Chapter 7 Flashcards
What is cost ?
This represents the monetary amount sacrificed to achieve a particular business objective
Can historic cost be used for decision making purposes ?
no, it can never be a relevant cost
What is an outlay cost ?
This is future amounts spent to achieve an objective
What are the three criterias for a cost to be relevant for a decision?
- must relate to the objectives of the business
- must be a future cost
- must vary with the decision
What are fixed costs ?
These are costs which remain constant / fixed when changes occur to the volume of activity
What are variable costs ?
These are costs which vary according to the volume of activity
Staff salaries and wages are ____ costs
They are variable but in practice tend to be fixed
What effect does inflation have on fixed costs ?
if rent goes up due to inflation then the fix cost will increase
What is a stepped fixed cost ?
This is when the volume of activity cant increase until the fixed cost being increased. For example, in a factory if they need more room and space for machinery they may need to rent out more property which means an increase in rent
What is a semi- fixed cost?
These are costs which have an element of fixed and variable.
What is the break even point?
This is the point where the profit and loss line meet on the graph. It is the point where there is neither profit or loss and the activity breaks even. In the graph above the break even point tends to be profit and below tends to be a loss
What is the marginal cost ?
This is the additional cost of producing one or more unit of output
