Module 9 Cost Characteristics and Behavior Omar ElKheshen – omar@arabacademy.com Learning Objectives By the end of this module you should understand: 1. Why cost information is important 2. The distinction between different categories of cost and how these costs behave:
Variable and fixed costs
Product and period costs
Direct and indirect costs
Standard and actual costs
Controllable and non-controllable costs
Engineered and discretionary costs
Traceable and common costs 3. The dangers surrounding unitizing fixed costs 4. The construction, and underlying assumptions, of the break-even chart 5. How to calculate the break-even point, and the contribution margin ratio in single-product and multi-product businesses 6. The managerial significance of these techniques Omar El-Kheshen – omar@arabacademy.com 2 Agenda 9.1 Introduction 9.2 Cost: A Deceptively Simple Word 9.3 Variable and Fixed Costs 9.4 Beware the Unitizing of Fixed Costs! 9.5 Direct and Indirect Costs 9.6 Traceable and Common Costs 9.7 Product Costs and Period Costs 9.8 Controllable and Non-Controllable Costs 9.9 Standard and Actual Costs 9.10 Engineered and Discretionary Costs 9.11 Another Look at Variable and Fixed Costs: The Break-Even Chart 9.12 Profit from Different Cost Structures 9.13 The Break-Even Chart: An Alternative Display 9.14 Other Ways of Calculating Break-Even Points 9.15 Break-Even Analysis and the Multi-Product Firm 9.16 Contribution and Limiting Factors of Production 9.17 Assumptions Underpinning Cost–Volume–Profit Analysis Review Questions and Case Studies Omar El-Kheshen – omar@arabacademy.com 3 This module addresses the cost collection process and cost allocation process Cost Collection Cost Allocation The ingathering of costs The spreading of these costs over the goods and services produced by the organization The need to determine cost is universal; the difficulties surrounding the determination of cost are considerable Omar El-Kheshen – omar@arabacad