Bacasmas, Francis Royce V.

09/27/2019

1. COST
The marketing cost may include expenses associated with transferring title of goods to a
customer, storing goods in warehouses pending delivery, promoting the goods or services being
sold, or the distribution of the product to points of sale.

2. EXPENSE
Marketing expense is comprised of those costs incurred to present an organization's goods and
services to prospective customers. Examples of costs that are classified as marketing expenses
are:
 Advertising  Online advertising
 Agency fees  Printed materials and displays
 Customer surveys  Social media monitoring and participation
 Development of advertising  Sponsorships
and other promotions
 Gifts to customers

3. HISTORICAL COST
Historical cost is the original cost of an asset, as recorded in an entity's accounting
records. Many of the transactions recorded in an organization's accounting records are stated at
their historical cost. The historical cost concept is clarified by the cost principle, which states
that you should only record an asset, liability, or equity investment at its original acquisition
cost.

4. BUDGETED COST
A budgeted cost is a forecasted future expense that the company is expected to incur in the
future. In other words, it’s an estimated expense that management anticipates will be incurred
in a future period based on projected revenues and sales.

5. DIRECT MATERIAL
Direct materials are those materials and supplies that are consumed during the manufacture of
a product, and which are directly identified with that product. Items designated as direct
materials are usually listed in the bill of materials file for a product. The bill of materials itemizes
the unit quantities and standard costs of all materials used in a product, and may also include an
overhead allocation.

6. DIRECT LABOR
Direct labor is production or services labor that is assigned to a specific product, cost center, or
work order. When a business manufactures product, direct labor is considered to be the labor
of the production crew that produces goods, such as machine operators, assembly line
operators, painters, and so forth. When a business provides services, direct labor is considered
to be the labor of those people who provide services directly to customers, such as consultants
and lawyers. Generally, a person who is charging billable time to a customer is working direct
labor hours.

7. FACTORY OVERHEAD
Factory overhead is the costs incurred during the manufacturing process, not including the costs
of direct labor and direct materials. Factory overhead is normally aggregated into cost pools and
allocated to units produced during the period. It is charged to expense when the produced units
are later sold as finished goods or written off. The allocation of factory overhead to units
produced is avoided under the direct costing methodology, but is mandated under absorption
costing. The allocation of factory overhead is required when producing financial statements
under the dictates of the major accounting frameworks.
8. PRODUCT COST
Product cost refers to the costs incurred to create a product. These costs include direct
labor, direct materials, consumable production supplies, and factory overhead. Product cost can
also be considered the cost of the labor required to deliver a service to a customer. In the latter
case, product cost should include all costs related to a service, such as compensation, payroll
taxes, and employee benefits.

9. PERIOD COST
A period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed
assets. A period cost is more closely associated with the passage of time than with a
transactional event. Since a period cost is essentially always charged to expense at once, it may
more appropriately be called a period expense. A 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. Instead, it is typically included within the selling and administrative expenses section
of the income statement.

10. DIRECT COST

Direct costs are costs related to a specific cost object. A cost object is an item for which costs
are compiled, such as a product, person, sales region, or customer. Examples of direct costs are
consumable supplies, direct materials, sales commissions, and freight (salary, wages, and
materials).

11. INDIRECT COST

Indirect Costs are those that are difficult to assign to a particular cost object, for example typical
indirect costs might include the following: heat, light, taxes, and benefits.

12. MARGINAL COST

Marginal costs are variable costs consisting of labor and material costs, plus an estimated
portion of fixed costs (such as administration overheads and selling expenses). In companies
where average costs are fairly constant, marginal cost is usually equal to average cost. However,
in industries that require heavy capital investment (automobile plants, airlines, mines) and have
high average costs, it is comparatively very low.

13. RELEVANT COST

A relevant cost is a cost that only relates to a specific management decision, and which will
change in the future as a result of that decision. The relevant cost concept is extremely useful
for eliminating extraneous information from a particular decision-making process. Also, by
eliminating irrelevant costs from a decision, management is prevented from focusing on
information that might otherwise incorrectly affect its decision.

14. IRRELEVANT COST

An irrelevant cost is a cost that will not change as the result of a management decision.
However, the same cost may be relevant to a different management decision. Consequently, it
is important to formally define and document those costs that should be excluded from
consideration when reaching a decision. For example, the salary of an investor relations
officer may be an irrelevant cost if a management decision relates to issuing a new product,
since dealing with investors has nothing to do with that particular decision. However, if
the board of directors is considering taking the company private, then it may no longer need an
investor relations officer; in the latter case, the salary of the investor relations officer is highly
relevant to the decision.

15. VARIABLE COST

A variable cost is a cost that changes in relation to variations in an activity. In a business, the
"activity" is frequently production volume, with sales volume being another likely triggering
 event. Thus, the materials used as the components in a product are considered variable costs,
because they vary directly with the number of units of product manufactured.

16. FIXED COST

A fixed cost is a cost that does not change over the short-term, even if a business experiences
changes in its sales volume or other activity levels. This type of cost tends to instead be
associated with a period of time, such as a rent payment in exchange for a month of occupancy,
or a salary payment in exchange for two weeks of services by an employee. It is of some
importance to understand the extent and nature of the fixed costs in a business, since a high
fixed-cost level requires a business to maintain a high revenue level in order to avoid generating
losses. Here are several examples of fixed costs:
 Amortization. This is the gradual charging to expense of the cost of an intangible asset
(such as a purchased patent) over the useful life of the asset.
 Depreciation. This is the gradual charging to expense of the cost of a tangible asset
(such as production equipment) over the useful life of the asset.
 Insurance. This is a periodic charge under an insurance contract.
 Interest expense. This is the cost of funds loaned to a business by a lender. This is only a
fixed cost if a fixed interest rate was incorporated into the loan agreement.
 Property taxes. This is a tax charged to a business by the local government, which is
based on the cost of its assets.
 Rent. This is a periodic charge for the use of real estate owned by a landlord.
 Salaries. This is a fixed compensation amount paid to employees, irrespective of their
hours worked.
 Utilities. This is the cost of electricity, gas, phones, and so forth. This cost has a variable
element but is largely fixed.

17. MIXED COST

A mixed cost is a cost that contains both a fixed cost component and a variable cost component.
It is important to understand the mix of these elements of a cost, so that one can predict how
costs will change with different levels of activity. Typically, a portion of a mixed cost may be
present in the absence of all activity, in addition to which the cost may also increase as activity
levels increase. As the level of usage of a mixed cost item increases, the fixed component of the
cost will not change, while the variable cost component will increase. The formula for this
relationship is:

Y = a + bx Y = Total cost
a = Total fixed cost
b = Variable cost per unit of activity
x = Number of units of activity
18. DISCRETIONARY COST
A discretionary cost is a cost or capital expenditure that can be curtailed or even eliminated in
the short term without having an immediate impact on the short-term profitability of a
business. Management may reduce discretionary costs when there are cash flow difficulties, or
when it wants to present enhanced short-term earnings in the financial statements. However, a
prolonged period of reduction in discretionary costs gradually reduces the quality of a
company's product pipeline, reduces awareness by customers, increases machine downtime,
and may also decrease product quality and increase employee turnover. Thus, discretionary
costs are actually only discretionary in the short-term, not the long-term. Examples of
discretionary costs are:
 Advertising  Equipment maintenance
 Building maintenance  Quality control
 Contributions  Research and development
 Employee training
 19. OUT-OF-POCKET COST
Out of pocket costs are expenses that could be incurred or avoided depending on
management’s decisions. In other words, an out-of-pocket cost is a potential future outlay of
cash that management needs to decide whether or not to make. Said another way, it’s an
expense that requires a future disbursement of cash.

20. CONTROLLABLE COST

Controllable costs are those costs that can be altered in the short term. More specifically, a cost
is considered to be controllable if the decision to incur it resides with one person. If the decision
instead involves a number of individuals, then a cost is not controllable from the perspective of
any one person. Also, if a cost is imposed on an organization by a third party (such as taxes), this
cost is not considered to be controllable. Examples of controllable costs are:
 Advertising  Dues and subscriptions
 Bonuses  Employee compensation
 Direct materials  Office supplies
 Donations  Training

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