Opportunity Cost: - Opportunity Cost refers to the Value of Benefits scarified/forgone when one course of action is chosen, in preference to an alternative.
For Example: -
• The opportunity cost of using a machine to produce a particular product is the earnings foregone that would have been possible if the machine was used to produce other products.
• The opportunity cost of funds invested in a business is the interest that could have been earned by investing the funds in bank deposit.
• The opportunity cost of one’s time is the salary which he would have earned by his profession.
Notional Cost: - Cost used in product evaluation, decision making and performance measurement to reflect the use of resources that have no actual (Observable) cost.
For example: - Notional interest for internally generated funds on notional rent for use of space.
Avoidable Cost: - Avoidable costs are cost that can be skipped if the decision on activity in consideration will not been taken up.
Historical Cost: - Cost that has been already incurred in the past is called historical cost.
For Example: - Amount invested in purchase of machinery.
Sunk Cost: - Costs which have been incurred by a decision made in past and cannot be changed by any decision made in the future and do not play any role in decision making process are known as sunk costs.
All sunk costs are irrelevant for decision making but all irrelevant cost may not be sunk cost.
Out of Pocket cost: - Out of the Pocket Cost is that portion of costs which involves payments to outsiders i.e. it gives rise to cash expenditure as opposed to such costs as depreciation, which do not involve any cash expenditure. Such costs are relevant for price fixation during recession or when make or buy decisions are to be made.
Discretionary cost: - Discretionary Costs are the costs which can be changed with the discretion of a manager or appropriate decision making authority.
For Example: - Maintenance, Research and Development, Employees Training, Advertisement etc.
Committed Cost: - Committed costs are the cost which cannot be changed during the budgeted period.
For Example: -Depreciation on Assets, Lease Rentals or other Contractual Cost etc.
Engineered Costs: - Engineered costs results from a defined mathematical relationship with the cost object and resources consumed to produce an output.
Differential cost: - Differential Cost (Incremental or Decremental Cost) is the difference in total cost that will arise from the selection of one alternative instead of another.
Period Cost: - Cost relating to a time period rather than to the output of products or services. Period cost is charged to expense in the period incurred. This type of cost is not included within the cost of goods sold on the income statement. This type of expenses is generally included within the selling and administrative expenses.
For Example: - Depreciation Expenses, Commission, Advertisement Expenses, Sales Expenses etc.
Shut Down Cost: - When an organization suspends its manufacturing, certain fixed expenses can be avoided and certain extra fixed expenses may be incurred depending upon the nature of the industry. By closing down the manufacturing, the organization will save variable cost of production as well as some discretionary fixed costs. This particular discretionary cost is known as shut-down cost.
Inventoriable Cost: - Costs that are considered as part of merchandise and considered as asset when these are incurred and these costs become cost of goods sold when the final output is sold. In other words inventoriable costs are cost of purchase plus cost expended to make final product in saleable condition. For a manufacturer, cost of raw material issued to production plus labour cost plus manufacturing overheads are inventoriable cost.
To Join us on Facebook Click Here
For Example: -
• The opportunity cost of using a machine to produce a particular product is the earnings foregone that would have been possible if the machine was used to produce other products.
• The opportunity cost of funds invested in a business is the interest that could have been earned by investing the funds in bank deposit.
• The opportunity cost of one’s time is the salary which he would have earned by his profession.
Notional Cost: - Cost used in product evaluation, decision making and performance measurement to reflect the use of resources that have no actual (Observable) cost.
For example: - Notional interest for internally generated funds on notional rent for use of space.
Avoidable Cost: - Avoidable costs are cost that can be skipped if the decision on activity in consideration will not been taken up.
Historical Cost: - Cost that has been already incurred in the past is called historical cost.
For Example: - Amount invested in purchase of machinery.
Sunk Cost: - Costs which have been incurred by a decision made in past and cannot be changed by any decision made in the future and do not play any role in decision making process are known as sunk costs.
All sunk costs are irrelevant for decision making but all irrelevant cost may not be sunk cost.
Out of Pocket cost: - Out of the Pocket Cost is that portion of costs which involves payments to outsiders i.e. it gives rise to cash expenditure as opposed to such costs as depreciation, which do not involve any cash expenditure. Such costs are relevant for price fixation during recession or when make or buy decisions are to be made.
Discretionary cost: - Discretionary Costs are the costs which can be changed with the discretion of a manager or appropriate decision making authority.
For Example: - Maintenance, Research and Development, Employees Training, Advertisement etc.
Committed Cost: - Committed costs are the cost which cannot be changed during the budgeted period.
For Example: -Depreciation on Assets, Lease Rentals or other Contractual Cost etc.
Engineered Costs: - Engineered costs results from a defined mathematical relationship with the cost object and resources consumed to produce an output.
Differential cost: - Differential Cost (Incremental or Decremental Cost) is the difference in total cost that will arise from the selection of one alternative instead of another.
Period Cost: - Cost relating to a time period rather than to the output of products or services. Period cost is charged to expense in the period incurred. This type of cost is not included within the cost of goods sold on the income statement. This type of expenses is generally included within the selling and administrative expenses.
For Example: - Depreciation Expenses, Commission, Advertisement Expenses, Sales Expenses etc.
Shut Down Cost: - When an organization suspends its manufacturing, certain fixed expenses can be avoided and certain extra fixed expenses may be incurred depending upon the nature of the industry. By closing down the manufacturing, the organization will save variable cost of production as well as some discretionary fixed costs. This particular discretionary cost is known as shut-down cost.
Inventoriable Cost: - Costs that are considered as part of merchandise and considered as asset when these are incurred and these costs become cost of goods sold when the final output is sold. In other words inventoriable costs are cost of purchase plus cost expended to make final product in saleable condition. For a manufacturer, cost of raw material issued to production plus labour cost plus manufacturing overheads are inventoriable cost.
To Join us on Facebook Click Here
No comments:
Post a Comment