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Business_A-level_Cie

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  1. business-and-its-environment

    enterprise
    6 主题
  2. business-structure
    6 主题
  3. size-of-business
    3 主题
  4. business-objectives
    3 主题
  5. stakeholders-in-a-business
    2 主题
  6. external-influences-on-business
    12 主题
  7. business-strategy
    10 主题
  8. human-resource-management
    human-resource-management-hrm
    8 主题
  9. motivation
    4 主题
  10. management
    2 主题
  11. organisational-structure
    5 主题
  12. business-communication
    5 主题
  13. leadership
    2 主题
  14. human-resource-strategy
    3 主题
  15. marketing
    the-nature-of-marketing
    7 主题
  16. market-research
    3 主题
  17. the-marketing-mix
    6 主题
  18. marketing-analysis
    5 主题
  19. marketing-strategy
    3 主题
  20. operations-management
    the-nature-of-operations
    3 主题
  21. inventory-management
    2 主题
  22. capacity-utilisation-and-outsourcing
    1 主题
  23. location-and-scale
    2 主题
  24. quality-management
    1 主题
  25. operations-strategy
    4 主题
  26. finance-and-accounting
    business-finance
    2 主题
  27. sources-of-finance
    3 主题
  28. forecasting-and-managing-cash-flows
    1 主题
  29. costs
    4 主题
  30. budgets
    1 主题
  31. financial-statements
    4 主题
  32. analysing-published-accounts
    6 主题
  33. investment-appraisal
    2 主题
  1. Business_A-level_Cie
  2. costs
  3. approaches-to-costing
课 29, 主题 2
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approaches-to-costing

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An introduction to costing

  • Businesses can choose how to calculate the costs of manufacturing products, accounting for

    • Direct costs, such as raw materials, components and direct labour

    • Indirect costs, including overheads such as rent, rates, selling costs and administration expenses

  • Two of the most commonly used methods are

    • Full costing

      • This method allocates all costs, direct and indirect, equally across all products a business manufactures

    • Contribution costing

      • This method allocates only direct costs to products manufactured by a business

      • Indirect costs are covered and profits generated by contribution

The principles of full costing

  • If a business manufactures one type of product, full costing can be used to allocate all costs, direct and indirect, equally across all products

Stages in full Costing

Flowchart with four steps: 1. Calculate total direct costs, 2. Calculate total indirect costs, 3. Add total costs, 4. Divide total by output.
Full costing involves dividing the total costs by the volume of output

Worked Example

Luftig Soft Drinks Gmbh uses full costing to determine the cost of manufacturing each bottle it produces.

In 2023 it manufactured 455,000 bottles of soft drink, and recorded the following costs:

Total Direct Costs €52,300

Total Indirect Costs €120,600

Calculate the full cost of producing each bottle of soft drink.

(2)

Step 1: Add total direct costs to total indirect costs

equals space € 52 comma 300 space plus space € 120 comma 600

begin mathsize 16px style equals space € 172 comma 900 end style (1)

 Step 2: Divide total costs by output

equals space fraction numerator € 172 comma 900 over denominator 455 comma 000 space bottles end fraction

equals space € 0.38 (1)

  • When a business manufactures more than one product, it needs to decide how to allocate indirect costs across the range of products

    • Each product may incur a different proportion of indirect costs 

      • E.g. they may require more workers, machinery or factory space, or may be manufactured in greater volumes

    • These decisions are unlikely to be straightforward and should remain constant over time

      • Inappropriate allocation of costs can lead to incorrect pri