31 - Costs

Question 1

Define break-even points

Answer 1

the level of output at which total costs equal revenue, when neither a profit nor a loss is made

Question 2

Define cost centre

Answer 2

the section of a business, such as a department or a product, that incurs the costs

Question 3

Define direct costs

Answer 3

these costs can clearly be identified with each unit of production and can be allocated to a cost centre

Question 4

Define indirect costs

Answer 4

costs that cannot be identified with a unit of production or allocated accurately to a cost centre

Question 5

Define fixed costs

Answer 5

costs that do not vary with output in the short run

Question 6

Define variable costs

Answer 6

costs that vary with output

Question 7

Define total costs

Answer 7

variable cost plus fixed cost

Question 8

Define profit centres

Answer 8

a section of a business to which both costs and revenues can be allocated, so profit can be calculated

Question 9

Define average costs

Answer 9

total cost divided by the number of units produced

Question 10

Define full costing

Answer 10

a method of costing in which all indirect and direct costs are allocated to the products, services or divisions of a business

Question 11

Define contribution costing

Answer 11

costing method that allocates only direct costs to cost centres and profit centres, not overhead costs

Question 12

Define marginal cost

Answer 12

the additional cost to producing one more unit of output

Question 13

Define break-even analysis

Answer 13

uses cost and revenue data to determine the break-even point of production

Question 14

Define margin of safety

Answer 14

the amount by which the current output level exceeds the break-even level of output

Question 15

Define contribution per unit

Answer 15

the price of a product less the direct costs of producing it