For budgeting purposes, management need to be able to predict how costs will varywith differing levels of activity. For example, if a furniture manufacturer expected toproduce 1,000 chairs in a month, what should he budget for the costs of wood,labour, oil, selling price, factory heating, etc? How would these costs differ, if at all, ifhe … Read More

To make calculating cost per unit easier, costs are split into the following categories: Direct costs – This is an item of cost that is traceable directly to a unit of productionproduced by a manufacturing organisation or a unit of service delivered by a servicedelivery organisation. The total of all direct costs is known as … Read More

Costs can be split into three elements: Materials – these will include raw materials for a manufacturer, costs of goods to beresold in a retail organisation or service items or consumables to be used within abusiness operation. Labour – these will include all salary and wages costs to employees, includingovertime, commissions and bonuses. Other expenses … Read More

This is a classification that represents costs in respect of why the cost was incurred. For financial accounting purposes, costs are split into production and non-productioncosts: Production costs – this is also known as “cost of sales”. This category would includeproduction labour costs, materials, factory supervisor salaries, factory rent. Theseare any costs which are directly … Read More