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Management Accounting Terminology |
| Term | Definition | More Specific Definition or Example |
| Cost | Sacrifice | The price of any resource. |
| Cost object | Any segment or element for which cost information is desired. (See the Gordon & Loeb summary for more). | A product, service, project, activity, department, division, or customer, etc. |
| Direct cost | Cost used by a single cost object. (Note that the definition of a cost as direct or indirect changes if the cost object changes. (See the Gordon & Loeb summary for more). | A cost that would be eliminated if the cost object is eliminated. A supervisor's salary is a direct cost to the production department he or she is in charge of or managing. |
| Indirect cost | Cost that is common or shared by more than one cost object. (See the Gordon & Loeb summary for more). | A production supervisor's salary is an indirect cost to the products produced within his or her department. |
| Flexible resource | Resources that generate cost in proportion to the amount used. | Direct material. |
| Flexible cost | Cost of flexible resources. Always direct costs. Cost that vary in proportion to the amount used. | Direct material costs, i.e., cost of materials or components that go into or become the product. |
| Capacity related resource | Resources purchased in advance. Committed resources. | Resources that generate cost based on the amount acquired rather than the amount used. Buildings and equipment. |
| Capacity related cost | Cost that are based on the amount acquired rather than the amount used. | Can be direct or indirect, but are fixed in the short run. Depreciation on buildings and equipment. |
| Variable cost | A cost that changes or varies with changes in the activity level. | Direct material. |
| Fixed cost | A cost that does not change or vary with changes in the activity level. | Capacity related cost. Straight line depreciation, a supervisor's salary, property taxes. |
| Matching concept | The idea of bringing cost and benefits together on the income statement in the same time period. | Accrual accounting where benefits (revenues) are matched with the costs (expenses) associated with generating the benefits. |
| Expired cost | A cost associated with an object who's benefits have been obtained or recorded. | An expense such as cost of goods sold. |
| Unexpired cost | An asset. | Inventory until sold, buildings, equipment. |
| Expense | An expired cost. See above. | Cost of goods sold. |
| Asset | An unexpired cost. An object with expected future benefits. | Inventory, book value or undepreciated cost of buildings and equipment. |
| Product cost | Costs associated with producing a product that are capitalized in the inventory, i.e., become assets until the products are sold. | Direct manufacturing costs such as direct materials and direct labor, as well as indirect manufacturing costs usually referred to as factory overhead. |
| Inventory cost | Product costs. See above. | See cell above. |
| Inventory valuation | The product costs assigned to the inventory. Note that inventory valuation refers to book value, not market value. | See inventory valuation methods. |
| Manufacturing cost | Cost associated with the production of products. Factory costs. These are unexpired costs (assets) until the products are sold, then are charged off as expense, i.e., cost of goods sold | Includes direct material, direct labor (direct manufacturing costs) and indirect manufacturing costs also referred to as factory overhead and factory burden. |
| Non-manufacturing cost | Cost not associated with the production of products, but with some other function such as administration or distribution. Treated as period costs by GAAP. | Distribution, selling, marketing, customer service, research and development. |
| Period cost | Cost that are expensed in the period in which incurred. | Non-manufacturing costs according to GAAP. See above. |
| Incremental cost | Cost of one more item, unit or customer. | Cost of one more passenger on an airline. |
| Full cost | Direct plus indirect cost. Variable plus a share of the fixed costs. | GAAP product costs is considered full costs although this is misleading because it does not include non-manufacturing costs. |
| Historical cost | Recorded costs. Sometimes referred to as actual cost, but this is misleading because the cost recorded depends on the accounting alternative chosen. | Any costs that are recorded such as labor costs, materials costs, depreciation etc. For example, accounting alternatives for depreciation include straight line and several accelerated methods. |
| Future cost | Estimated costs. | Budgeted costs. |
| Average cost | Usually refers to the mean of a category of costs. | The unit cost of a product that flows through a production process. |
| Implicit cost | Unstated and unrecorded cost. | Opportunity costs. |
| Opportunity cost | Benefit foregone by not accepting or pursuing the next best alternative. | The income or interest on an alternative investment. The opportunity cost of owning anything is what you could have obtained with the money. |
| Short run | ABKY define this as the time period where a decision maker cannot adjust capacity. | Usually thought of as a year in accounting, but this is just a ball park number and depends on the type of resource involved. The short run for an inter-state highway, or factory building is longer than a year and for a resource like fork lift trucks, it would be much shorter than a year. |
| Long run | The opposite of the above where capacity can be increased or decreased. | See the cell above. |
| Short run cost | ABKY define these as flexible costs. | Direct material. |
| Long run cost | These can be flexible or capacity related according to ABKY. | Depreciation on plant and equipment. |
| Discretionary cost | Can be increased or decreased at the discretion of the decision maker. Not committed. | Advertising, employee training, research & development, preventive maintenance. |
| Business level or
sustaining cost |
Capacity related cost. | Buildings and equipment. |
| Activity cost | Cost associated with different types, or levels of activities. | Unit level, batch level, product level, customer level and business level. |
| Unit level cost | Cost of an activity that is required or performed each time a unit of product or service is produced or provided. | Direct material required for a unit of product. |
| Batch level cost | Cost of an activity that is required or performed each time a batch of products or services is produced. | Setting up the production line to produce a batch of product X. Also inspecting the batch, moving the batch etc. |
| Product level cost | Cost of an activity that is required or performed to support a specific product. | Product engineering. |
| Customer level cost | Cost of an activity that is required or performed to support a specific customer. | Sales calls, installation of a product and technical support. |
| Business (or facility)
level cost |
Cost associated with maintaining the business and facilities. | Maintenance, housekeeping, and administrative functions. |
| Relevant cost | Cost that will be different when two or more alternatives are involved. Also called differential cost. | The cost that will be different if a product is dropped. See note below related to the example on pages 93-96. |
| Life cycle cost | Cost associated with the various stages of a product's life cycle. (See MAAW's Product Life Cycle topic.) | Cost of product: 1. Development and design. 2. Introduction. 3. Production. 4. Distribution. 5. Post sales service. 6. Product take back. 7. Abandonment. |
| MAAW's Chapter 2 | Terminology Main Page |
