1. Why is it important to have cost behaviour information?
2. Which different methods are available to estimate cost behaviour?
3. Plot the data, using the high-low method!
a. 2 graphs using ‘units of production’ and ‘labour hours’ as cost drivers!
4. Which seems to be the best cost driver?
Many managerial functions such as planning and control rely on knowing how costs will behave
The industrial engineering method, also called the work-measurement method, estimates cost functions by analysing the relationship between inputs and outputs in physical terms.
The conference method estimates cost functions on the basis of analysis and opinions about costs and their drivers gathered from various departments of an organization (purchasing, process engineering, manufacturing, employee relations, and so on).
The account analysis method estimates cost functions by classifying cost accounts in the ledger as variable, fixed, or mixed with respect to the identified cost driver. Typically, managers use qualitative rather than quantitative analysis when making these cost-classification decisions. The account analysis approach is widely used.
Pre discussion Task 11
1. What is cost volume-profit analysis? And how is it used?
2. Calculate the Break-even quantity for both ovens! Which oven is better?
3. Why does the choice of the production system depend on the trade of between profitability and risk?
4. What decisions depend on