Short term decision making

Question 1

Cost variability

Answer 1

Also known as cost behavior, looks at
1. the specific cost
2. the cost driver (the factor which causes variable cost), e.g. if you rent costing £10 a month and we can do it until 100 units it will cost us up to £100
3. the range within the assumptions made about cost behavior are valid
4. The time period of the analysis, short or long term
C,C,R,T- cant cope really tired

Question 2

Fixed costs

Answer 2

remain CONSTANT over time for a specific period

Question 3

Variable costs

Answer 3

They vary with the volume of activity

Question 4

Mixed costs

Answer 4

can be semi-fixed, or semi-variable, e.g. a landline is fixed but you pay a certain amount based on called made

Question 5

fixed cost behaviour

Answer 5

depending on units made fixed costs change. e.g. if 1 unit was £10 2 units would be £5 each

Question 6

variable cost behavior

Answer 6

you still need to incurr so remains constant, e.g. if 2 units costs £10 3 units would still be £10

Question 7

semi-variable cost formula

Answer 7

fixed costs + (variable costs x quantity of units made)
Plot it on a graph, and if you go beyond you pay extra

Question 8

The high-low method for variable cost

Answer 8

change in costs/change in units
we can see if it is a variable cost if the two have the same cost per unit

Question 9

the high-low method for fixed costs

Answer 9

highest cost= a + (units for that cost x variable cost)
total cost= fixed + variable costs

Question 10

cost volume profit analysis

Answer 10

helps managers understand the relationship between cost, volume and profit

Question 11

operating profit is

Answer 11

selling price- variable costs x quantity - fixed costs

Question 12

contribution margin PER UNIT

Answer 12

selling price - variable costs x units sold
(if its just contribution don’t x units sold)

Question 13

break even point

Answer 13

fixed costs/unit contribution margin. round up ALWAYS

Question 14

the margin of safety

Answer 14

actual- break even point (/actual x 100 to get as a percentage)

Question 15

contribution margin RATIO

Answer 15

contribution margin/revenue x 100 (always as a %)

Question 16

revenue at break even point

Answer 16

fixed costs/contribution margin ratio
or x sales price per unit

Question 17

if question says in terms of participants

Answer 17

/ budget number of participants

Question 18

target profit

Answer 18

number of units x contribution margin - fixed costs

Question 19

question that says how many required to make £x profit

Answer 19

fixed costs + target profit/contribution margin per unit

Question 20

question that says what will be the increase in contribution be if sales increase by £x

Answer 20

‘x’ times contribution margin ratio

Question 21

profit

Answer 21

total costs - revenue

Question 22

question that says should an increase in something, increasing something else be authorised

Answer 22

find the contribution margin for before and after and compare, fixed costs of before and after and compare, and operating profit of both and compare (by taking away contribution margin and fixed costs)

Question 23

degree of operating leverage

Answer 23

contribution margin (NOT PER UNIT)/variable - fixed expenses

Question 24

a low DOL

Answer 24

typically less than 1, suggests a lower profit sensitivity to changes in sales. balance between fixed and variable costs

Question 25

a high DOL

Answer 25

more than 1. means profit is very sensitive to changes in the volume of activity. shows a company has a significant portion of fixed costs.