Question

Describe controllable, differential, relevant, sunk, opportunity, average, incremental, and standard costs.

Describe controllable：

Differential：

Relevant：

Sunk：

Opportunity：

Average：

Incremental：

Standard costs：

At lease 300 words

Answer 1

Controllable costs :

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 individual. 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

• Bonuses

Differantial costs :

Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. The concept is used when there are multiple possible options to pursue, and a choice must be made to select one option and drop the others. The concept can be particularly useful in step costing situations, where producing one additional unit of output may require a substantial additional cost. Here is an examples:

• Example of alternative decisions. If you have a decision to run a fully automated operation that produces 100,000 widgets per year at a cost of $1,200,000, or of using direct labor to manually produce the same number of widgets for $1,400,000, then the differential cost between the two alternatives is $200,000.

Relevant costs :

• Relevant costs are only the costs that will be affected by the specific management decision being considered.
• The opposite of a relevant cost is a sunk cost.
• Management uses relevant costs in decision making, such as whether to close a business unit, whether to make or buy parts or labor, and whether to accept a customer's last minute or special orders.

sunk costs :

A sunk cost refers to money that has already been spent and which cannot be recovered. In business, the axiom that one has to "spend money to make money" is reflected in the phenomenon of the sunk cost. A sunk cost differs from future costs that a business may face, such as decisions about inventory purchase costs or product pricing. Sunk costs are excluded from future business decisions because the cost will remain the same regardless of the outcome of a decision.

Oppurtunity costs

The income given by not choosing the next best alternative for the use of resources.Oppurtuinity costs are never actually incurred and cannot be measured precisely.

Average costs :

Average cost is a cost accounting term that is sometimes referred to as unit cost or weighted average cost. Average cost can refer to either average cost of inventory or the average cost of units produced.Average is extremely easy to calculate. A retailer would calculate the average cost of inventory using the weighted average inventory method. In other words, they would divide the total dollar amount paid for the inventory by the total number of units of inventory on hand. Obviously, the total inventory must be made up the same type of units.

Incremental costs:

Additional cost incurred due to addiotion of a new product or change in the distribution channels or additon of new equipment is called incremental costs.

Standard costs:

standard cost is predetemrined costs which is compared in advance of production on basis of specificaitions of all factors affecting costs and used in standard costing. in other words standard cost is predetemined that should be determined under a set of conditons.