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CIMA BA2 Notes Chapter 3-Analysing and predicting costs
CIMA BA2 Notes Chapter 3-Analysing and predicting costs
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BA 2 - Fundamentals of Management AccountingAnalysing and predicting costs
Chapter three
BA 2 Cost identification and classification. Quantia Learning
, 1
BA 2 Analysing and predicting costs. Quantia Learning
, 2
When managers understand how costs will behave under different levels of activity, they can
use this to predict cost values, both individually and in total, for different levels of activity.
Consider the following information below, using which we can identify different cost behaviours :
Output - 100 units Output - 200 units
Material $500 $1,000
Labour $1,000 $2,000
Rent $2,000 $2,000
Electricity $700 $900
Using the information below we can identify cost per unit, using which we can determine the
behaviour of each type of cost provided.
Cost per unit Cost per unit - Cost type Description
- 100 units 200 units
Material $500/100 = $1,000/200 = Variable cost Material would normally be
$5 $5 a variable cost – the total
cost is increasing as the
number of units increases.
Labour $1,000/100 = $2,000/200 = Variable cost Labour would normally be
$10 $10 a variable cost – the total
cost is increasing as the
number of units increases.
Rent $2,000/100 = $2,000/200 = Fixed cost Rent is normally a fixed
$20 $10 cost - cost does not
change with the level of
output.
Electricity $700/100 = $900/200 = Semi-variable For electricity, the total
$7 $4.5 cost cost increases as the
number of units increases,
but unit cost varies at each
level.
BA 2 Analysing and predicting costs. Quantia Learning
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