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

EOQ is the most economic re-order quantity of inventory which helps the business both ensure that the business is not holding too much inventory (which ties down working capital) and that they don’t keep so little inventory, which can interrupt the production process. These two situations can prove to be costly to the business and … Read More