Acc530_m04_B - Module 4: Cost behaviour and planning...

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Module 4: Cost behaviour and planning © Curtin Business School 1/8 Introduction In this module, you will learn how costs behave. This important concept is the basis for making planning decisions. You will get to know three main terms and how they relate to one another: Cost estimation This is the process of determining how a particular cost behaves. Cost behaviour This is the relationship between the activity and its cost. Cost prediction This is when you use the knowledge of how a cost behaves to predict total costs at a particular level of activity. Cost estimation determines the cost behaviour pattern, which is used to make a prediction about the cost at a particular level of activity contemplated in the future. Therefore, the first step in this module is to understand how costs behave. Following this you will learn how to make forecasts using different techniques. Topics Learning outcomes When you have finished studying this module, you should be able to: Cost estimation apply the different cost estimation methods interpret the R-square (goodness of fit). Cost-volume-profit (CVP) models apply the contribution margin approach to cost-volume- profit (CVP) models apply the equation approach to CVP apply both approaches to CVP when multiple products are involved. Before you begin… You should familiarise yourself with the relevant sections of your textbook before working through these module notes: pages 234 to 257 (cost estimation) pages 276 to 303 (cost-volume-profit models).
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Accounting (Managerial) 530 Module 4 – Cost behaviour and planning © Curtin Business School 2/8 If you have any questions regarding the content of these module notes, refer to the textbook for further explanations. I f you need to seek clarification from your tutor , make sure that you have carefully read the relevant sections of the textbook and the module notes beforehand. Types of costs You will recall from module 1 that two main types of costs were defined: fixed and variable. Fixed costs will not change in total within the relevant range. However, as the activity level increases, there is an inverse relationship with the fixed costs per unit . This is because fixed cost can now be divided over more products, which results in each product carrying a smaller share of the fixed cost. Variable costs per unit , however, will remain constant as the activity level changes. Total variable cost will also increase or decrease in tandem with changes in the activity level. To refresh your memory of fixed and variable costs go online to the activities section and try the interaction Activity 1.1: Comparing fixed costs and variable costs from module 1. Now, you need to understand that not all costs are truly variable or truly fixed. Here are a few other
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This note was uploaded on 09/19/2011 for the course ACCOUNTING 211 taught by Professor Min during the Three '11 term at Curtin.

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Acc530_m04_B - Module 4: Cost behaviour and planning...

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