accounting - Term 4 test 1

Question 1

What is fixed costs?

Answer 1

remain the same as the level of activity changes.

Question 2

What are variable costs?

Answer 2

Change as the level of activity changes.

Question 3

What is contribution margin?

Answer 3

Sales less variable costs

Question 4

What is break even

Answer 4

When total sales equals total costs

Question 5

What are product costs?

Answer 5

Are all costs involved in the manufacture or provision of a particular good or service.

Question 6

What are period costs?

Answer 6

Are non-product costs incurred but not directly required to produce a particular item or service.

Question 7

State five fixed cost examples:

Answer 7

Electricity, trailer hire, interest expense, insurance and licence fee.

Question 8

State five variable costs examples:

Answer 8

Cost of goods sold, casual wages, cartage on sales, delivery vehicle expenses and packaging.

Question 9

Explain the difference between gross profit and contribution margin:

Answer 9

Gross profit only looks at sales less sales returns and cost of goods sold. Whereas contribution margin includes all other variable expenses such as packaging and casual wages.

Question 10

Explain why a business would calculate break-even point?

Answer 10

To what levels of sales they must achieve as a minimum to cover costs. Also, to assess whether the current price structure is appropriate. I.e. does the current price need to increase, decrease or stay the same.

Question 11

State formula for:

1. Break-even
2. Target profit
3. Contribution margin
4. Product unit cost
5. Total unit cost

Answer 11

1. Fixed costs / contribution margin
2. Sales = fixed costs + target profit / contribution margin
3. Sales - variable costs
4. Product costs / units produced
5. Total costs / units produced