Some basic Concepts of Cost Analysis

Introduction

Any expenditure of money on materials, labour, equipment or services is referred to as a cost. Costs may be either notional or actual.

Definition

Notional costs are ideal or average figures that are used to estimate future expenditure. The term actual costs is used to refer to the exact amount spent in the past, as reflected in an institution’s accounts.

Like any education institution, open schools must spend money on a variety of things in order to provide courses to their learners. However, when compared to conventional education, the pattern of expenditure in ODL institutions is quite distinct. This unit looks at some of these differences and introduces a basic vocabulary for categorising and analysing costs incurred by open schools, colleges and universities.

Objectives

By the end of this unit, you will be able to: describe the various sub-systems in a simple model of an open and distance learning (ODL) institution; discuss the difference between direct and indirect costs and categorise different items of expenditure; provide definitions and examples of fixed costs, variable costs and semi-variable costs; explain how some costs can be classified as committed and others as managed; discuss the concept of cost drivers and identify what drives costs in your institution.