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Distinguishing between different cost classifications

Various types of costs are likely to behave in a different manner from each other.

The accountant is concerned with the relevant range of activity. This is the range where

• Organisation normally operates

• The cost estimates will apply.

Items of cost settle into a pattern of:

• Fixed

• Variable

• Semi-variable.

Only a limited span of output/activity is considered. If the range changes, it may be necessary to review cost estimates.

The focus of cost accountant is narrow.

It is important to distinguish between different cost classifications of fixed, variable and semi-variable for planning, control and decision making.

Cost accountant is presented with historical data relating to total cost for a variety of activity levels and would be required to decipher fixed and variable cost elements.

There are a number of techniques for this purpose:

• High/low method

• Scattergraph

• Least squares regression analysis.

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This entry was posted on Saturday, February 16th, 2008 at and is filed under Accounts.You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.