Fixed Cost - costs that do not vary with the level of output

Variable Cost - costs that change in proportion to the level of goods or services a business produces.

Direct Costs - costs that are directly attributable to a unit output

Indirect/Overhead Costs - costs that can not be attributed to a particular unit of output

Marginal Cost - the cost of producing one extra unit

Marginal costing - where a business ignores fixed costs and only considers the variable costs of production.

Standard Costing - The cost of the business would normally expect for the production of a particular product.

Advantages:

• Gives the business an idea of the target cost they should be aiming for.
• Give employees a target to aim for.
• Be used within the reward and motivation policy so that bonuses can be given when certain targets are achieved
• Encourages workers to look for better and more efficient ways of completing a job to reduce costs

Disadvantages:

• Collecting information to calculate the standard costing can be time consuming and costly
• Use of standard costing to motivate employees may result in a decrease in quality of the products a business makes