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Definition of controllable cost
a cost over which a manager has the ability to authorize incurrence or directly influence magnitude
Schedule of depreciation rates allowed for tax purposes.
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
Total costs, explicit and implicit.
A firm's required payout to the bondholders and to the stockholders expressed as a
The argument that expected indirect and direct bankruptcy costs offset the other
costs that increase with increases in the level of investment in current assets.
Arrangement whereby the shareholders of a project receive output free of
The required return for a capital budgeting project.
Related: Net financing cost
Interest rate associated with borrowing money.
A lease's internal rate of return.
The discount rate that equates the after-tax inflows with outflows for capital
The net present value of an investment divided by the investment's initial cost. Also called
The equivalent cost per year of owning an asset over its entire life.
The difference between the execution price of a security and the price that would have
Financial distress costs
Legal and administrative costs of liquidation or reorganization. Also includes
A cost that is fixed in total for a given period of time and for given production levels.
costs, both implied and direct, associated with a transaction. Such costs include time, effort,
Incremental costs and benefits
costs and benefits that would occur if a particular course of action were
Transaction costs that include the assessment of the investment merits of a financial asset.
Market impact costs
Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.
Market timing costs
costs that arise from price movement of the stock during the time of the transaction
Net financing cost
Also called the cost of carry or, simply, carry, the difference between the cost of financing
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
The difference in the performance of an actual investment and a desired investment
Price impact costs
Related: market impact costs
cost to replace a firm's assets.
Round-trip transactions costs
costs of completing a transaction, including commissions, market impact
costs associated with locating a counterparty to a trade, including explicit costs (such as
costs that fall with increases in the level of investment in current assets.
costs that have been incurred and cannot be reversed.
costs of buying and selling marketable securities and borrowing. Trading costs include
The time, effort, and money necessary, including such things as commission fees and the
True interest cost
For a security such as commercial paper that is sold on a discount basis, the coupon rate
A cost that is directly proportional to the volume of output produced. When production is zero,
Weighted average cost of capital
Expected return on a portfolio of all the firm's securities. Used as a hurdle
An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.
Cost of goods sold
The cost of merchandise that a company sold this year. For manufacturing companies, the cost of raw
MACRS (Modified Accelerated Cost Recovery System)
A depreciation method created by the IRS under the Tax Reform Act of 1986. Companies must use it to depreciate all plant and equipment assets installed after December 31, 1986 (for tax purposes).
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.
costs that are identifiable with and able to be influenced by decisions made at the business
The amount of cash expended.
The profit made by a division after deducting only those expenses that can be controlled by the
A resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined
The idea that fixed costs and variable costs react differently to changes in the volume of
A division or unit of an organization that is responsible for controlling costs.
The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.
The most significant cause of the cost of an activity, a measure of the demand for an activity
Anything for which a measurement of cost is required – inputs, processes, outputs or responsibility centres.
Cost of capital
The costs incurred by an organization to fund all its investments, comprising the risk-adjusted
Cost of goods sold
See cost of sales.
Cost of manufacture
The cost of goods manufactured for subsequent sale.
Cost of quality
The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.
Cost of sales
The manufacture or purchase price of goods sold in a period or the cost of providing a service.
A method of pricing in which a mark-up is added to the total product/service cost.
The costs of (cross-functional) business processes, irrespective of the organizational structure of the business.
Cost–volume–profit analysis (CVP)
A method for understanding the relationship between revenue, cost and sales volume.
costs that are readily traceable to particular products or services.
costs that do not change with increases or decreases in the volume of goods or services
The cost of a product/service that includes an allocation of all the (production and
costs that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead.
A method of accounting that accumulates the costs of a product/service that is produced either
The non-salary or wage costs that follow from the payment of salaries or wages, e.g. National
An approach to costing that estimates and accumulates the costs of a product/service over
The cost of producing one extra unit.
The lost opportunity of not doing something, which may be financial or non-financial, e.g. time.
The costs that relate to a period of time.
The total of all direct costs.
A method of costing for continuous manufacture in which costs for an accounting compared are compared with production for the same period to determine a cost per unit produced.
The cost of goods or services produced.
The cost that is relevant to a particular decision – future, incremental cash flows.
costs that are constant within a defined level of activity but that can increase or decrease when
costs that have both fixed and variable components.
A budget cost for materials and labour used for decision-making, usually expressed as a per unit cost that is applied to standard quantities from a bill of materials and to standard times from a
costs that have been incurred in the past.
A method of costing that is concerned with managing whole-of-life costs of a product/service during the product design phase – the difference between target price (to achieve market share) and the target profit margin.
A cost that cannot be influenced at the business unit level but is controllable at the corporate level.
A cost that increases or decreases in proportion with increases or decreases in the volume of production of goods or services.
A method of costing in which only variable production costs are treated as product costs and in which all fixed (production and non-production) costs are treated as period costs.
Weighted average cost of capital
See cost of capital.
Cost of goods sold
The cost of the items that were sold during the current period.
activity based costing (ABC)
A relatively new method advocated for the
capitalization of costs
When a cost is recorded originally as an increase
Refers to the sum of manufacturing direct labor and overhead
cost of capital
Refers to the interest cost of debt capital used by a business
fixed expenses (costs)
Expenses or costs that remain the same in amount,
Overhead generally refers to indirect, in contrast to direct,
This is a key factor in the profit model of a business. Product
A cost that has been paid and cannot be undone or reversed.
weighted-average cost of capital
Weighted means that the proportions of
Cost of Capital
The minimum rate of return a company must earn in order to meet
Cost of Common Stock
The rate of return required by the investors in the common stock of
Cost of Debt
The cost of debt (bonds, loans, etc.) that a company is charged for
Cost of Equity
Same as the cost of common stock. Sometimes viewed as the
Cost of Preferred Stock
The rate of return required by the investors in the preferred stock of
Weighted Average Cost of Capital (WACC)
The weighted average of the costs of the capital components
a cost accumulation and reporting
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