Chapter 2 & 3

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Elements of costing 2016 specification

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Chapter 2 & 3
  1. Cost centres
    1. Cost centres are sections of an organisation to which costs can be charged.
      1. Cost centres can be used to:
        1. Plan for the future
          1. Make decisions
            1. Control costs
            2. Profit centres:
              1. Profit centres are sections of a business to which costs can be charged, income can be identified and profit can be calculated.
              2. Investment centres:
                1. A section of an organisation to which costs can be charged, income can be identified and investment can be measured.
              3. Coding systems
                1. Numeric coding
                  1. Alphabetic coding
                    1. Alpha-numeric coding
                    2. Absorption of overheads
                      1. Units of output method:
                        1. Budgeted overheads / Budgeted units of output
                        2. Direct labour hours method:
                          1. Budgeted overheads / Budgeted direct labour hours
                          2. Machine hours method
                            1. Budgeted overheads / Budgeted machine hours
                          3. Cost behaviour
                            1. The way in which costs alter with changes in the level of output or activity.
                              1. Fixed
                                1. Fixed costs do not alter when the level of output activity changes.
                                2. Variable costs
                                  1. Variable costs change in proportion to the level of output or activity.
                                  2. Semi-variable costs
                                    1. Semi-variable costs contain both a fixed element and a variable element.
                                    2. Calculations:
                                      1. Total costs
                                        1. Variable costs per unit X Output + fixed costs
                                        2. Unit costs
                                          1. Fixed costs / output + variable costs per unit
                                      2. High/low method:
                                        1. A technique for calculating the variable and fixed costs that comprise a semi-variable cost by analysing the total costs at two activity levels.
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