An introduction to elements of costing
The purpose of the elements of costing unit is to give students a basic introduction to costing, while building a sound foundation in the knowledge and skills they need for more complex costing and management accounting units such as Advanced level Management Accounting: Costing and Professional level Management Accounting: Budgeting.
Students will understand the importance of the costing system as a source of information for internal management decision making. In contrast to the more outward perspective of financial accounting, the skills developed in this unit will allow students to provide information to managers that can be used to assist in internal business planning, decision making and control.
A student successfully completing this unit will be an effective member of the costing function within the accounting team. Working with the management/financial accountant and supervision, they can be expected to:
• use the costing system to record and extract data and information for management purposes
• extract, compare and provide information on actual performance against budget.
The elements of costing unit covers the nature of cost and how it is used in a costing system. Students will understand the different classifications of cost and how they can be used for internal management decision making. As well as classifying costs, students will code transactions and build up a unit cost for a product or service, using a range of techniques to cost material, labour and overheads. Students will also engage with the budgetary control system by comparing actual costs with budgeted costs and they will determine variances, noting whether they are adverse or favourable.
Cost behaviour is essential to the unit. Students will understand how cost behaves at different levels of output, and how variable and fixed costs per unit behave as output changes. The High-Low method, in its simplest format, is introduced to give students the underpinning knowledge and skill development for later units for management accounting at Advanced and Professional levels, where marginal costing is used as an aid to management decision making.
Another important knowledge and skill that students will develop is to understand overhead as a component of cost and to build a basic unit product cost using labour hours, machine hours and per unit as a basis. This will prepare students and give them the basic tools for studies in overhead apportionment, reapportionment and absorption at Advanced level.
Elements of Costing is a mandatory unit in this qualification.
Learning outcomes for elements of costing
1. Understand the cost recording system within an organisation
2. Use cost recording techniques
3. Provide information on actual and budgeted costs and income
For more information about the specific details of elements of costing, please click here.
For full information about our AAT level 2 qualification at FI, click here.