Chapter 3 - Cost behaviour, cost drivers and cost estimation. This chapter presents the following content: What are cost behaviour, cost estimation and cost prediction? cost drivers; cost behaviour patterns; the relevant range; engineered, committed and discretionary costs; cost structures in modern business environments; cost estimation; practical issues in cost estimation. | Chapter 3 Cost behaviour, cost drivers and cost estimation 3- Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith Outline What are cost behaviour, cost estimation and cost prediction? Cost drivers Cost behaviour patterns The relevant range Engineered, committed and discretionary costs Cost structures in modern business environments Cost estimation Practical issues in cost estimation 3- Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith What are cost behaviour, cost estimation and cost prediction? Cost behaviour The relationship between a cost and the level of activity or cost driver Cost estimation The process of determining the cost behaviour of a particular cost item Cost prediction Using knowledge of cost behaviour to forecast the level of cost at a particular level of activity 3- | Chapter 3 Cost behaviour, cost drivers and cost estimation 3- Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith Outline What are cost behaviour, cost estimation and cost prediction? Cost drivers Cost behaviour patterns The relevant range Engineered, committed and discretionary costs Cost structures in modern business environments Cost estimation Practical issues in cost estimation 3- Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith What are cost behaviour, cost estimation and cost prediction? Cost behaviour The relationship between a cost and the level of activity or cost driver Cost estimation The process of determining the cost behaviour of a particular cost item Cost prediction Using knowledge of cost behaviour to forecast the level of cost at a particular level of activity 3- Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith 3- Cost drivers A cost driver An activity or factor that causes costs to be incurred Conventional approaches to understanding cost behaviour assume that production or sales are the only cost driver Variable costs are assumed to vary in proportion to the level of production volume Fixed costs remain unchanged as production costs increase or decrease Volume-based cost drivers include units produced, direct labour hours, direct labour cost and machine hours 3- Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-Smith Prepared by Kim Langfield-Smith (cont.) Cost drivers (cont.) Contemporary viewpoints recognise that there are a range of .
