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

2. 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.

3. 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

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

5. 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%)

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

7. Scheme of Work

8. AAT Level 3 Costs & Revenues Session 1

9. 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

10. 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

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

12. 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

13. 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)

14. 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?

15. BBT

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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?

25. 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

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

27. Income & Expenditure Capital Expenditure Revenue Expenditure Capital Income Revenue Income www.socrative.com Room 884712

28. 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

29. 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 !

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

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

32. 1. Classification of Costs by Function

33. What is this?

35. From this To this

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

38. 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

39. Investment Centre Profit is compared to the amount of investment

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

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

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

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

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

45. 2. Classification of Costs by Element

46. 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.

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

48. Made in Bristol....

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

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

51. 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

52. Total Variable Costs Graph Cost £ Output (Units)

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

54. 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

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

56. Semi Variable Costs Combination of fixed and variable

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

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

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

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

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

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

63. 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

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

65. A

66. B

67. C

68. D

69. E

70. Classification by Nature

71. 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

72. 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

73. 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

74. 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

75. 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

76. 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

77. 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

78. 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

79. 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

80. 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

81. 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

82. 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

83. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000 1250 1500 1750 Coleman’s Toys

84. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 1250 1500 1750

85. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 1250 1500 1750

86. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 1250500.00 1500 1750

87. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 1250500.00 1500 1750

88. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 1250500.00 1500500.00 1750

89. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 1250500.00 1500500.00 1750500.00

90. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.00 1250500.00 1500500.00 1750500.00

91. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.00 1500500.00 1750500.00

92. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.00 1500500.00 1750500.00

93. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 1750500.00

94. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.00 1750500.00

95. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.001250.00 1750500.00

96. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.001250.000.83p 1750500.00

97. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.001250.000.83p 1750500.00 875.00

98. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.001250.000.83p 1750500.00 875.001375.00

99. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.001250.000.83p 1750500.00 875.001375.000.79p

100. Calculating Total & Unit Costs UnitsFixed costsVariable costs Total costsUnit cost 1000500.00 500.001000.00£1.00 1250500.00 625.001125.000.90p 1500500.00 750.001250.000.83p 1750500.00 875.001375.000.79p What happens to the unit cost?

101. Question 2

102. Output (units) Fixed costsVariable costsTotal costsUnit cost £ 100016,000.00 2000 3000 4000 5000 7000 10000 8,000.00

103. Output (units) Fixed costsVariable costsTotal costsUnit cost £ 10008,000.00 16,000.0024,000.0024.00 20008,000.00 32,000.0040,000.0020.00 30008,000.00 48,000.0056,000.0018.67 40008,000.00 64,000.0072,000.0018.00 5000 8,000.0080,000.0088,000.0017.60 7000 8,000.00112,000.00120,000.0017.14 10000 8,000.00160,000.00168,000.0016.80 Answer

104. 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!

105. 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

106. 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

107. 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

108. 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

109. 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

110. 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 72,0004.00 Labour 108,000 Expenses 27,000 Total 207,000

111. 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 72,0004.00 Labour 108,0006.00 Expenses 27,000 Total 207,000

112. 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 72,0004.00 Labour 108,0006.00 Expenses 27,0001.50 Total 207,000

113. 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 72,0004.00 Labour 108,0006.00 Expenses 27,0001.50 Total 207,00011.50

114. 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

115. 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

116. 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

117. 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

118. 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

119. 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

120. 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

121. 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

122. 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

123. Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007,500 2 1,8305,490 3 5,000 412,25036,750

124. 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

125. Identifying cost behaviour

126. 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

127. Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007,500 2 1,8305,490 Total Cost? Unit Cost? VC - Cost per unit is constant

128. Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007,500 2 1,8305,490 3 5,000 Unit Cost? Total Cost? FC - Total cost remains the same Cost per unit reduces as production increases

129. Identifying cost behaviour for the following: Cost1,000 units £ 3,000 units £ 1 4,5007,500 2 1,8305,490 3 5,000 412,25036,750 Total Cost? Unit Cost? VC as it is the same per unit at every level of production

130. 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

131. Activity - Identifying cost behaviour

132. 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?

133. 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?

134. 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£350050 units Lowest£150010 units £200040 unitsVariable Costs £2000 ÷ 40 = £50 per unit

135. 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£350050 units Lowest£150010 units £200040 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

136. 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

137. Activity - Answer It costs £18000 to produce 200 posh watches And £9500 to produce 100 posh watches Highest 200 £18000 Lowest 100£9500 100£8500 VC £8500 ÷ 100 = £85 FC = 18000 – (85x200) 17000 FC = 1000 100 units200 units Total Fixed Cost1000 Unit Fixed Cost105 Total Variable Cost850017000 Unit Variable Cost85

138. Question 9 – Colemans Toys

139. MonthUnitTotal costVariable CostFixed Cost April1200608004080020000 May1150579503795020000 June1250812506125020000 July1500905007050020000 August165013220011220020000 September200017000015000020000 October250022500020500020000

140. Calculating profit by batch (Using cost behaviour)

141. Activity Units produced & sold100015002000 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)6.00 3000 units cost £8500

142. Activity Units produced & sold100015002000 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)6.00 3000 units cost £8500 Sales Revenue workings £25000 for 1000 units £25000 ÷ 1000 = £25 per unit 1500 x £25 = 37500

143. Activity Units produced & sold100015002000 Sales Revenue2500037500 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500 Sales Revenue workings £25000 for 1000 units £2500 ÷ 1000 = £25 per unit 1500 x £25 = 37500

144. Activity Units produced & sold100015002000 Sales Revenue2500037500 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500 Sales Revenue workings £25000 for 1000 units £2500 ÷ 1000 = £25 per unit 1500 x £25 = £37500 2000 x £25 = £50000

145. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500 Sales Revenue workings £25000 for 1000 units £2500 ÷ 1000 = £25 per unit 1500 x £25 = £37500 2000 x £25 = £50000

146. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

147. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

148. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 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

149. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 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

150. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour2400 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 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

151. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour24003600 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 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

152. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

153. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads3600 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500 Calculate the overhead costs for the three levels of production Answer next slide

154. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

155. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element Fixed Element Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500 Use HILO!!!

156. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

157. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

158. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

159. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

160. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

161. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost19000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

162. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost1900025500 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

163. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

164. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit6000 Profit per batch (2dp)6.00 3000 units cost £8500

165. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit600012000 Profit per batch (2dp)6.00 3000 units cost £8500

166. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit60001200018000 Profit per batch (2dp)6.00 3000 units cost £8500

167. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit60001200018000 Profit per batch (2dp)6.00 3000 units cost £8500

168. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit60001200018000 Profit per batch (2dp)6.008.00 3000 units cost £8500

169. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit60001200018000 Profit per batch (2dp)6.008.009.00 3000 units cost £8500

170. Activity Units produced & sold100015002000 Sales Revenue250003750050000 Variable Cost Direct Materials5000750010000 Direct Labour240036004800 Overheads360054007200 Semi variable costs4500 Variable element30004000 Fixed Element2500 Fixed Cost3500 Total Cost190002550032000 Total Profit60001200018000 Profit per batch (2dp)6.008.009.00 3000 units cost £8500

171. Revision Activity Socrative

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

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

174. 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