Glossary

Product Costing System

Accumulates the costs of a production process and assigns them to the products that constitute the organization's output.

The elements of a CVP cost model are prices, variable (or throughput) costs, quantities, and committed (or fixed) costs. The CVP model is a special financial model in which the only driver of costs, revenues, and profits is the quantity of product or service produced and sold. The basic CVP model has several other limitations. The following items, for example, are assumed to remain constant: sales mix, technology, efficiency, and management. The model is based on straight-line linear relationships, thus ignoring such factors as quantity discounts.