Chapter_7 - Chapter 7: Types of cost and their behaviour...

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Unformatted text preview: Chapter 7: Types of cost and their behaviour behaviour • • • • • • • • Area of management accounting Management accounting concepts The nature of cost Cost allocation and cost apportionment Absorption costing Marginal costing Absorption cost vs. marginal costing Activity based costing (ABC) Area of management accounting Area • Planning and preparation of business plans • Directing attentions to specific areas and providing Directing proposed solutions to actual and anticipated problems proposed • Formulation of cost- cutting proposals and the evaluations cutting of their impact on current and future operations of • Preparation of forecasting • Negotiation with bankers for funding • Analysis and interpretation of internal and external factors Analysis of strategic decision-making of The Areas of Business Activity The Areas of Business Activity Supported By Management Accounting Supported By Management Accounting The Areas of Business Activity Supported By Management Accounting Supported • The management accounting is primarily The concerned with the provision of information to people within the organization for: to – Product costing – Forecasting, planning and control – Decision-making Management Accounting Concepts (1) Management • These do not represent any form of These external regulation but they are fundamental principles for the preparation of internal management accounting information. information. Management Accounting Management Accounting Concepts (2) Concepts (2) Management Accounting Concepts (3) Management • Accountability concept: – The responsibilities and key results of individuals within the The organization. organization. • Controllability concept: – Mgt accounting identifies the elements or activities which Mgt management can or cannot influence, and seeks to assess risk, and management sensitivity factors sensitivity – This facilitates the proper monitoring, analysis, comparison and interpretation of information which can be used constructively in control, evaluation, and corrective function of management. control, Management Accounting Concepts (4) Management • The interdependency concept: – Require the mgt accounting, in recognition of Require the increasing complexity of business, must assess both internal and external information sources from interactive functions such as marketing, production, personnel, procurement and finance. and Management Accounting Concepts (5) Management • Relevancy concept: Relevancy – Ensure that the flexibility in mgt accounting is Ensure maintained in assembling and interpreting information. information. – This facilitates the exploration and presentation, This in a clear understandable and timely manner for decision making. decision Management Accounting Concepts (6) Management • Reliability concept: – Require that mgt accounting information must Require be reliable in its source, integrity and comprehensiveness. comprehensiveness. The Elements Of Total Costs The Elements Of Total Costs An Example Of Semi-Variable Cost An Example Of Semi-Variable Cost Cost Allocation And Cost Allocation And Cost Apportionment (1) Cost Apportionment (1) cost (as a noun) is an amount of expenditure attributable to a specified thing or activity to cost also relates to a resource sacrificed or forgone, cost expressed in a monetary value expressed cost (as a verb) may be used to say that to cost something cost is to ascertain the cost of a specified thing or activity is cost is not a word that is usually used without a cost qualification as to its nature and limitations qualification Cost Allocation And Cost Allocation And Cost Apportionment (2) Cost Apportionment (2) direct costs are directly identified with cost objects direct indirect costs have to be allocated or apportioned, costs using appropriate bases for allocation and apportionment, to apportionment, cost units or cost centres or cost accounts An Example Of An Example Of Unit Cost Ascertainment Unit Cost Ascertainment Absorption Costing Absorption Costing unit costs of products, services or activities may be determined using the traditional costing techniques of absorption costing or full costing absorption absorption costing assigns, in addition to direct costs, all absorption or a proportion of production overhead costs to cost units by means of one or a number of overhead absorption rates. by It can be seen that absorption costing is a costing It technique where by each unit of output is charged with both fixed and variable production costs. Marginal Costing Marginal Costing marginal costing (or variable or period costing) is a costing technique whereby each unit of output is charged only with variable production costs only there are many arguments for and against the use of the there techniques of both absorption costing and marginal costing, revolving mainly around the basis chosen for allocation and apportionment of overheads The Elements Of Marginal Costing The Elements Of Marginal Costing Advantages And Disadvantages Advantages And Disadvantages Of Absorption Costing Of Absorption Costing Advantages And Disadvantages Advantages And Disadvantages Of Marginal Costing Of Marginal Costing Trading And Profit And Loss Trading And Profit And Loss Account Absorption And Marginal Account Absorption And Marginal Costing Formats Costing Formats Activity Based Costing Activity Based Costing Example Of An Absorption Unit Example Of An Absorption Unit Cost and An ABC Unit Cost Cost and An ABC Unit Cost ...
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