# Elements of costing

Note by Katie Start, updated more than 1 year ago
 Created by Katie Start almost 4 years ago
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### Description

Elements of costing 2016 Specification

## Resource summary

### Page 3

#### Chapter 3: Cost behaviour

Cost behaviourCost behaviour is the way in which costs alter with changes in the level of output or activity. There are three main ways that costs may behave: Fixed costs Variable costs Semi-variable costs Fixed costs:Fixed costs do not alter when the level of output or activity changes.Variable costs:Variable costs change in proportion to the level of output or activity.Semi-variable costs:Semi-variable costs contain both a fixed element and a variable element.Cost behaviour calculations:Total costs - Variable costs per unit X Output + Fixed costsUnit costs - Fixed costs / Output + Variable costs per unit.Key terms:Cost behaviour - The way that costs alter with changes in the level of output or activity.Fixed cost - A cost that does not alter in total when the level of output or activity changes. Variable cost - A cost that changes in proportion to the level of output or activity.Semi-variable cost - A cost that contains both a fixed element and a variable element.High-low method - A technique for calculating the variable and fixed costs that comprise a semi-variable cost by analysing the total costs at two activity levels.

### Page 5

#### Chapter 5: Labour Costs

Methods of calculating payments for labourThere are four main methods of calculating pay: Time rate Overtime Bonus Piecework Time rate:Time rate is based on payment for the amount of time spent working. Overtime rate:An overtime rate is a time rate that is paid for time worked in excess of the normal contracted time. Bonus payments:A bonus payment is an extra payment paid to employees as a reward for productivity. Piecework:Piecework is payment based on the number of items produced by the employee.

### Page 6

#### Chapter 6: Budgets and variances

What is a budget?A budget is a financial plan for an organisation that is prepared in advance.What are the purposes of a budget? The budget creates plans The budget communicates and coordinates the plans The budget can be used to monitor and control Standard costs - Expected costs that have been calculated in the past. Calculating variancesVariance - The difference between the budgeted figure and the actual figure.Variances can be either; Adverse Favourable Adverse - Where the actual cost is greater than the budgeted cost.Favourable - Where the actual cost is less than the budgeted cost. Variances are calculated: Budgeted cost - actual costReporting to managers:Income - Sales managerMaterials - Production manager - Purchasing managerLabour - Production manger - Human resources managerExpenses - Administration managerProduction overheads - Production managerAdministration overheads - Administration managerSelling and distribution manager - Sales manager - Distribution/transport managerFinancial overheads - Finance manager - Company accountant

### Similar

PBKT
Bookkeeping 1
Chapter 2 & 3
Chapter 6
Chapter 5
Chapter 1
Chapter 4
Elements of costing
Key Terms
Chapter 4
Chapter 3