Week 10 Acct.docx - Accounting Financial Management Week 10 Managerial Accounting Cost-Volume(CVP Analysis Cost Behaviour deals with how costs change

Week 10 Acct.docx - Accounting Financial Management Week 10...

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Accounting & Financial Management - Week 10: Managerial Accounting: Cost-Volume (CVP) Analysis Cost Behaviour: deals with how costs change with respect to changes in activity levels. This is important to know as: - Essential for planning, control and decision making: o Costing, pricing, product mix, make or buy, performance evaluation and financial planning Cost Driver: a factor that causes (drives) activity costs. e.g. Cost Classification: costs can be classified as: - Fixed – CVP - Variable – CVP - Semi-fixed (Step-variable) - Mixed (Semi-variable) Fixed cost: - In total, remain constant within the relevant range as the level of cost driver varies. o Relevant range is the range over which the assumed fixed cost relationship is valid for the normal operations of an organisation. - Fixed costs per unit vary inversely with activity unit cost changes as the level of cost driver changes - Have to pay regardless of the activity, not impacted by activity - Examples of fixed cost: rent per month, insurance per year. Example: Fixed costs = 1000. If production = 10 units, fixed cost per unit = 100. But total fixed costs = 1000. Cost function: y = a, where y represents the total cost level and a is a constant.
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Variable cost: - In total, vary proportionally with changes in activity level o Remain the same on a per unit basis -
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