Key Words of Cost:

Accounting: The process of recording financial transactions pertaining to a

business that includes summarizing, analyzing and reporting these transactions to
oversight agencies, regulators and tax collecting entities such as the IRS, etc.

Cost accounting: In simple terms, cost accounting helps businesses make decisions
about costing. So, cost accounting considers all of the costs related to producing a
product or service
Analysts, managers, business owners, and accountants use this information to
determine what their products should cost. In cost accounting, money is cast as an
economic factor in production

Management Accounting: In managerial accounting, an accountant generates

monthly or quarterly reports that a business's management team can use to make
decisions about how the business operates.
Management accounting also covers many other portions of accounting, including
budgeting, forecasting, and various financial analysis tools. Any information that
may be useful to management falls under management accounting.

Financial Accounting: Financial Accounting refers to the processes used to

generate interim and annual financial statements. The results of all financial
transactions that occur during an accounting period are summarized in the balance
sheet, income statement, and cash flow statement. The financial statements of most
companies are audited annually by an external CPA firm.
Audits are a legal requirement for companies that trade on the stock exchange.
However, lenders also typically require the results of an external audit every year
as part of their debt covenants. Therefore, most companies will have annual audits
for one reason or another

Merchandising Company: A merchandising company is a business that purchases

products from manufacturers or wholesalers and then resells them to consumers. It
can help businesses by providing access to a wide range of products, managing
inventory, and promoting products with visual strategies to drive sales. By
choosing to work with a merchandising company

Cost Classification: The process of grouping costs based on their common

characteristics is known as the classification of cost.
A few examples of this would be, costs are classified based on their identifiability
with cost centers or cost units of same nature such as direct and indirect costs
Or,
Costs (both direct and indirect) can also be classified into the following groups
based on their behavior relative to changes in the volume of activity so variable
costs, fixed costs or variable costs.
There are many other examples like the previously mentioned.

Direct cost (Prime cost): A direct cost is a price that can be directly tied to the
production of specific goods or services. A direct cost can be traced to the cost
object, which can be a service, product, or department.
As in, prime cost is the total direct costs, which may be fixed or variable, of
manufacturing an item for sale. Businesses use prime costs as a way of measuring
the total cost of the production inputs needed to create a given output.
Indirect Costs (Overhead Costs): Indirect costs are costs that are not directly
accountable to a Cost Object such as a particular project, facility, function or
product
Indirect costs include administration, personnel and security costs. These are those
costs which are not directly related to production. Some indirect costs may
be overhead, but other overhead costs can be directly attributed to a project and are
direct costs.
So, overhead costs are fixed operating expenses that aren’t linked to a product or a
service. These are typically regularly occurring expenses that the company needs to
operate like internet costs, insurance, rent, employee salaries, utilities, accounting
fees, legal fees, office supplies, etc.

Variable Costs: Variable Costs are a corporate expense which changes

proportionately to the amount a company/entity sells or produces increasing or
falling accordingly.

Fixed Cost: A fixed cost is a business expense that normally doesn’t change with
an increase or decrease in the number of goods and services produced or sold by
the business.
Fixed costs are commonly related to recurring expenses not directly related to
production, such as rent, interest payments, insurance, depreciation, and property
tax.

Cost Structure: Cost structure refers to the various types of expenses a business
incurs and is typically composed of fixed and variable. Costs may also be divided
into direct and indirect costs. Fixed costs are costs that remain unchanged
regardless of the amount of output a company produces, while variable costs
change with production volume.
Cost of goods sold(COGS): Cost structure refers to the various types of expenses a
business incurs and is typically composed of fixed and variable costs. Costs may
also be divided into direct and indirect costs. Fixed costs are costs that remain
unchanged regardless of the amount of output a company produces, while variable
costs change with production volume
In simple terms, we can say ‘cost of goods sold’ is the direct costs incurred in the
production of goods sold by a company.

Opportunity cost: Opportunity cost represents the potential benefits that a business,
an investor, or an individual consumer misses out on when choosing one
alternative over another. Opportunity cost is the forgone benefit that would have
been derived from an option other than the one that was chosen

Raw materials: Raw materials are materials or substances used in the primary
production or manufacturing of goods. Raw materials are commodities that are
bought and sold on commodities exchanges worldwide. Businesses buy and sell
raw materials in the factor market because raw materials are factors of production.

Direct Labor: Direct labor refers to the salaries and wages paid to workers directly
involved in the manufacture of a specific product or in performing a service. The
work performed must be related to the specific task.
For a business that provides services to its customers, direct labor is the work
performed by the workers who provide the service directly to the customers, such
as auditors, lawyers, and consultants.
Indirect Labor: Indirect labor cost refers to wages paid to employees who perform
duties that aid others in producing goods and performing services. It is the cost of
labor that is not directly linked to production.
Examples of indirect costs include purchasing of office supplies, advertisement,
and employee insurance.

Sunk Cost: Sunk cost expense refers to the loss of time, money, or effort, which we
can't get back. If we let sunk costs influence our future decisions, even when
it's not in our best interest, you may run into problems
Example would be, an investment already incurred that can't be recovered. Like the
sunk costs in business include marketing, research, new software installation or
equipment, salaries and benefits, or facilities expenses.

Relevant Cost: Relevant costs’ can be defined as any cost relevant to a decision. A
matter is relevant if there is a change in cash flow that is caused by the decision.
The change in cash flow can be additional amounts that must be paid.

Contribution Margin: The contribution margin can be stated on a gross or per-unit

basis. It represents the incremental money generated for each product/unit sold
after deducting the variable portion of the firm's costs.
The contribution margin is computed as the selling price per unit, minus
the variable cost per unit. Also known as dollar contribution per unit, the measure
indicates how a particular product contributes to the overall profit of the company.
It provides one way to show the profit potential of a particular product offered by a
company and shows the portion of sales that helps to cover the company's fixed
costs. Any remaining revenue left after covering fixed costs is the profit generated.
Cost object: A cost object is any item for which costs are being separately
measured. It is a key concept used in managing the costs of a business e;g:
Products, Services, Customers, etc others.