M1A2: Discussion—Cost Accumulation System
Cost behavior is the volatility of product costs due to changes in production levels or sales volumes. Product costs include material costs, labor costs, and other overheads. Any change in the production levels and sales volumes can affect profitability.
Here are some examples of how costs change:
Variable costs change in proportion to total volume produced but remain the same on a per-unit basis.
Fixed costs differ from variable costs in that they remain constant with change in volume produced but vary on a per-unit basis.
Mixed costs are a combination of fixed and variable costs.
Step costs vary over a wide range of activity levels but remain constant over a narrow range.
In addition to these types of costs, here are some terms you will also learn:
Contribution margin is the difference between the total sales and the total variable costs of an organization.
Variable-costing statement presents the net income obtained by subtracting fixed expenses from the difference between total sales and total variable costs.
Cost-volume-profit analysis determines the financial impact of the relationship between cost, volume, and profit.
Break-even analysis determines whether or not total sales are equal to the total costs. A company reaches the break-even point when it is making neither a profit nor a loss.
Variable costing is the unit cost of a product obtained by including both direct or variable costs and excluding fixed costs.
Absorption costing is the unit cost of a product obtained by including the direct as well as indirect or fixed costs.
In this module, you will become familiar with overall cost concepts, and analyze cost behavior within various costing systems. Methods for using costs in planning and budgeting decisions will also be covered. Costs are used to evaluate past performance and make crucial decisions that may impact the entity indefinitely across all departments and levels.
Application of Concepts
You will then have the opportunity to apply accounting concepts to management situations in your two course projects, the Required Assignments (RAs), due inModules 3 and 5.
