3rd lecture Business Economics

Question 1

Variable cost

Answer 1

Cost that changes in direct proportion to changes in the level of activity (production)

Question 2

Fixed cost

Answer 2

Not immediately affected by changes in the level of activity (production)

Question 3

Semi-fixed cost (step cost)

Answer 3

Cost that contains both fixed and variable elements: it is fixed over a given range of activity and above that level of activity, the cost changes abruptly

Question 4

Semi-variable cost

Answer 4

Cost composed of a micture of both fixed and variable components: increases in total as activity rises as a linear function

Question 5

Break-even point

Answer 5

The level of activity at which revenue equals expenses and profit, therefore, is zero: it is the volume of sales needed to at least cover the total costs

Question 6

Contribution margin

Answer 6

Goves information on how much of the revenues will be available for the fixed costs and profit

Question 7

Target net profit

Answer 7

The quantity of produced and sold units must achieve a certain level to cover the total costs and generate the desired profit

Question 8

Margin of safety

Answer 8

The reduction in sales that can occur bafore the break-even point of a business is reached: difference between budgeted sales revenue and break-even sales revenue

Question 9

Operating leverage

Answer 9

Financial efficiency ratio used to measure what proportion of total costs are made up of fixed and variable costs in an effort to calculate how well a company uses its fixed costs to generate profit