Chapter 29- Costs Flashcards Preview

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Flashcards in Chapter 29- Costs Deck (13)
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1
Q

What are the uses of cost data?

A
1- To calculate profit or loss
2- To compare business performance
3- To assist other departments in decision making
4- To assist managers in decision making
5- To set budgets for the future
2
Q

What are direct costs?

A

Costs that can be clearly identified and allocated to a department.

3
Q

What are indirect costs?

A

Costs that can’t be identified and allocated to a cost center.

4
Q

What are variable costs?

A

The costs that vary with the number of units being produced for eg. raw materials, direct labour etc

5
Q

what are fixed costs?

A

They are constant. They will have to be paid even if 0 units are produced for eg. rent.

6
Q

What are marginal costs?

A

The extra cost of producing one more unit of output.

7
Q

What is the break-even point of production?

A

The point where costs are equal to revenue. it means that business is making neither a profit or a loss.

8
Q

What is the margin of safety?

A

The amount by which sales level is more than break even level of units.

9
Q

Formula for margin of safety?

A

Actual units- break even units

10
Q

Formula of break even?

A

Fixed costs
———————–
contribution per unit

11
Q

What is contribution?

A

Selling price less variable costs.

12
Q

What are the advantages of break-even analysis?

A
  • Charts are easy to make and analyse.
  • The equation gives an EXACT figure.
  • Can assist managers in making operations decisions, location decisions etc.
  • Can assist the marketing department in making pricing decisions.
13
Q

What are the disadvantages of break-even analysis?

A
  • Imprudent. It assumes that all units produced are sold.
  • Not all costs are easily classified. makes it complicated.
  • Straight lines are unrealistic.
  • It is unlikely that fixed costs remain unchanged at all levels of production.