ACC1200 Lecture Notes - Lecture 10: Activity-Based Costing, Indirect Costs, Cost Driver
22 May 2018
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Week 10: Costing and Pricing
CVP Analysis is only one of aspect of management accounting that helps inform decision
making.
o Costs can be classified according their behaviour: fixed, variable or mixed costs.
o This helps to estimates breakeven and profitability at different levels of activity.
Costing and Pricing
• Accurately costing products within an entity to determine an accurate amount to charge
customers.
• It is important to consider if it is more viable to pass the costs onto customers or to find other
ways to decrease costs.
• Other than the cost of goods, other expenses will also need to be accounted for when
considering the prices of goods.
Cost Object
Any product, job order or decision to which you can assign a cost.
Eg. Product lines, customers, departments
Why assign these?
• Being able to measure profitability
• Evaluate the performance of the managers
• Helps with pricing decisions
• Control costs: control their budgets
Costs information
Two types of costs:
• Direct costs: those costs that can be directly traced to a cost object
o Should be easy to determine
find more resources at oneclass.com
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Document Summary
Costing and pricing: accurately costing products within an entity to determine an accurate amount to charge customers. Any product, job order or decision to which you can assign a cost. Why assign these: being able to measure profitability, evaluate the performance of the managers, helps with pricing decisions, control costs: control their budgets. Two types of costs: direct costs: those costs that can be directly traced to a cost object, should be easy to determine. Allocation of costs: activity based costing: finds ways to allocate the costs more proportionally, so that we can write down the products that use more of the stuff to produce the object. Indirect cost rate per unit of cost driver. Indirect costs per unit of allocation = sh. 25 per hour. Manufacturing costs: incurred within the manufacturing environment: direct materials: traceble, direct labour: traceble. Non-manufacturing costs (period costs), only relate to the fiscal period.
