MAC3761 video

Cost classification and

behaviour
Extract from a
video and
slides
presented
by
Gerda Viviers

Define tomorrow.
Cost classification
&
estimation

© UNISA 2
Let’s reflect…

 Do I understand and remember the

MAC2601 work?
 Can I distinguish between the different
types of costs?
 Can I distinguish between manufacturing
and non-manufacturing costs?
Remember, these are
only (some of) the basics.
You need to be able to
apply and integrate the
concepts.
© UNISA 3
Let’s reflect…

© UNISA 4
Let’s reflect…BEHAVIOUR Do not change when the
activity levels
increase/decrease

Can I distinguish between fixed and variable costs?

Increase/decrease in
proportion with the
 Step: Only available in fixed portions, variesactivity
withlevels
activity
levels in a stepwise manner

 Mixed: Consist of variable and

Variable fixed
cost = (Highcosts
R – Low–R)
÷ (High activity – Low activity)
 high-low
 simple regression analysis (don’t need to memorise formulas)
 scatter graph
© UNISA 5
Let’s reflect…FUNCTION

Can I distinguish between manufacturing and non-manufacturing costs?

 Inventoriable versus Non-inventoriable costs

 Inventoriable:
DM, DL, & VMO
FMO depending on costing system (absorption – IAS2 vs direct)
 Non-Inventoriable:
Selling, distribution, non-manuf admin.

Packaging cost
Manufacturing or non-manufacturing?

© UNISA 6
Example: Different presentations of variable manufacturing costs in I/s

All the VMC per unit

added together.
From QB:
TZANEEN
TRAMPOLINES
Separate VMCs (PTY) LTD
(names as per
question).

Remember to show all

your calculations!
© UNISA 7
Let’s reflect… RELEVANCE

Still need to happen =

Can I identify relevant costs?

relevant Already incurred and
cannot change =
irrelevant
 Future costs vs Sunk cost
 Differential (incremental) cost/revenue
Will differ between
alternatives (as a result
 Cash flow Non-cashflow =
irrelevant
of the decision)
= relevant

 Opportunity cost
The benefit which could have been earned, but
which has been given up, by choosing one option
instead of another.
Opportunity costs are always relevant.
© UNISA 8
Let’s reflect…TIMING

Absorbed in inventory

 Product versus Period

Expensed immediately

© UNISA 9
Common mistakes
Pitfall/mistake/incorrect statement Why is it wrong?

1 Not converting/not converting Different units of measurement of the same type

correctly.
2 Mixing the product types in the
calculation of inventory values
(adding different types of units as if
they carry the same costs per unit).
3 Omitting some of the variable
production costs.
4 Not/incorrectly splitting mixed costs Often, a mixed cost has
when necessary.
5 Only indicating relevant/irrelevant
when requesting a reason
of quantity (e.g., minutes and hours) often require
that we convert in our calculations.
Different product types normally have different
product costs per unit. Inventory values per
product type need to be calculated separately
before adding them to get the total inventory
value for the organisation.
All the costs have to be accounted for. Variable
manufacturing costs are not limited to VMO.
Identify to be
if this split into itsand
is necessary variable
and fixed elements. E.g.tothe
default HLdirect
methodcosting
if no I/s has
VC above and FC below thetocontribution
information the contrary.line.
Must indicate the reason e.g. differential, sunk,
cash flow, opportunity

© UNISA 10
 References
Williams, J, Cairney, C, Chivaka, R, Joubert, D, Pienaar, A,
Pullen, E, Roos, S, & Streng, J. 2020. Principles of
management accounting: A South African perspective. 3rd
Edition. Cape Town: Oxford University Press Southern
Africa.

MAC2601 study materials.

MAC3701 study materials.

© UNISA 11
Define tomorrow.