocket expenses are direct outlays of cash which may or may not be later reimbursed. Flexible budget: A budget that is adjusts for changes in sales volume and other cost-driver activities. Also called variable budget. Semi variable Cost: Semi-variable cost is an expense which contains both a fixed-cost component and a variable-cost component. The fixed cost element shall be a part of the cost that needs to be paid irrespective of the level of activity achieved by the entity. On the other hand the variable component of the cost is payable proportionate to the level of activity. Idle time variance: The difference between the number of hours budgeted for work and the number of paid hours not spent working (idle time). Standard costing: Standard costing means assigning the expected, budgeted costs to the goods manufactured, the goods in inventory, and the goods sold. In other words, the amounts assigned are the costs that should occur when manufacturing products. Standard Costing is a technique which uses standards for costs and revenues for the purpose of control through variance analysis. Cost driver: Cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs. By product: A by-product is a secondary product derived from a manufacturing process or chemical reaction. It is not the primary product or service being produced. A by-product can be useful and marketable or it can be considered waste. Joint product: Two or more items that are produced from a common input are called joint products. Sunk cost: Sunk cost is any cost that has already been incurred and that cannot be changed by any decision made now or in the future. Under applied factory overhead: A debit balance in the Manufacturing Overhead account that arises when the amount of overhead cost actually incurred is greater than the amount of overhead cost applied to Work in Process during a period. Equivalent production unit: Number of units of an item that could have been produced with the given material and processing costs in an accounting period. This measure is used as a benchmark in allocating departmental costs. Prime cost: Prime costs are those costs which are prime importance for making any product, calculated as the total of direct material costs, direct labor costs, and direct expenses. Cost sheet: A document that reflects the cost of the items and services required by a particular project or department for the performance of its business purposes. Job order costing: A costing system used in situations where many different products, jobs, or services are produced each period.

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