COST ACCOUNTING REFLECTIVE WRITING – WEEK 2

Summary notes for the week:

Week 2 of cost accounting focused on the fundamentals of understanding costs. The
topics and sub-topics covered were, cost classification, costing a product,
manufacturing / production costs, non- manufacturing costs, product and period
costs, controllable and non – controllable costs, relevant costing and sunk costs. The
topics ad sub-topics covered helped with understanding the different types of costs
in terms of cost classification by nature of costs and cost behaviour.
Major highlight in the week:
The major highlight of the week was to understand costs in terms as to whether they
are relevant or irrelevant. It was very interesting to realise that relevant costs are the
actual costs that form the basis of making the decision as to the actual costs that
should be budgeted in order to enable decision making. Relevant costs also had
concepts that were confusing but interesting. These concepts were opportunity costs
and sunk costs.
Thoughts and feelings:
Week 2 managed to introduce me to the basic and intricate details regarding costs
and how the costs are grouped together to form a recognisable figure that can be
used to make a decision. For example, a sunk cost, being a cost spent in the past, is
totally ignored in decision making because only future costs are relevant. The
organisation therefore has to be very careful then making costing decisions because
it is possible to over-cost or under-cost and prove costly to the business.
Experiences:
In week 2 it was interesting to see how the different types of costs add up to make
up the total production cost. A practical exercise that required students to identify
and differentiate between relevant and irrelevant costs provided a greater insight
towards what costing is all about. It was interesting to learn about the theoretical
concepts that underlie the determination of a relevant costs.
Challenges:
There were two main challenges that were experienced in week 2. The first regards
to cost behaviour. The challenge was to identify and distinguish between variable
cost, fixed cost, stepped fixed cost and semi- variable cost. The second challenge
was the understanding of the classification of costs into relevant and irrelevant costs.
In both cases, the analysis was difficult despite attempting many questions.
Recommendations and conclusions:
Following the challenges explained above, it is recommended that more practical
and preferably real life scenarios be used to enable a clear understanding of the
requirements in week 2. In addition, a possible good solution would be to encourage
group discussions as this will help to the approach to questions to be diverse and
enlightening.
In conclusion, the understanding of what determines a cost to be identified as a cost
is key in understanding fundamental cost accounting. Finally, a mistake done at the
costing stage could have a ripple effect that could prove costly for the organisation.