Professional Documents
Culture Documents
AND MANAGEMENT
WEEK 5
COSTING: COST-VOLUME-PROFIT
ANALYSIS
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LEARNING OBJECTIVES
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LEARNING OUTCOMES
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Fixed
Variable
Rent;
Insurance
Cleaning costs
Staff salaries
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Raw materials
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Total costs
Variable
costs
F
Fixed costs
0
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Breakeven analysis
Total sales
revenue
Cost
(RM)
Break-even
point
f
o
r
P
it
Total costs
s
Lo
Variable
costs
Fixed costs
0
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Formula:
a) Contribution margin approach:
1. Contribution per unit
= Selling price per unit Variable cost per unit
2. Break-even point (unit)/ BEP (units)
Fixed costs
Contribution per unit
3. Break-even point (RM)/ BEP (RM)
Fixed costs
X Selling Price per unit
Contribution per unit
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Margin of Safety
BEP (units)
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RM 7,000
250
Number of units
250
50%
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Profit-volume charts
Profit
(RM)
Break-even
point
Volume of activity
(units of output)
0
Fixed
costs
Profit
Loss
Loss
(RM)
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Non-linear
relationships
Multi-product
businesses
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Marginal analysis
Can be used for the following
short-term decisions:
Accepting/rejecting special contracts
Make-or-buy decisions
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20
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The cost per unit of cost driver is the total cost of the stores
divided by the number of product weeks, as calculated
above. This is
RM90,000/150,000 = RM0.60
To determine the cost to be attached to a particular unit of
product, the figure of RM0.60 must be multiplied by the
number of product weeks that a product stays in the
finished goods store. Thus, each unit of Product A will be
charged with RM0.60 (that is, RM0.60 1), and each
Product B with RM2.40 (that is, RM0.60 4).
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Job Costing
The term job costing is used to describe the way in
which we identify the full cost per cost unit (unit of
output or job) where the cost units differ. To cost
(that is, deduce the full cost of) a particular cost unit,
we first identify the direct cost of the cost unit, which,
by the definition of direct cost, is fairly
straightforward. We then seek to charge each cost
unit with a fair share of indirect cost (overheads). Put
another way, cost units will absorb overheads. This
leads to full costing also being called absorption
costing.
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31
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RM
15
Direct labour (3 RM16)
63
Overheads (3 RM10)
Full cost of the job
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30
93
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Machine time
Indirect materials
2,000 hours
RM500
RM200
RM3,000
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200
Total indirect cost (overheads)
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19,700
39
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Machine time
2,000 hours
Indirect materials
RM500
Other miscellaneous indirect cost
elements (overheads)
RM200
Direct materials cost
RM3,000
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REFERENCES
McLaney, E. and Atril, P., (2006), Accounting and Finance for Non-Specialists, 5 th
Edition, FT/Prentice Hall.
McLaney, E. and Atrill, P., (2002), Accounting: An Introduction, FT/Prentice Hall.
Davies, T. and Pain, B., (2002), Business Accounting and Finance, 2002, McGraw Hill
(ISBN 0-07-709825-0).
Arnold, J., Hope, T. and Southworth, A., and Kirkham, L., (1994), Financial
Accounting, 2nd Edition, Prentice Hall International.
Berry, A. and Jarvis, R. (1999), Accounting in Business Context, 3rd Ed, Thompson
Business Press.
Berry, A. (1999), Accounting: an Introduction, 2nd Edition, Thompson Business Press.
Glautier, M.W.E and Underdown, B., (2001), Accounting Theory and Practice, 7th
Edition, Prentice Hall.
Holmes, G. and Sugden, A., (1999), Interpreting Company Reports and Accounts, 7 th
Edition, Financial Times/Prentice Hall.
Drury, C. (2001) Management Accounting for Business Decisions, International
Thomson Business Press.
Drury, C. (1998), Costing An Introduction, 4th Edition, International Thomson Business
Press.
Williamson, D., (1996), Cost and Management Accounting, Prentice Hall.
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