Costs and costing methods

Learning objectives

Explain why accurate cost information matters and classify costs as fixed, variable, direct or indirect.

Distinguish full costing, which shares all indirect costs among products, from contribution costing, which compares each product's revenue with its variable costs.

Explain the difference between contribution and profit and evaluate the uses and limitations of full and contribution costing.

Calculate total, average and marginal cost and explain how cost information supports pricing and the monitoring of performance.

Apply contribution costing to decide whether to accept a special order at a price below the usual price.