Adesola Pitan Written by Adesola Pitan · 2 min read >

1. Cost Accounting: refers to the processes and steps for documenting and reporting all costs incurred in a firm’s production or manufacturing units, or performing services. It provides clarity on the role of accounting information in running businesses by providing operational analysis for proper management of the firm. Information provided includes cost of production, control, planning and making decisions (appropriate pricing of goods and services). A major goal of cost accounting is to record and analyze the company’s total production costs (both variable and fixed costs), thus, helping the company achieve internal cost controls and ensure production efficiency.

2. Direct cost: this refers to costs incurred or accountable to a particular cost object, services delivered, a project, department or product. They are the expenses incurred by the business to make a product or provide a service.

3. Indirect cost: this refers to expenses that are not directly connected to the production or service rendered. These include costs from goods, supplies and overhead charges related to the upkeep and management of the business’ daily operations. These including rentals and utilities, computers and accessories, phones and other gadgets, office equipment etc.

4. Operating cost: these are expenditures the organization makes when doing regular business operations. These can both be fixed and variable operating costs.

5. Fixed cost: this refers to constant expenses incurred by the organization that does not change regardless of volume of production or services rendered, up to a certain maximum point. These include expenses such as building mortgage or lease payments.

6. Variable cost: these refers to expenses related to the firm’s level of production. For instance, a confectionary company’s variable costs will change based on the volume produced, as it will affect raw materials like flour, sugar, cooking gas, electricity etc.

7. Semi-fixed cost: this is made up of both the variable and fixed costs elements. It may not be affected by minimal changes in production activity, but a significant increase will make it rise.

8. Semi-variable cost: these are expenses that have been set for a certain specific level of activity and will only change when the company’s activity level changes, that is, once production volume changes.

9. Strategic cost management: this refers to the process of reducing or minimizing the firm’s overall expenses in order to enhance the strategic position. Lowering operating expenses ultimately helps to improve the firm’s competitiveness.

10. Strategic position analysis: provides a reflection of the firm’s competitive position in the market. It also shows the impact of the firm’s approach to the external environment, internal resources and competencies, and the expectations and influence of stakeholders.

11. Value chain analysis: this is a depiction of how all the firm’s activities as relates to its products, services or value proposition are delivered to the clients.

12. Cost drivers analysis: helps to identify activities generating costs in the company. Cost drivers are factors that determines activity’s cost and is the main reason for specific expenses in the organization.

13. Activity-Based Costing: refers to a process of determining the firm’s expenses based on each product line or activity, depending on the quantum of resources deployed for each activity. Cost drivers can be used to determine each customer’s profitability, thus, making it easy to drop the less profitable orders whenever there are resource shortages, while dedicating more resources to activities that are more profitable.

14. Standard costing: refers to the efficient use of labor under normal operating conditions and making adequate provisions in the budget for same.

15. Variance: this refers to the difference between standard costs and actual costs. If actual costs are higher than expected, then the variance is said to be unfavorable, but if actual costs is lower than expected, then it is favorable. Variance can be influenced by (1) the cost of inputs (Rate variance), and (2) the efficiency or quantity of inputs used (Volume variance).

16. Lean accounting: refers to a process of minimizing wastages and optimizing productivity. This includes value-based pricing and lean-focus performance assessment.

17. Marginal costing: this refers to the cost of making one additional unit of output. It is used to calculate a company’s ideal production level. It is calculated by dividing the difference between the amount produced and the change in production costs.

18. Absorption cost: this is a technique for accumulating and allocating production-related costs to specific goods.

19. Contribution margin: this shows the overall amount of revenue available after variable costs to cover fixed expenses and profit for the company. The contribution margin can also be calculated per activity to determine which specific product contributes to the firm’s profitability.

Contribution margin = Revenue – Variable cost.

20. Break Even point: this refers to the production level where total revenue equals the total costs. There is however, zero (0) profit at this point.

Brake even point = Total fixed cost divided by the contribution margin


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