Lesson 3 Flashcards
(27 cards)
What are 4 types of costs?
- Product purchases
- Ancillary products
- Overheads
- Labour
What does adding value refer to?
the additional features or increased economic value of a product which customers are prepared to pay more for and which make it easier for customers to consume for
What do ancillary products offer?
specialist support to the business, providing extra capacity, professional expertise, specific equipment and products.
What are ancillary products?
those the business owners cannot produce from within their own business or team so must be outsourced.
What is included in ancillary products?
- Capacity: storage, crop cover, silage wrap
- Professional expertise: engineer, consultant, trainer, vet
- Equipment: land-based machinery, repairs, maintenance
- Products: fertilisers, crop protection, pollination agents, animal care products
What is overheads?
another term for the costs/expenses not related to the level of production.
What are 4 examples of overheads?
- Mortgage, rent and rates
- Loan repayments
- Running costs
- Financial costs, e.g. accountants’ fees
What are labour costs?
the costs spent on staff in a business
What is the objective of recording labour costs?
to be able to apply the appropriate cost to each activity for financial reporting purposes.
What 3 things does labour record?
- Time spent on each job
- Productivity levels
- Down time
Labour costs are analysed and allocated into what 2 costs?
- direct costs
- indirect costs
What 4 classifications of cost are there?
- direct
- indirect
- fixed
- variable
What are fixed costs?
costs that do not vary whatever the amount of goods produced
What are 3 examples of fixed costs?
- mortgage or rent
- admin support
- depreciation
What do fixed costs remain?
constant in the medium to long term
What costs are excluded from the fixed-cost section?
- Values of purchased stores (e.g. electricity)
- Allowances for private use of farm vehicles
- Rental value of the private share of the farmhouse
- Any labour or materials used in capital projects
What are variable costs?
costs that are directly tied to the level of production
Give 3 examples of variable costs?
- fertilisers
- seeds
- fodder
What will variable costs do in proportion to the scale of the enterprise?
change
What does an increase in production see?
a rise in variable costs
What does a downsize in production see?
a decrease in variable costs
What are direct costs?
the ingredients, raw materials or services you need for your business.
What are direct costs recognised as in the measure of profitability?
the cost of goods sold (COGS)
What do direct costs usually relate to?
variable costs
