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The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)


par Christian Kuiate Sobngwi
University of Buea - Bachelor of Science 2003
  

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c) COSTS CLASSIFICATION ACCORDING TO THEIR BEHAVIOUR

This classification of costs deals with the way costs react to changes in some factors. The most important factors that cause some costs to change are the level of activity and the time factor.

As it concerns the level of activity, generally costs are incurred because of performing a particular activity, this activity may consists of various processes among which a major one that is sometimes regarded as the main cost driver. It is that one whose changes will result to very significant changes in the level of costs. It becomes possible at that point to relate the level of activity of that cost driver to the level of costs and as such the behaviour of that cost will be linked to the cost driver.

Concerning the time factor, costs do not behave the same way in the long run as in the short run. As time elapses, there may be changes in the market conditions such as inputs costs, level of demand or production procedures. Such changes in the market situation over time will lead to a need to a new analysis of costs depending on the time span of the plans we are making.

These two factors have led experts to classify costs as:

· Variable

· Fixed

· Semi-variable

· Semi-fixed

· Short-term variable

· Long-term variable

Variable costs

Lucey (1993) defines a variable cost as a cost that tends to vary with the level of activity. Garrison and Noreen more precisely define it, as a cost that varies in total in direct proportion to changes in the level of activity. An important aspect of this definition is the fact that variable costs vary in total, this is because on a per-unit basis the variable costs are constant and it is only when the level of activity, which may be the output, or the number of hours worked changes that the total variable cost also changes. This explains why the variable cost is always expressed in relation to a particular factor. The figure drawn below depicts that relationship between the level of activity and the behaviour of variable cost.

Figure 2-3 The behaviour of total variable cost

Total Cost

Level of activity

Figure 2-4 The behaviour of Unit variable cost

Unit cost

Level of activity

Such descriptions of variable costs are only a linear approximation of real-life situations. This is because, in real life, variable costs are rarely completely linear; they may also be curvilinear. A curvilinear variable cost is one which varies ion total in either «less than» or « more than» proportionate variation with the level of activity.

When an increase in the level of activity leads to a «less than» proportionate increase in the level of costs, this cost is referred to as concave curvilinear variable cost. The opposite is a convex curvilinear variable cost. They are illustrated in the graphics below.

Figure 2-5 Curvilinear concave variable cost

Level of activity

Figure 2-6 Curvilinear convex variable cost

Level of activity

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