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How costs behave as the level of activity/volume changes. Why an understanding of cost behaviour is important ?
Types
Variable e.g. petrol, direct materials
Fixed e.g. car tax, factory rental
Semi-variable (Hybrid) e.g. phone bill. Cost separation is the process of separating the fixed and variable elements of a semi variable cost.
Methods
High – Low Method
Regression Analysis
Cost Separation
Why an understanding of cost behaviour is important ?
Unit Costing
Pricing
Decision Making
Budgeting
Break-even analysis
identify and explain cost classification for performance evaluation
what is the topic about? what are the practical implications? what are the practical criticisms?
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Assumptions for relevant costs The key assumptions made in relevant costing are: The cost behavior is recognized. The amount of fixed costs, unit variable costs, selli
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