GLOSSARY of Costing & Management Accounting Terms – Alphabet D

July 26th, 2007 Comments off
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Differential cost

The difference in the cost between two alternatives. Also known as incremental cost

Direct costs

All costs that can be directly traced to a product. Includes direct material cost, direct labor cost and direct expenses.

Direct costing

This is a costing methodology that only assigns direct labor and material costs to a product, and which does not include any allocated indirect costs (which are all charged off to the current period).

Direct labor

This is labor that is specifically incurred to create a product.

Direct labor cost percentage rate

Estimated overhead divided by estimated labor cost. The result is expressed in percentage.

Direct labor hour rate

Estimated overhead divided by estimated number of direct labor hors

Direct materials cost

This is the cost of all materials used in a cost object, such as finished goods.

Direct material cost percentage rate

Estimated overhead divided by estimated material cost. The result is expressed in percentage

Direct materials mix variance

This is the variance between the budgeted and actual mixes of direct materials costs, both using the actual total quantity used. This variance isolates the unit cost of each item, excluding all other variables.


This is a factor that has a direct impact on the incurring of a cost. For example, adding an employee results in new costs to purchase office equipment for that person; therefore, additions to headcount is a cost driver for office expenses.

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Financial Accounting


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