CostBaics_Student_10_6slides

CostBaics_Student_10_6slides - Why Study Cost? Week 2: Cost...

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1 Week 2: Cost Basics 1 Learning Objectives Why are costs important? What does ‘different costs for different purposes’ mean? Understand and apply various classification of costs. Understand cost drivers and the role of cost driver 2 analysis. Describe and apply the activity hierarchy of costs and cost drivers. Explain the relationships between cost estimation, cost behaviour and cost prediction. Understand and apply various methods for cost estimation. Understand some practical issues faced in estimating cost functions. Week 2: Readings LS Chapter 2 p.41-61 LS Chapter 3 p. 80-106 (include Appendix 3 portion on “Evaluating the regression 3 portion on Evaluating the regression equation” p. 113-114 Most of this is revision from AFM1B Why Study Cost? Financial reporting purposes Value creation: Decision-making E g pricing and produc mix 4 E.g., pricing and product-mix Cost control and management We need to consider the following about costs: What drives cost? How does cost behave? How do we estimate and predict cost movement? How do we manage cost? Outline 1. Overview 2. Cost classification 3. Cost behaviour 5 3.1 Cost drivers 4. Cost estimation 4.1 Regression Analysis 1. Overview Systems Conventional Contemporary Costing Vol-based cost drivers Other factors Budgeting Rev and costs etc. Activities Performance Budgeted vs. Actual Measure of CFS 6 Costing system Budgeting system Performance measurement system Cost management system measurement Costs Cost management Actual vs. budgeted Cost management
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2 1. Overview cont. What are costs? Resources used to achieve a particular objective If benefit carries into future period: Asse 7 If benefit carries into future period: Asset If benefit is used up: Expense Measured in monetary terms 2. Cost classification 1. Behaviour patterns 2. Traceability 3. Controllability 8 4. Value Chain 5. Function And more…! Refer to LS exhibit 2.2 p.47 Remember “Different costs for different purposes!” 2.1 Cost Behaviour Patterns Cost behaviour Relationship between a cost and the level of activity that drives the cost LS p. 81 Behaviour Traceability Controllability Value Chain 9 Cost behaviour patterns Variable costs Fixed costs Step-fixed costs Semi-variable costs Curvilinear costs Function 2.1 Cost Behaviour Patterns How do costs change as level of activity changes? Variable costs Behaviour Traceability Controllability Value Chain 10 Change in total in direct proportion to a change in the level of activity Fixed costs Remain unchanged in total despite changes in the level of activity Function Cost behaviour patterns: variable and fixed 11 Cost behaviour patterns: step fixed & semi-variable 12
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3 Cost behaviour patterns: Curvilinear 13 Activity Cost behaviour patterns Engineered cost Defined physical relationship to level of output Committed cost
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CostBaics_Student_10_6slides - Why Study Cost? Week 2: Cost...

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