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Exam (elaborations)

MAC2601 EXAM PACK

MAC2601 EXAM PACK MAC REVISION STUDY PACK TOPIC 1: NATURE AND BEHAVIOUR OF COSTS (1) Manufacturing cost/ Production cost Manufacturing costs - costs incurred in the manufacturing process of a product.  Direct + Indirect cost = Manufacturing cost  Direct cost = Direct Material + Direct Labour  Total Direct cost = Prime cost  Conversion cost = Direct Labour + Manufacturing overheads  Indirect cost = Indirect material + Indirect Labour  Total Indirect cost = Overheads Direct cost – costs directly linked to the product. Indirect cost – costs indirectly linked to the product Manufacturing Total cost = variable cost + fixed cost  Variable cost – costs that vary with production e.g. material costs  Fixed cost – costs that are constant throughout the manufacturing period e.g. Rent.  Semi variable cost – cost that have both elements variable element and fixed element e.g. Telephone bill Non Manufacturing cost / Period costs Non Manufacturing cost – costs incurred after the manufacturing process a. Marketing cost – costs related to the sale and distribution of the final product. b. Administrative costs – costs incurred in directing and controlling the organization. Splitting – fixed from variable cost Methods used  High low method  Linear equation  Scatter diagram  Simple regression analysis / least squares methods We will concentrate on the high low method e.g. Observations No. of Units Total overhead cost 1 800 105 000 2 650 95 000 3 750 95 000 4 900 120 000

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