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Cost Information and Behaviour - Coggle Diagram
Cost Information and Behaviour
Core definitions
Direct cost
: traceable to a cost object (product/service/department).
Indirect cost (overhead)
: not directly traceable; must be allocated/absorbed.
Product cost
: costs to manufacture a product (DM, DL, manufacturing OH).
Period cost
: non-manufacturing costs (selling/distribution/admin).
Cost behaviour
: how cost changes with activity; essential for planning, control, decision-making.
Behaviour patterns (know + be able to explain)
Variable cost
: total varies in direct proportion to activity; constant per unit.
Fixed cost
: constant in total within relevant range; fixed cost per unit falls as volume rises.
Step/semi-fixed
: fixed within bands, jumps at thresholds (e.g., supervisors).
Mixed/semi-variable
: has fixed + variable elements; can be modelled as Y = a + bX.
Key exam line
: In the long run,
all costs can become variable
; classification depends on the time horizon.
Estimating fixed/variable components (mixed costs)
Account analysis
: classify accounts using judgement.
Engineering approach
: detailed technical analysis of inputs/process.
High–low method
: use highest & lowest activity points to estimate b then a.
Adv
: quick/simple
Disadv
: uses only two extreme points; may be unrepresentative.
Scattergraph
: plot points; draw line of best fit.
Adv
: uses all data
Disadv
: subjective.
Regression
: statistical best fit (often “best” if available).
Adv
: uses all data objectively
Disadv
: more complex.
Learning curve
: labour time/cost per unit falls with experience; predictable pattern.