Unit 7 P1
A cost that can be directly related to producing specific goods or performing a specific service. For example, the wages of an employee engaged in producing a product can be attributed directly to the cost of manufacturing that product. Variable costs
Variable costs means the cost of production (cost of labour, material or overhead) that change according to the change in the volume of production units. Combined with fixed costs, variable costs make up the total cost of production.
A noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. There are several accounting methods that are used in order to write off an asset's depreciation cost over the period of its useful life. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.
A semi-variable cost has characteristics of both fixed costs and variable costs once a specific level of output is surpassed. For example if you have a telephone contract that is fixed but the usage is variable.
Stepped cost refers to the behavior of the total cost of an activity at various levels of the activity. When a stepped cost is plotted on a graph (with the total cost represented by the y-axis and the quantity of the activity represented by the x-axis) the lines will appear as steps or stairs rising from left to right.
Costs which cannot be accurately attributed to specific cost objects are called indirect costs. These typically benefit multiple cost objects and it is impracticable to accurately trace them to individual products, activities or departments etc. Examples: Cost of depreciation, insurance, power, salaries of supervisors incurred in a concrete plant.
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