Article | REF: AG1020 V1

Management accounting and cost analysis

Author: Didier LECLERE

Publication date: October 10, 2010

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6. Partial cost approach

We have seen the difficulties and risks of arbitrariness posed by the allocation of overheads in full-cost methods. To study certain problems, it is better to reason in terms of partial costs and calculate margins rather than analytical results.

6.1 "Simple direct costing or variable cost method

The simplest method is "direct costing". Note that the adjective "direct" is a "false friend", as we say in high school English classes: it should be translated not by direct, but by variable.

In fact, in this approach, only 2 categories of expenses are retained:

  • operating expenses (assumed to be both direct and variable) ;

  • overheads (assumed to be both indirect...

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