1. What is the difference between Cost accounting and managerial accounting?

2. Direct Cost, Indirect Cost, Variable Cost, Cost Driver, Relevant Range, Cost allocation base, Period
cost, and Product cost, Prime cost, conversion cost,

Direct Cost: Direct costs of a cost object are related to the particular cost object and can be
traced to it in an economically feasible (cost-effective) way. For example, the cost of steel or tires
is a direct cost of BMW X5s. The cost of the steel or tires can be easily traced to or identified
with the BMW X5. The workers on the BMW X5 line request materials from the warehouse and
the material requisition document identifies the cost of the materials supplied to the X5. In a
similar vein, individual workers record the time spent working on the X5 on time sheets. The cost
of this labor can easily be traced to the X5 and is another example of a direct cost.

Indirect Cost: Indirect costs of a cost object are related to the particular cost object but cannot
be traced to it in an economically feasible (cost-effective) way. For example, the salaries of plant
administrators (including the plant manager) who oversee the production of the many different
types of cars produced at the Spartanburg plant are an indirect cost of the X5s. Plant
administration costs are related to the cost object (X5s) because plant administration is
necessary for managing the production of X5s. Plant administration costs are indirect costs
because plant administrators also oversee the production of other products, such as the Z4
Roadster. Unlike the cost of steel or tires, there is no requisition of plant administration services
and it is virtually impossible to trace plant administration costs to the X5 line.

Variable Cost: Variable costs are costs that change as the volume changes. Examples of variable
costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs,
packaging supplies, and credit card fees.

Cost Driver: A cost driver is a variable, such as the level of activity or volume that causally affects
costs over a given time span. An activity is an event, task, or unit of work with a specified
purpose—for example, designing products, setting up machines, or testing products. The level of
activity or volume is a cost driver if there is a cause-and-effect relationship between a change in
the level of activity or volume and a change in the level of total costs. For example, if product-
design costs change with the number of parts in a product, the number of parts is a cost driver
of product-design costs. Similarly, miles driven is often a cost driver of distribution costs. The
cost driver of a variable cost is the level of activity or volume whose change causes
proportionate changes in the variable cost. For example, the number of vehicles assembled is
the cost driver of the total cost of steering wheels. If setup workers are paid an hourly wage, the
number of setup hours is the cost driver of total (variable) setup costs.

Relevant Range: Relevant range is the band of normal activity level or volume in which there is a
specific relationship between the level of activity or volume and the cost in question. For
example, a fixed cost is fixed only in relation to a given wide range of total activity or volume (at
which the company is expected to operate) and only for a given time span (usually a particular
budget period).

Cost allocation base: The term cost allocation is used to describe the assignment of indirect
costs to a particular cost object.

Period cost: Period costs are all costs in the income statement other than cost of goods sold.
Period costs, such as marketing, distribution and customer service costs, are treated as expenses
of the accounting period in which they are incurred because they are expected to benefit
revenues in that period and are not expected to benefit revenues in future periods. Some costs
such as R&D costs are treated as period costs because, although these costs may benefit
revenues in a future period if the R&D efforts are successful, it is highly uncertain if and when
these benefits will occur. Expensing period costs as they are incurred best matches expenses to
revenues. For manufacturing-sector companies, period costs in the income statement are all
nonmanufacturing costs (for example, design costs and costs of shipping products to customers).

Product cost: Product costs are all costs of a product that are considered as assets in the
balance sheet when they are incurred and that become cost of goods sold only when the
product is sold. For manufacturing-sector companies, all manufacturing costs are product costs.
Consider Cellular Products, a manufacturer of cellular phones. Costs of direct materials, such as
computer chips, issued to production (from direct material inventory), direct manufacturing
labor costs, and manufacturing overhead costs create new assets, starting as work in process
and becoming finished goods (the cellular phones). Hence, manufacturing costs are included in
work-in-process inventory and in finished goods inventory (they are “inventoried”) to
accumulate the costs of creating these assets.

Prime cost: Prime costs = Direct material costs + Direct manufacturing labor costs

Conversion cost: = Direct manufacturing labor costs + Manufacturing overhead costs

where does product cost and period cost go? Diagram

 3. Break Even Points?
The breakeven point (BEP) is that quantity of output sold at which total revenues equal total
costs—that is, the quantity of output sold that results in $0 of operating income.

How does CVP analysis help in decision-making?

1. Identify the problem and uncertainties.
2. Obtain information.
3. Make predictions about the future
4. Make decisions by choosing among alternatives.
5. Implement the decision, evaluate performance, and learn.

4.Difference between Job Costing and Process Costing?

11. What is differential analysis?

Differential analysis is a decision-making technique that examines the benefits and costs associated with
each of two options and compares the net results of the two. The alternative selected is the one with
the most favorable (or least unfavorable) financial impact.

What is bottle neck?

In a general sense, a bottleneck means a constraint. If we define a bottleneck from an accounting

perspective then it means- any process or operation that has reached its full potential or capacity and it
can no longer accept additional tasks beyond it