Int. Acc. MA LECT 4: CH 9 Cost estimation part 1: (Learning objectives…
Int. Acc. MA LECT 4: CH 9 Cost estimation part 1:
Cost allocation methods
Management Accounting: Internal reporting for the company management
Financial accounting: External reporting for shareholders
For internal reporting purposes
Learning objectives lect 3
What is the difference between the single- rate and dual-rate method? How do the calculations look like under both methods?
What is the difference between the direct and step-down method? How do the calculations look like under both methods?
Why is cost allocation important?
What determines the allocation base under ABC?
What is the NRV Method?
Process of separating mixed costs into fixed and variable costs
Ultimate goal of cost estimation:
Determining the amount of fixed and variable costs to create a cost formula to be used to predict future costs.
1. Explain the two assumptions frequently used in cost-behaviour estimation
1. Changes in total costs can be explained by changes in the level of a single activity.
Variation in machine-hours can explain variations in
Variation in labour-hours can explain variations in total cost.
Identification of the cost drivers
2. Cost behavior can adequately be approximated by a linear function of the activity level within the relevant range
A linear cost function is a cost function in which the graph of total cost versus the level of a single activity is a straight line.