The basic difference between these costing approaches is what costs are assigned to the product. However, Absorption costing method and Activity Based Costing use different approach, but more about it can be found in separate articles. Under Throughput costing, only direct material co
By-products are secondary products arising from common production together with so called main product. By-product does are not as important as the main products and are usually much cheaper. Example of by-product: lanolin obtained from processing wool or pectin obtained from processing fruits &n
External (primary) costs arise from outside the company and include for example cost of raw materials and power consumption bought externally or wages and salaries. The opposite of external costs are costs internal (secondary). More about other possible cost divisions here.
Allocation base (or absorption rate) is a monetary or non-monetary parameter, according to which is allocated something that cannot be attributed directly. It is often used to allocate indirect costs (overheads) to the cost object which is typically a specific product or service. Allocation b
Internal (secondary) costs arise from inside of the entity and they may consist of a number of previously incurred external costs and intercompany turnover. TOTAL COSTS ARE THUS USUALLY NOT THE SUM OF EXTERNAL AND INTERNAL COSTS (external costs would then be included multiple times and inte
Direct expenses are costs that form part direct (prime) costs but are covered neither in direct material costs or direct labor costs. As being part of direct costs, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associ
Joint products are different products of similar values and approximately the same importance manufactured together in the same production process. An example can be cogeneration unit that produces both heat and electricity. As the production or its part is common, joint (common) costs a
Target costing is a costing method used to calculate product costs by deducting desired profit margin from market price of the product / service. The procedure of setting the costs is thus reversed to cost-plus pricing. Target costing is used as a means of cost reduction/optimization
According to the traceability to cost object (usually a specific type of product or service) the costs can be divided into DIRECT COSTS (PRIME COSTS) and INDIRECT COSTS (OVERHEADS). The reason for such classification is especially appropriate inventory (and possibly other assets as well) valuation.
Degressive (under-proportionate) costs are costs that increase more slowly when the production level increase. They are most often related to variable costs which can be linear (proportionate), progressive or degressive. If they are degressive and production increases, unit costs decrease. Cost degr
Management accounting provides information for decision-making and as such it looks mainly into the future and is prepared for internal use, mainly for managers of the entity. Management accounting uses data from financial accounting, but also from other internal and external sources. There is
This short series tries to show that the concept of accounting is much broader than most people think. It briefly describes the basic branches of accounting, especially financial and managerial accounting. This series is freely followed by series Cost accounting.