Define: Applied Cost

Applied Cost
Applied Cost
What is the dictionary definition of Applied Cost?
Dictionary Definition of Applied Cost

Applied Cost:

Noun

1. In accounting and cost management, applied cost refers to the allocation of indirect costs to specific products, services, or departments based on a predetermined allocation method or cost driver. It is the process of assigning indirect costs, such as overhead expenses, to the direct costs of producing a particular product or providing a specific service.

2. Applied cost is used to determine the total cost of production or service delivery by including both direct costs (such as materials and labor) and indirect costs (such as rent, utilities, and administrative expenses) that are associated with the production or service process.

3. Applied cost is essential for accurate cost analysis, pricing decisions, and profitability assessment. By allocating indirect costs to specific cost objects, businesses can better understand the true cost of their products or services and make informed decisions regarding pricing, resource allocation, and cost control strategies.

4. The applied cost is typically calculated by multiplying the predetermined overhead rate or cost driver rate by the actual usage or activity level of the cost driver associated with each cost object. This allocation method ensures that indirect costs are distributed fairly and proportionally among the different cost objects based on their respective usage or consumption of resources.

5. Applied cost is often used in job costing, process costing, and activity-based costing systems to determine the total cost of production for each job, process, or activity. It provides a more accurate representation of the cost of producing a product or providing a service by considering both direct and indirect costs associated with the production process.

Full Definition Of Applied Cost

Applied cost refers to the actual expenses incurred in the production or provision of goods or services. It includes both direct costs, such as raw materials and labor, as well as indirect costs, such as overhead expenses. Applied cost is used to determine the total cost of production and is an important factor in pricing decisions and cost analysis. It is often calculated by allocating indirect costs to specific products or services based on a predetermined allocation method. Applied cost is a key concept in managerial accounting and is used to assess the profitability and efficiency of a business.

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This glossary post was last updated: 29th March 2024.

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