O input cost driver for example weight of material o

This preview shows page 14 - 18 out of 93 pages.

o Input cost driver, for example weight of material
o Output cost driver, for example volume of production How detailed should the analysis be?
Long or short term?
o Choice depends on the intended purpose of the cost analysis, for example short-term budgeting or long-term strategic decision making?
Cost estimation or cost management?
o Eg. Pharmaceutical company – the research department sends out blood samples for examination to an external pathology lab. What is the cost driver?
Identify and analyze different cost behaviors, including variable, fixed, step-fixed, semivariable and curvilinear
Curvilinear: At lower levels of activity there is decreasing marginal cost At higher levels of activity there is increasing marginal cost Mixed costs Semi-variable: Has both fixed and variable components Mixed costs: Most costs are mixed or semi-variable. This means that they have both a fixed and variable cost component. They can be represented using the following cost function: Y= a + bX o Y = total cost o a = fixed cost component (intercept on the vertical axis) o b = variable cost per unit of activity (gradient) o X = level of activity
Fixed costs Fixed: Fixed costs remain unchanged in total despite changes in the level of activity, but fixed cost per unit changes Fixed cost per unit is often calculated for use in product costs but is of limited use in management decision making as it does not reflect the way that fixed costs actually have

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture