Brief description of different types of costs:

Variable Cost: Variable cost is the cost which changes with the level of production. Total variable cost is variable but per unit variable cost is fixed.

Fixed Cost: Cost which does not change within a relevant range called fixed cost. Total fixed cost is fixed up to a relevant range but per unit fixed cost is variable.

Semi Variable Cost: When some variable and some fixed cost combined in total cost but individually variable and fixed cost cannot be identified then it is called Semi Variable Cost.

Important Notes: Any finished output is product cost before it is sale. When sold then it is period cost.

Prime Cost = Direct Labor + Direct Material

Conversion Cost= Direct Material + Manufacturing Overhead

Standard Cost: Standard cost is those which should be incurred in a particular production process under normal conditions. Standard Cost is usually concerned with per unit cost of direct material, direct labor and factory overhead.

Budgeted Cost: A Budget is a quantitative expression of management objectives. Budgeted costs are the forecasted cost on a total cost basis rather than on a unit cost basis.

Standard Cost and Budgeted Cost are used by Management to:

·         Plan upcoming performance

·         Conclude actual performance

Controllable Cost: Controllable cost are those cost which may be directly influence by unit mangers in a given time period.

Non Controllable Cost: are those which are not directly administered at given level of management authority