Active learning ideas
Costing principles introduce students to management accounting, focusing on how businesses calculate the cost of making a product or providing a service. This topic covers the classification of costs (direct, indirect, fixed, variable) and the process of absorption costing, where overheads are allocated and apportioned to different departments.
Activity 01
Students run a 'factory' making paper planes. They must identify direct costs (paper) and indirect costs (staplers, 'rent' for the desk) and then calculate the total cost per plane produced.
How do direct and indirect costs differ?
Activity 02
Set up stations with different overheads (e.g., Canteen costs, Rent, Power). Students must decide the best basis for apportionment (e.g., number of staff, floor space) and calculate the split for three departments.
What are the bases for apportioning overheads to production departments?
Activity 03
Give students a list of costs for a local gym. They must individually categorise them as fixed or variable, then pair up to discuss how these costs would change if membership doubled.
How is an overhead absorption rate calculated?
A few notes on teaching this unit
Watch Out for These Misconceptions
Fixed costs never change.
Fixed costs stay the same *regardless of output* within a certain range, but they can change due to external factors (like a rent increase). Use the term 'stepped costs' to show how a fixed cost might jump when a second factory is opened.
Indirect costs are not important because they are small.
In many modern businesses, overheads (indirect costs) are much larger than direct labour costs. Collaborative investigations into service businesses (like a software firm) help students see that overheads can be the dominant cost.
Methods used in this brief
Marginal Costing and Decision Making
Introduces marginal costing techniques and their application in short-term decision-making, such as make or buy decisions.
8 methodologies
Budgeting and Control
Examines the purpose of budgeting, the preparation of cash budgets, and the use of budgets for planning and control.
8 methodologies