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Definition of Variable cost
A cost that is directly proportional to the volume of output produced. When production is zero,
A cost that increases or decreases in proportion with increases or decreases in the volume of production of goods or services.
a cost that varies in total in direct proportion
A cost that changes in amount in relation to changes in a related activity.
costs that have both fixed and variable components.
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.
a cost accumulation and reporting method
the proportion of each revenue dollar
costs that change as the level of output changes.
The difference between variable revenue and variable cost.
Also the difference between the selling price and variable costs, which can be expressed either per
The idea that fixed costs and variable costs react differently to changes in the volume of
The price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service.
Overhead generally refers to indirect, in contrast to direct,
a graph that depicts the relationships among revenues, variable costs, fixed costs, and profits (or losses)
the total variable cost of carrying one unit of
the difference between selling price and
the proportion of each revenue dollar remaining after variable costs have been covered;
the relative composition of an organization’s
see variable costing
a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost
the variable cost associated with preparing,
product contribution margin
the difference between selling price and variable cost of goods sold
the specified range of activity over which a
The margin that results when variable production costs are subtracted
An analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero).
Accelerated cost recovery system (ACRS)
Schedule of depreciation rates allowed for tax purposes.
Agency cost view
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.
Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a
Bankruptcy cost view
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.
Continuous random variable
A random value that can take any fractional value within specified ranges, as
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Related: Net financing cost
Cost of funds
Interest rate associated with borrowing money.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
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
Discrete random variable
A random variable that can take only a certain specified set of discrete possible
A value determined within the context of a model.
Equivalent annual cost
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
A variable whose value is determined outside the model in which it is used. Also called
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
Normal random variable
A random variable that has a normal probability distribution.
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
A function that assigns a real number to each and every possible outcome of a random experiment.
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 value determined within the context of a model. Also called endogenous variable.
Annuity contracts in which the issuer pays a periodic amount linked to the investment
Variable life insurance policy
A whole life insurance policy that provides a death benefit dependent on the
Variable price security
A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.
Variable rate CDs
Short-term certificate of deposits that pay interest periodically on roll dates. On each roll
Variable rated demand bond (VRDB)
Floating rate bond that can be sold back periodically to the issuer.
Variable rate loan
Loan made at an interest rate that fluctuates based on a base interest rate such as the
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).
Those that vary with the amount of goods you produce or sell. These may include utility bills, labor, etc.
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.
A resource sacrificed or forgone to achieve a specific objective (Horngren et al.), defined
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.
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