Management Accounting and Cost Analysis
Cost behaviour and classification
Understand fixed, variable, mixed and step costs, relevant versus sunk versus opportunity costs, and the separation of product and period costs. Be able to use the high-low method and regression output to split mixed costs, and know the limitations of each.
Product costing
Revise job costing, process costing (equivalent units under weighted average and FIFO), normal versus abnormal loss, and activity-based costing. Know why traditional absorption costing distorts product costs when overhead is driven by diversity and complexity rather than volume.
Decision support
Master cost-volume-profit analysis: contribution margin, break-even in units and dollars, margin of safety, target profit, and operating leverage. Practise limiting-factor decisions, make-or-buy, special orders, and keep-or-drop analysis, always applying the incremental principle and ignoring allocated common costs.
Planning and control
Know static versus flexible budgets, variance analysis for materials, labour and overhead, and the distinction between price and efficiency variances. Understand standard costing's behavioural consequences and why variances must be interpreted jointly rather than in isolation.
Traps
Questions mix absorption and variable costing profit differences (the difference equals the change in inventory multiplied by the fixed overhead rate). Watch for irrelevant fixed costs included in special-order decisions, and for denominator-level effects on overhead rates.
Worked rule of thumb
Break-even units = fixed costs / contribution per unit. With fixed costs of 60,000 and contribution of 15 per unit, break-even is 4,000 units. To earn a target profit of 9,000, add it to fixed costs: 69,000 / 15 = 4,600 units.