Plan for Session 1.Introductions 2.Overview of Unit 3.Introduction to Cost Classification

Purpose of Unit This unit is about understanding the nature of costs and revenues. You will be able to identify why cost accounting is important to an organisation, be able to recognise and use different approaches; and make reasoned judgements to inform management on the most effective costing techniques to aid decision making. You will be able to gather, analyse and report information about income and expenditure to support decision-making, planning and control.

Learning Outcomes 1. Understand the nature and role of costing systems within an organisation 2. Record and analyse cost information 3. Apportion costs according to organisational requirements 4. Analyse deviations from budget and report these to management 5. Be able to use information gathered from costing systems to assist decision-making

Class sessions Presentation on topic Practice Activities Progress tests EVERY week AAT Wiki – resources uploaded for access to resources used in the session.

Class sessions Practice activities Progress tests EVERY week AAT Wiki – resources uploaded for access to resources used in the session. Home study: Work though the relevant chapters of your text book and revise content from class session (PowerPoint on Wiki) ready for progress test (aim for >70%)

ASSESSMENT O Computer Based Exam – 2.5 hours O 10 tasks O Computer marked with immediate result

Scheme of Work

AAT Level 3 Costs & Revenues Session 1

Costs & Revenues Principles of Cost Accounting Assessment Criteria (Kaplan Ch1) 1.1K Explain the purpose of internal reporting and providing accurate information to management 1.2K Explain the relationship between the various costing systems within an organisation 1.3K Identify the responsibility centres, cost centres, profit centres & investment centres within an organisation. 2.6S Record cost information using these costing systems - Unit

Why is financial information so important? Financial information can show : Where money to set up a business has come from how this money has been used how much money is owed to others what a business is worth how much it costs to make a product

Two types of Accounting! Financial Accounting Management (Cost) Accounting

Financial Accounting Classifying and recording transactions that have already happened. Producing information required annually Statement of Financial Position (Balance sheet) Statement of Comprehensive Income (Profit and Loss account) Giving a ‘true and fair view’ of the company

Key Features of Financial Accounting Infrequent – usually annually Slower – can take a few months from month end to complete the figures Historic For external use (shareholders, bank managers, potential investors) Format – dictated by law & accounting standards Companies Act 2006 Financial Reporting Standards (FRS)

Management Accounting (Cost Accounting) Case Study - 1.Choose a business that you would like to own 2.What information would you want to have & why?

BBT

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Management Accounting (Cost Accounting) Part of management process – used to run the business Decision making / Planning / Control Uses accounting information to summarise what’s happened to far & makes estimates for the future Looks in detail at costs – material, labour & expenses How much does it cost to make a product How many units to make Continue / start / stop production of a product How many labour hours are required

Key Features of Management Accounting Frequency – can be any frequency required Fast – a few days after month end otherwise information is out of date Forward looking For internal use (by managers / directors) Format – whatever the directors want. Can be summary level for directors, more detailed for managers

Who uses financial information? Financial Accounting Management (Cost) Accounting External users HMRC Bank Investors Customers & Suppliers Internal users Owners/Investors Managers Employees Who do you think would be interested in the financial information of a business?

Summary Financial AccountsCost & Management Accounts Users Timing Data Format Create this table in your notebooks & summarise the key features of Financial & Management accounts 5 minutes

Types of Costing Business Activity TypeExamples? Process CostingManufacturing Job CostingBusiness producing custom made products Batch CostingProduction of products in defined quantities

Income & Expenditure Capital Expenditure Revenue Expenditure Capital Income Revenue Income Room

Classification of costs Assessment Criteria (Kaplan Ch2) 1.4K Explain the characteristics of different types of cost classifications and their use in costing. 2.5K Describe the behaviour of these costs Fixed, Variable, Semi variable, Stepped 2.6S Record cost information using these costing systems – Unit 5.2K Explain the effect of changing activity levels on unit costs 5.3S Calculate the effect of changing activity levels on unit costs

Classification of Costs A means of analysing costs into logical groups so that they can be summarised into meaningful information for management use, or for preparing external financial reports. Remember this will vary depending on the requirements of the business !

Cost Unit Definition A unit of production to which costs can be allocated.

Cost Unit A ‘cost unit’ is – a unit of production to which costs can be allocated. Restaurant Hot Air Balloon Company Public House Publisher

1. Classification of Costs by Function

What is this?

From this To this

Functions of an organisation The organisation Information Technology Human resources Administration Sales/marketing Finance Production (manufacturing business)

Responsibility Centre Definition A responsibility centre is and individual part of a business whose manager has personal responsibility for its performance Investment Centre Cost Centre Profit Centre

Investment Centre Profit is compared to the amount of investment

Functions of an organisation The organisation Information Technology Human resources Administration Sales/marketing Finance Production (manufacturing business)

Cost Centre An area of the organisation (department) for which costs are collected together for management accounting purposes

Functions of an organisation The organisation Information Technology Human resources Administration Sales/marketing Finance Production (manufacturing business)

Profit Centres An area of the organisation for which costs and revenues are collected and profit is determined

Functions of an organisation The organisation Information Technology Human resources Administration Sales/marketing Finance Production (manufacturing business)

2. Classification of Costs by Element

Elements of Cost Materials costs raw materials products bought for resale by a shop or a wholesaler Labour Costs of all employees of a business or organisation Expenses/overheads other running costs of a business e.g. rent, rates, phone, advertising, insurance etc.

Made in Bristol.... In the film that follows make a list of costs you notice and classify them into Materials, Labour & Expenses

Made in Bristol....

Elements of Cost Shows the highest cost elements so you can see if savings can be made eg cheaper materials etc

3. Classification of Costs by Behaviour Is how the cost reacts to a change in production level?

Behaviour of Costs Variable Costs Varies as a result of a change in production levels 50p 50p x 6 = £3.00 Caution! It is the TOTAL cost that increases

Total Variable Costs Graph Cost £ Output (Units)

Total Variable Costs Graph Cost £ Output (Units) Ingredients 50p per unit

Behaviour of Costs Fixed Costs Remain the same regardless of production levels Factory Rent £1000 per month Caution! It is the TOTAL cost that remains the same

Total Fixed Costs Graph Cost £ Output (Units) Rent £1000 per month

Semi Variable Costs Combination of fixed and variable

Total Semi Variable Costs Graph Cost £ Output (Units) Wage costs

Stepped Costs Remains constant within a defined production range 10 £20,000 Behaviour of Costs

Stepped Costs Remains constant within a defined production range 10 £20,000

Stepped Costs Remains constant within a defined production range 10 £20,000

Stepped Costs Remains constant within a defined production range 10 £20, £20,000

Total Stepped Costs Graph Cost £ Output (Units) Supervisors Salary £20,000 per year

Behaviour of Costs Variable Costs Varies as a result of a change in production levels Fixed Costs Remain the same regardless of production levels Semi Variable Costs Combination of fixed and variable Stepped Costs Remains constant within a defined production range

Cost Behaviour Activity Examine the graphs around the room and decide if they are showing Fixed Costs Variabe Costs Semi Variable Cost

A

B

C

D

E

Classification by Nature

Nature - Direct & Indirect Costs Direct Costs are those items of expenditure which can be directly identified with a specific cost unit Raw materials/Labour/Expenses Indirect costs are those which cannot be directly associated with a unit of production i.e. stationery, supervisors salary, heat & light. Shows the true cost of making the product

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Activity Which of the following are direct costs for Cameron Balloons? 2. Fabric 3. Staff Training 4. Landing fees 8. Gas for the burners 7. Office Stationery 6. Delivery Costs 5. Finance Costs 1. Seamstress wages Direct Indirect

Using cost behaviour Production (factory) costsNon-production (warehouse, office) costs Production Direct costs Production Indirect costs Administration Indirect costs Selling & Distribution Indirect costs Finance Indirect costs Materials Labour Expenses

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost Coleman’s Toys

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p p p

Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost £ p p p What happens to the unit cost?

Question 2

Output (units) Fixed costsVariable costsTotal costsUnit cost £ , ,000.00

Output (units) Fixed costsVariable costsTotal costsUnit cost £ 10008, , , , , , , , , , , , , , , , , , , , , Answer

Calculating Total & Unit Costs Remember!!! Total cost = Fixed Costs + Variable Costs (Could be per unit or per quantity of units e.g. 1000) Caution! Layout of information may differ between questions!

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials Labour Expenses Total

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72,000 Labour Expenses Total

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72,000 Labour 108,000 Expenses Total

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72,000 Labour 108,000 Expenses 27,000 Total

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72,000 Labour 108,000 Expenses 27,000 Total 207,000

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72, Labour 108,000 Expenses 27,000 Total 207,000

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72, Labour 108, Expenses 27,000 Total 207,000

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72, Labour 108, Expenses 27, Total 207,000

Skippers Ltd is costing a single product which has the following costs: Variable costs per unit: Materials£4.00 Labour£6.00 Total fixed expenditure £27,000 Complete the following total cost and unit cost table for a production level of 18,000 units ElementTotal cost (£) Unit cost (£) Materials 72, Labour 108, Expenses 27, Total 207,

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials Labour Expenses Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 Labour Expenses Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour Expenses Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour £100,000 Expenses Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour £100,000 £4.00 Expenses Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour £100,000 £4.00 Expenses £50,000 Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour £100,000 £4.00 Expenses £50,000 £2.00 Total

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour £100,000 £4.00 Expenses £50,000 £2.00 Total £275,000

Rights Ltd is costing a single product which has the following costs: Variable costs per unit: Materials £5.00 Labour £4.00 Total fixed expenses£50,000 Complete the following total cost and unit cost table for a production level of 25,000 units ElementTotal cost (£) Unit cost (£) Materials £125,000 £5.00 Labour £100,000 £4.00 Expenses £50,000 £2.00 Total £275,000 £11.00

Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007, ,8305, , ,25036,750

Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007,500 Total Cost? Unit Cost? SV - Total cost changes when activity level changes – but not consistent Cost per unit also changes – if only VC the cost per unit will be the same at any activity level

Identifying cost behaviour

Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007,500 Total Cost? Unit Cost? VC - Cost per unit is NOT constant

Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007, ,8305,490 Total Cost? Unit Cost? VC - Cost per unit is constant

Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007, ,8305, ,000 Unit Cost? Total Cost? FC - Total cost remains the same Cost per unit reduces as production increases

Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007, ,8305, , ,25036,750 Total Cost? Unit Cost? VC as it is the same per unit at every level of production

Activity - Identifying cost behaviour for: Element1,500 units £ 2,500 units £ Fixed Variable Semi Materials 7,50012,500 Labour 12,00020,000 Rent 17,000 Electricity16,75021,250 Total Cost?Unit Cost? Answer next slide

Activity - Identifying cost behaviour

Identifying cost behaviour for the following: Element1,500 units £ 2,500 units £ Fixed Variable Semi Materials 7,50012,500 Labour 12,00020,000 Rent 17,000 Electricity16,75021,250 Total Cost?Unit Cost?

Identifying cost behaviour for the following: Element1,500 units £ 2,500 units £ Fixed Variable Semi Materials 7,50012,500V Labour 12,00020,000V Rent 17,000 F Electricity16,75021,250SV Total Cost?Unit Cost?

Identifying Semi Variable Costs using HILO method It costs £1,500 to produce 10 tables and £3,500 to produce 50 tables calculate the variable cost per unit and the total fixed costs. Split out the fixed cost Highest£ units Lowest£ units £ unitsVariable Costs £2000 ÷ 40 = £50 per unit

It costs £1,500 to produce 10 tables and £3,500 to produce 50 tables calculate the variable cost per unit and the total fixed costs. Split out the fixed cost Highest£ units Lowest£ units £ unitsVariable Costs £2000 ÷ 40 = £50 per unit variable cost. 50 units = 50 x £50 = £2500 total variable costs Total Costs £3500 – VC £2500 = FC £1000

Activity – Question 8 It costs £18000 to produce 200 posh watches And £9500 to produce 100 posh watches Calculate the following for BOTH levels of production: 100 units200 units Total Fixed Cost Unit Fixed Cost Total Variable Cost Unit Variable Cost

Activity - Answer It costs £18000 to produce 200 posh watches And £9500 to produce 100 posh watches Highest 200 £18000 Lowest 100£ £8500 VC £8500 ÷ 100 = £85 FC = – (85x200) FC = units200 units Total Fixed Cost1000 Unit Fixed Cost105 Total Variable Cost Unit Variable Cost85

Question 9 – Colemans Toys

MonthUnitTotal costVariable CostFixed Cost April May June July August September October

Calculating profit by batch (Using cost behaviour)

Activity Units produced & sold Sales Revenue25000 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue25000 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Sales Revenue workings £25000 for 1000 units £25000 ÷ 1000 = £25 per unit 1500 x £25 = 37500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Sales Revenue workings £25000 for 1000 units £2500 ÷ 1000 = £25 per unit 1500 x £25 = 37500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Sales Revenue workings £25000 for 1000 units £2500 ÷ 1000 = £25 per unit 1500 x £25 = £ x £25 = £50000

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Sales Revenue workings £25000 for 1000 units £2500 ÷ 1000 = £25 per unit 1500 x £25 = £ x £25 = £50000

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Direct Material Variable Costs Direct Materials £5000 to make 1000 units DM per unit = £5000 (Total VCDM) ÷ 1000 = £5 per unit SoVC for 1500 units = 1500 x 5 = £7500 VC for 2000 units = 2000 x 5 = £10000

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Direct Material Variable Costs Direct Materials £5000 to make 1000 units DM per unit = £5000 (Total VCDM) ÷ 1000 = £5 per unit SoVC for 1500 units = 1500 x 5 = £7500 VC for 2000 units = 2000 x 5 = £10000

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Direct Labour Variable Costs Direct Labour £2400 to make 1000 units DL per unit = £2400 ÷ 1000 = £2.40 So 1500 units = 1500 x 2.40 = £3600 Required: Calculate the DL cost for 2000 units

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Direct Labour Variable Costs Direct Labour £2400 to make 1000 units DL per unit = £2400 ÷ 1000 = £2.40 So 1500 units = 1500 x 2.40 = £3600 Required: Calculate the DL cost for 2000 units

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Calculate the overhead costs for the three levels of production Answer next slide

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500 Use HILO!!!

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit6000 Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit Profit per batch (2dp) units cost £8500

Activity Units produced & sold Sales Revenue Variable Cost Direct Materials Direct Labour Overheads Semi variable costs4500 Variable element Fixed Element2500 Fixed Cost3500 Total Cost Total Profit Profit per batch (2dp) units cost £8500

Revision Activity Socrative

Homework Review your session notes for today Access the Wiki Revision for progress test next week

Cost Card Shows the breakdown of the costs producing output based on the classification of each cost.

Cost Card Direct Materials +Direct Labour +Direct Expenses = PRIME COST + Production Overheads = PRODUCTION COST + Non Production Overheads = TOTAL COST Start with 3 DIRECT costs Then 2 lots of OVERHEADS