Lauren White
Unit 7: Management Accounting
Task One
Forecasting and Management Planning
P1 - Explain how an organisation can cost a product and determine its price
at any activity level
Direct Costs
Direct costs directly relate to the manufacturing of a product. This could include the
materials needed to produce a product and the labour needed. For the Royal Jam company
this would include the jam jars needed for their products and the wages of the employees.
Variable Costs
Variable costs can change depending on the level of output. These costs can include a
variety of things including the cost of raw materials, labour, distribution costs, etc. The costs
may vary depending on the demand for their products because if there is a sudden high
demand, more products would need to be produced meaning the costs would change. For
example, casual workers get paid £6 an hour at The Royal Jam Company. If they were to
work 35 hours a week they would get paid £210 but this may change depending whether
they are required to work more or less. If they are needed to work more (for example 40
hours a week) they would be paid £240 instead.
Semi-Variable Costs
Semi variable costs contain elements of fixed costs and variable costs. Some costs start off
being fixed as they are set for the level of production. If the production level change then so
would the costs meaning they would be considered variable. Therefore, these costs have
elements of both types of costs. Staffing and the rent of the facility would be considered a
semi variable cost as they can change depending on the level of production. If the volume of
production increases then more staff will need to be hired or existing staff will need to be
paid for working additional hours to cope with the increased levels of production. The
wages of The Royal Jams companies casual staff could be considered semi- variable costs as
they are expected to work 35 hours a week but this could vary as they may exceed their
hours or work less than 35 hours.
Stepped Costs
The working hours of casual employees at The Royal Jam Company could then lead to
becoming a stepped cost. This could be because there is not a change over a certain volume
Unit 7: Management Accounting
Task One
Forecasting and Management Planning
P1 - Explain how an organisation can cost a product and determine its price
at any activity level
Direct Costs
Direct costs directly relate to the manufacturing of a product. This could include the
materials needed to produce a product and the labour needed. For the Royal Jam company
this would include the jam jars needed for their products and the wages of the employees.
Variable Costs
Variable costs can change depending on the level of output. These costs can include a
variety of things including the cost of raw materials, labour, distribution costs, etc. The costs
may vary depending on the demand for their products because if there is a sudden high
demand, more products would need to be produced meaning the costs would change. For
example, casual workers get paid £6 an hour at The Royal Jam Company. If they were to
work 35 hours a week they would get paid £210 but this may change depending whether
they are required to work more or less. If they are needed to work more (for example 40
hours a week) they would be paid £240 instead.
Semi-Variable Costs
Semi variable costs contain elements of fixed costs and variable costs. Some costs start off
being fixed as they are set for the level of production. If the production level change then so
would the costs meaning they would be considered variable. Therefore, these costs have
elements of both types of costs. Staffing and the rent of the facility would be considered a
semi variable cost as they can change depending on the level of production. If the volume of
production increases then more staff will need to be hired or existing staff will need to be
paid for working additional hours to cope with the increased levels of production. The
wages of The Royal Jams companies casual staff could be considered semi- variable costs as
they are expected to work 35 hours a week but this could vary as they may exceed their
hours or work less than 35 hours.
Stepped Costs
The working hours of casual employees at The Royal Jam Company could then lead to
becoming a stepped cost. This could be because there is not a change over a certain volume
