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COST UNIT
~It is a quantitative unit of product
or service in which costs are
ascertained, e.g. cost per table
made, cost per metre of cloth
TOTAL COST
= Quantity x cost per unit (cost unit)
Classification cost
Direct and indirect cost
function cost
Behaviour cost
Direct and indirect cost
• Direct cost
~ cost that charged directly to a cost unit. It consists of :
i) Direct material - material which can easily identified and related
with specific product
e.g : furniture - wood, tyres - rubber
iii) Direct expenses -Other than direct material & direct labour
e. g : royalties, fees of special design, carriage inward, hired of
special machine
b) period costs - are those costs which are not included in the stock valuation
& as a result treated as expenses in the period in which they are incurred.
•cost that deals with how cost changes with respect to changes in
activity level.
•there are 4 types of cost behaviour :
1. fixed cost
2. Variable cost
3. Semi variable cost
4. Step Costs
FIXED COST
VARIABLE COST
SEMI VARIABLE COST
STEP COST
Activity
Activity level
level cost per cost per
Behaviour Definition Example
unit (RM) (5000 units) unit (RM)
(2000 units)
- Level of
activity
increase , Depreciation
1)FIXED total cost , rental,
RM 10,000 RM5 RM 10,000 RM 2
COST remain same insurance,
salaries
-cost per unit
changed
-level of
activity
Direct
2) increase,
material,
total cost
VARIABLE Direct
also RM 10,000 RM 5 RM25,000 RM 5
COST increase labour,
salesman
- cost per
commission
unit remain
same
- consists of Telephone
3) SEMI fixed cost + bills,
VARIABLE variable cost salesman RM 20,000 RM10 RM 35,000 RM7
COST - cost per salaries+
unit changed commission
Cost estimation technique
• HIGH & LOW METHOD
STEPS :
~ Choose the highest & lowest activity level
~ identify the costs
~ calculate the variable cost per unit & fixed cost
FORMULA ;
1) variable cost per unit = highest cost-lowest cost
higest unit - lowest unit
2) fixed cost =highest cost - ( highest unit x variable cost per unit)
OR
= lowest cost - ( lowest unit x variable cost per unit)
Required :