Glossary

The process of distributing indirect costs across products, jobs, or departments using defined methods to reflect actual usage or benefit.

The number of finished goods created during a manufacturing period. Often used to allocate overhead evenly in process costing.

A method of allocating overheads based on the floor space used by a job or department within the production facility.

A cost allocation method where overheads are distributed based on the number of machine or labour hours consumed per job or product.

A method that allocates overheads based on actual activities performed, improving costing accuracy for complex or resource-intensive production.

Assigns overhead costs directly to specific jobs or products when there is a clear, traceable link between the expense and the output.

Costs that can be directly traced to a specific product or job, such as raw materials and production labour.

Only direct material costs are treated as variable, while all other costs are fixed. Useful for lean and high-volume manufacturing analysis.

Allocates both fixed and variable manufacturing costs to each unit produced. Required for external financial reporting.

Considers only variable costs for production decisions, helping businesses assess the profitability of additional units or short-term jobs.

Uses pre-set or budgeted costs for materials, labour, and overhead, then measures variances against actuals to identify inefficiencies.

A general method of calculating the total cost of producing a product, including direct and indirect costs. Useful for pricing and profit analysis.

The full sequence of steps from order intake through manufacturing to delivery, tracked for efficiency and cost analysis.

The final price a customer pays for a product, calculated to include production cost plus markup or target profit margin.

The difference between the sell price and cost, expressed as a percentage of revenue. Also referred to as gross profit margin.

A pricing strategy where a fixed percentage is added to the cost to determine the selling price. Used to ensure profit above costs.

The portion of indirect costs distributed across products or jobs using a cost allocation method, ensuring fair cost distribution.

The quantity of an activity consumed by a specific product, used to assign precise overhead costs using Activity-Based Costing.

The number of times an activity is performed or used across all products, used to determine the activity rate in ABC.

The total cost of performing a specific production-related activity, used in Activity-Based Costing to allocate overheads.

Expenses that support production but cannot be directly traced to a specific product, such as rent, utilities, and maintenance.

Wages paid to employees who are directly involved in the manufacturing process, such as machine operators or assemblers.

Raw materials that are physically part of the finished product and can be directly traced to a job or production run.

The direct costs of manufacturing the products sold, including materials, labour, and a portion of overheads. Critical for calculating gross profit.

The total income generated from selling goods or services before any costs or expenses are deducted.

The total number of finished products manufactured in a given time frame. Used to calculate unit cost in process costing.

The complete cost of producing all goods sold during a specific period, including direct materials, direct labour, and allocated overheads.