Introduction to Cost Allocation

Introduction to Cost Allocation


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The section of Management Accounting focuses on Cost Accounting where the emphasis is on the recording of transactions for cost accounting purposes.  The assessment focuses on the principles of Cost Classification & Behaviour as well as Absorption & Marginal Costing with respect to:


  • cost classification: definitions of the cost object and classifying costs based on its traceability to the cost object as being direct or indirect costs
  • cost behaviour: classifying costs based on its behaviour in relation to the level of output as being fixed or variable costs
  • mixed costs: classification of mixed costs & methods for separating fixed and variable cost components
  • step costs: classification of step cost
  • job and process costing systems
  • product costing: absorption and marginal costing principles
  • fixed cost allocation: bases of allocating fixed and indirect costs (labour & machine hours or output)
  • absorption costing: calculation and treatment of under or over absorbed costs
  • financial report: preparing reports using marginal & absorption costing


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