Distinguishing between different cost classifications

Various types of costs are likely to behave in a different manner from each other.
The cost accountant is only concerned with the relevant range of activity where:

• Organisation normally operates;
• The cost estimates will apply.

In the relevant range of activity, most items settle into a basic pattern of behaviour:

• Fixed
• Variable
• Semi-variable.

If the relevant range changes significantly, it is necessary to review cost estimates.

The focus of an accountant is narrow.

A limited span of activity is being considered.
It is important to distinguish between cost classifications:

• Fixed
• Variable
• Semi-variable

for the purposes of:

• Planning
• Control
• Decision-making.

Cost accountant is presented with historical data relating to total cost for a variety of activity levels and is required to find the fixed/variable cost element of the same.
Techniques used are:

• High/low method
• Scattergraph
• Least squares regression analysis.

Popularity: 5% [?]

Welcome to Kaizenlog.com If you're new here, you may want to subscribe to my RSS feed , Twitter You can contact us by using the contact form or submitting a comment. You can also share this post with your friends by clicking on the 'ShareThis' button above. Thanks for visiting!

 Print This Post

This entry was posted on Friday, May 23rd, 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.