Costing and Entrepreneurship
Cost elements
Cost comprises direct material, direct labour, direct expenses and overheads. Prime cost = direct material + direct labour + direct expenses. Factory cost adds works overhead; cost of production adds administration overhead; cost of sales adds selling and distribution overhead. Know fixed, variable and semi-variable costs and break-even analysis.
Costing methods
Job, batch, process and standard costing apply to different production types. Textile mills commonly use process costing because production is continuous. Depreciation methods (straight line, reducing balance) and their effect on cost are examinable.
Entrepreneurship
Business plan components, market analysis, sources of finance, risk and feasibility study are core. Understand the difference between a feasibility study and a business plan.
Traps
- Confusing prime cost with factory cost.
- Ignoring semi-variable costs in break-even analysis.
- Mixing profit with contribution.
Worked example
Selling price 200 per unit, variable cost 120, fixed cost 40,000. Contribution = 80; break-even quantity = 40,000/80 = 500 units. Break-even sales = 500 × 200 = 100,000.