ACF2200 Lecture Notes - Lecture 3: Cost Driver, Deutsche Luft Hansa, Cost Estimate

• School: Monash Caulfield
• Department: Accounting
• Course: ACF2200
• Professor: Prabanga Thoradeniya

Document Summary

The relationship beetween cost behaviour, etimation, and prediction: cost estimation, cost behaviour, cost prediction. Cost driver is anactivity or factor that drives a cost to be incurred. In choosing appropriate cost drivers, consideration needs to be given about the underlying causes of the costs. Example 1: number of cars drives the cost of spray-painting business volume-based cost driver. Example 2: number of senoir management meetings non-volume-based cost driver. Conventional cost drivers (only uses volume-based cost drivers): Uses volume-based cost drivers (e. g. , units produced, dlh, dl$, mh) Assu(cid:373)es that all (cid:272)osts are drive(cid:374) (cid:271)y the orga(cid:374)isatio(cid:374)"s level of activity, for example production or sales volume. This will be accurate for direct product costs: direct material and labour but not for other types of costs. Recognises that there are a range of possible cost drivers other than production volume that explain cost behaviour. Uses both volume and non-volume based cost drivers. Activity-based approach to cost drivers: unit level.