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1、,Unit 2: Managing Financial Resources and Decisions,Chapter 7 & 9 Analysis of Costs and Pricing Decision,Your objectives,This week we will be concentrating upon the following: Cost Centre and Cost Units Cost Classification How to make Pricing Decisions using relevant information,Cost centres,In this
2、 example, the cost centres of the production function could be the mixing department, the baking department and the stores department When costs are incurred, they are allocated to a cost centre Cost centres may include: a department, a machine, a project, a new product,Cost Classification forStock
3、Valuation and Profit Measurement,The total cost of a cost unit is made up of the following three elements of cost Materials Labour Other expenses (such as rent and rates, interest charges and so on) Cost elements can be classified as direct costs or indirect costs,Total Expenditure,Direct Cost,A cos
4、t that can be traced in full to the product, service, or department that is being costed Direct materials costs are the costs of materials that are known to have been used in making and selling a product Direct labour costs are the specific costs of the workforce used to make a product Other direct
5、expenses are those expenses that have been incurred in full as a direct consequence of making a product,Indirect cost,Also known as overhead A cost that is incurred in the course of making a product, but which cannot be traced directly and in full to the product,Direct material,All material becoming
6、 part of the product Examples: Component parts Part-finished work which is transferred from department 1 to department 2 Primary packing materials like cartons and boxes,Direct wages,All wages paid for labour expended on work on the product itself Examples: Workers engaged in altering the condition,
7、 conformation or composition of the product Inspectors, analysts and testers specifically required for such production,Direct expenses,Any expenses which are incurred on a specific product other than direct material cost and direct wages Examples: The cost of special designs, drawings or layouts The
8、 hire of tools or equipment for a particular job Maintenance costs of tools etc.,Overheads,Includes all indirect material cost, indirect wages and indirect expenses incurred by a business Overheads can be associated with: Production Administration Selling and distribution,Production,Indirect materia
9、ls which cannot be traced in the finished product materials used in negligible amounts Indirect wages, meaning all wages not charged directly to a product salaries and wages of non-productive personnel in the production department Indirect expenses not charged directly to production rent and rates a
10、nd insurances of a factory, depreciation, power, repairs and maintenance of plant, machinery and factory buildings,Administration,Depreciation of office equipment Office salaries, including salaries of secretaries and accountants Rent, rates, insurance, lighting, cleaning and heating of general offi
11、ces, telephone and postal charges, bank charges, legal charges, audit fees,Selling and distribution,Cost of packing cases Salaries and commission of sales representatives and sales department staff and wages of packers, drivers etc. Advertising and sales promotion, market research Rent, rates and in
12、surance of sales offices and showrooms,Cost classification for decision making,Fixed cost is a cost which is incurred for a particular period of time and which, within certain activity levels, is unaffected by changes in the level of activity A variable cost is a cost which tends to vary with the le
13、vel of activity,Examples of Variable and Fixed Costs,Direct material cost - variable costs Sales commission - variable costs Telephone call charges - variable overhead cost Rental cost of business premises - fixed cost,Breakeven Analysis 损益分界分析,Full Cost Plus Pricing,For any more information about Costs and pricing methods, please refer to pages 148 -169 and pages 193-215, Chapter 7: Analysis of Costs, and Chapter 9: Pricing decisions, Unit 2:Managing Financial Resources and Decisions,Thank you!,Any questions?,
