| Variable cost | A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit |
| Sunk cost | A cost that has already been incurred and that cannot be changed by any decision made now or in the future |
| Selling costs | All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer |
| Relevant range | The range of activity within which assumptions about variable and fixed cost behavior are valid |
| Raw materials | Any materials that go into the final product |
| Product costs | All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. (aka Inventoriable costs) |
| Prime cost | Direct materials cost plus direct labor cost |
| Period costs | Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. |
| Opportunity cost | The potential benefit that is given up when one alternative is selected over another |
| Mixed cost | A cost that contains both variable and fixed cost elements |
| Manufacturing overhead | All manufacturing costs except direct materials and direct labor |
| Linear cost behavior | Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity. |
| Least-squares regression method | A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors |
| Indirect Cost | Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it. |
| Indirect labor | The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products |
| Indirect cost | A cost that cannot be easily and conveniently traced to a specified cost object |
| Independent variable | A variable that acts as a causal factor; activity is the independent variable |
| Incremental cost | An increase in cost between two alternatives. |
| High-low method | A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels |
| Fixed cost | A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity. |
| Engineering approach | A detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs |
| Discretionary fixed costs | Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research. |
| Direct materials | Materials that become an integral part of a finished product and whose costs can be conveniently traced to it. |
| Direct labor | Factory labor costs that can be easily traced to individual units of product. |
| Direct cost | A cost that can be easily and conveniently traced to a specified cost object. |
| Differential revenue | The difference in revenue between two alternatives. |
| Differential cost | A difference in cost between two alternatives. |
| Dependent variable | A variable that responds to some causal factor; total cost is the dependent variable |
| Cost structure | The relative proportion of fixed, variable, and mixed costs in an organization. |
| Cost object | Anything for which cost data are desired. Examples of cost objects are products, customers, jobs, and parts of the organization such as departments or divisions. |
| Cost behavior | The way in which a cost reacts to changes in the level of activity |
| Conversion cost | Direct labor cost plus manufacturing overhead cost |
| Contribution margin | The amount remaining from sales revenues after all variable expenses have been deducted. |
| Contribution approach | An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes |
| Common cost | A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. |
| Committed fixed costs | Investments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes. |
| Administrative costs | All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling |
| Activity base | A measure of whatever causes the incurrence of a variable cost. |
| Account analysis | A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves. |
