Basic Costing

Homework

Recap

Basic Costing

Lesson 3 Chapter 3

Cost behaviour

ObjectivesExplain fixed, variable, semi-variable and

stepped behaviour costs.

Distinguish between fixed, variable, semi-variable overheads

Identify the types of cost and profit centres.

Cost BehavioursFixed costs

Variable costs

Semi–variable or Semi-fixed costs

Stepped costs

Fixed Expenses

Do not change with changing levels of production

EXAMPLES:Rent and ratesCleaner’s wages

What would a fixed cost look like on a graphTotal cost

Output Units

Fixed costs - Answer

Would it look different for fixed cost per unit?

Cost p/unit

Output Units

Fixed costs per unit - Answer

Variable Costs

Vary directly with changes in levels of production

EXAMPLES:MaterialLabour

What would a variable cost look like on a graph?

Total cost

Output Units

Variable cost - Answer

Would it look different for variable cost per unit?

Cost p/unit

Output Units

Variable cost per unit - AnswerCost p/unit

Output Units

Semi-fixed, Semi-VariablePart of cost remains fixed at any production

level

Part of cost changes with changing production levels

EXAMPLES:Power, telephoneProduction workers wages (standard wage+

bonus)

What would a semi-variable/fixed cost look like on a graph?

Total cost

Output Units

Semi-variable/fixed - Answer

Stepped Fixed over a particular rangeAbove this range steps up

Examples include ratio of supervisors to operatorsNumber of machines being used

What would a stepped cost look like on a graph?

Total cost

Output Units

Answer

Cost CentresCost / Expense

Section of a business costs can be chargedDepartment, branch i.e. PRODUCTION COST

CENTRE

ProfitBoth costs and income directly related to it

Investment

RecapTypes of cost behaviour

Graphical representation of costs

Cost centres