These are my own personal outline notes. They cover first semester work. That is modules 1 - 5.
Cost and cost behaviour, Job order costing, Process costing, Absorption and variable costing, and Service department allocation.
These notes have been made in line with the lectures given and any infor...
• A cost objects is an activity for which a separate measurement of costs is desired.
• Classifying costs by behaviour
o Direct and indirect
▪ Traceability: there is a direct link between the product being made and the cost being incurred
• Obvious/ easy to see costs are classified as direct
• Indirect costs are not as easily seen on final product (i.e. electricity)
o Controllable and uncontrollable
▪ These costs are used to review the performance of management.
▪ Costs that are controllable and in the scope of managements responsibility, could point to
whether or not management is doing a good job at containing costs
o Fixed and variable
• Value chain
o This chain shows the different phases of a business, namely the: upstream costs (non-manufacturing
9e research and development), the primary process (manufacturing), and the downstream costs (non-
manufacturing i.e., marketing and distribution)
• Manufacturing costs
o Costs incurred in the direct production of a product
o Includes direct materials, direct labour, and manufacturing overheads (indirect costs).
• Non-manufacturing costs
o Costs not in the manufacturing process such as selling and administration costs.
• Product v period costs
o Product costs are assigned to the goods manufactured and are part of inventory (these costs are
capitalized) (See IAS2:10 for what can be included in inventory)
o Period costs are not capitalized and are expensed immediately/ in the period they are incurred (recall
inventory is only expensed through cost of sales when it is sold)
Cost Behaviour
• Cost behaviour refers to the response of costs to a change in the level of activity
• Fixed costs do no change if activity level changes.
, • Variable costs, Step fixed costs, semi-variable, and curve linear costs change with the activity level
• Mixed costs: partly fixed and partly variable. Identify it by finding the cost per unit for two different
point – if they are different, it is a mixed cost
o Use the high low method to find the variable portion, then find the fixed portion
• High low method can be used to predict costs if we know the expected activity level
o We know the fixed portion, then we calculate the VCi per unit x the activity level. Add the two to
get to the total cost.
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