Cost ascertainment
It is important that the management accountant can determine the variable and fixed costs and there are a number of techniques to assist in separating the fixed and variable elements of semi-fixed or semi-variable costs.
1. Analysing costs by direct observation of the resources required to convert materials into a finished product and applying costs to these activities. Direct materials, direct labour and machine time can be established quite easily.
2. By inspecting the accounts the accountant can classify costs as being variable or fixed.
3. High-low method. This method entails selecting the period of highest and lowest levels of activity and comparing the changes in costs that result from the two levels.
4 Comments