Principles of Costing
An introduction to management accounting. Understand cost behaviour, calculate unit costs and support decisions with simple costing techniques.
Read, practise, and prove it in the workplace.
- 1What costing is for2 min · Management accounting vs financial accounting, cost centres, and why cost information exists at all.
- 2Classifying costs3 min · Direct vs indirect, fixed vs variable, and the high-low method for splitting semi-variable costs.
- 3Materials, labour and overheads3 min · FIFO and AVCO for inventory, time-rate/piece-rate/bonus for labour, and absorbing overheads onto units.
- 4Break-even, contribution and variances3 min · Contribution per unit, break-even, margin of safety, target profit, and reporting variances.
Exam-style multiple-choice questions with worked explanations after every answer. Aim for 80% to earn the Knowledge Master trophy.
A real scenario built from the unit's syllabus. Pass with 70% to earn the Workplace Ready trophy.
What you'll be able to do at the end of the unit.
Understand the cost recording system
The purpose of management accounting, coding of costs and how it differs from financial accounting.
Use cost recording techniques
Materials valuation (FIFO, AVCO), labour cost calculations and overhead absorption.
Provide information on actual and budgeted costs
Compare actual to budget, identify favourable and adverse variances and report on them.
Use tools to support decision making
Break-even analysis, contribution and cost-volume-profit basics.
7 chapters, each paired with a simulation task.
01The purpose of management accounting▾
- Financial vs management accounting
- Users of cost information
- Cost centres, profit centres and investment centres
02Classifying costs▾
- Direct vs indirect costs
- Fixed, variable, semi-variable and stepped costs
- Product costs vs period costs
03Inventory valuation▾
- FIFO
- AVCO
- Choosing a valuation method
04Labour costs▾
- Time rate and piece rate
- Bonus schemes
- Idle time and overtime premium
05Overhead absorption▾
- Selecting an absorption base
- Over- and under-absorption
- Simple job costing
06Budgeting and variances▾
- Preparing a simple budget
- Variance calculation
- Reporting variances to managers
07Decision making▾
- Contribution per unit
- Break-even point and margin of safety
- Target profit calculations
How you'll be examined.
Computer-based, on-demand end of unit assessment.
Assessment tasks
- 1
The costing system
10 marksCoding costs and classifying by behaviour.
- 2
Materials
16 marksValue issues and closing inventory using FIFO and AVCO.
- 3
Labour
14 marksCalculate gross pay under time and piece rate schemes.
- 4
Overheads
14 marksCalculate overhead absorption rates and unit cost.
- 5
Budgets and variances
18 marksCompare actual to budget and report variances.
- 6
Short-term decisions
18 marksBreak-even, contribution and target profit calculations.
- 7
Written task
10 marksShort explanation of a costing concept.
- Total100 marks
What you can use
- On-screen calculator
- Rough paper (collected at the end)