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COST ANALYSIS COSTNecessary expenses in an enterprise.The Monetary Amount of the resources given up or sacrificed to attain some objective such as acquiring goods and services.

COST CLASSIFICATIONVariable CostsFixed CostsMixed Costs

COST CLASSIFICATIONVariable CostsAre expenses incurred in production that tend to change directly as production changes.Fixed CostsAre expenses that do not change or vary with production.Regardless of the production level, whether it increases or decreases.Mixed Costs Has both variable and fixed component.

VARIABLE COSTSDirect materialsPiece rate labourProduction suppliesBillable staff wagesCommissionsCredit card fees Freight out

AmortizationDepreciationInsuranceInterest ExpenseProperty TaxesRent

FIXED COSTSMixed Cost Formula

Y = a + b X

Where: ( Y ) = The total costs (dependent variable) ( a ) = The total fixed costs ( b ) = The variable cost per unit ( X ) = The activity (independent variable)

COST BEHAVIORCost Behavior is the relationship between cost and activity, their behavior will tell us as how they react to changes in activity like production.TOTAL AMOUNTPER UNIT AMOUNTFixedConstantDecreases as production increasesVariableIncreases as production increasesConstantMixedIncreases less proportionately as production increasesDecreases less proportionately as production increasesApplication 1: A. Sharron Company manufactures and sells single product. A partially completed schedule of companys total and per unit costs over a relevant range of 60 to 100 units produced each year is given below:

Units Produced6080100TOTAL AMOUNT: A. Variable costs120?? B. Fixed costs??600 C. Total costs ???COSTS PER UNIT D. Variable costs??? E. fixed costs???160222600600200107.56720760800COCONTRIBUTION MARGINContribution represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.

- Incost volume profit analysis, contribution margin the marginal profit per unit saleis a useful quantity in carrying out various calculations, and can be used as a measure ofoperating leverage. Contribution Margin Method or Formula ApproachIF THERE IS INCREASE IN: THEN PROFIT WILL:Selling PriceIncreaseUnit Variable CostDecreaseFixed CostDecreaseVolume(Unit Sales)Increase

Contribution Margin Method or Formula Approach

SalesxxLess: Variable CostxxContribution MarginxxLess: Fixed CostxxProfitxx