Basics of Finance Flashcards
Define costs
How much a firm has to pay to provide a good or service
What is meant by a fixed cost?
Costs which do not change (rent)
What is meant by variable costs?
Costs which change with the level of output (raw materials)
What is meant by indirect costs?
A cost which can’t directly be contributed to the product
What is a unit cost?
The price incurred by a company to produce, store and sell a particular product
What is a marginal cost?
The cost added by producing one additional unit of a product or service
How do you work out average costs?
Total cost/ units produced
What is meant by opportunity costs?
The loss of other alternatives when one alternative is chosen
What is a social cost?
The sum of private costs resulting from a transaction and the costs imposed on the consumers as a consequence of being exposed to the transaction for which they are not compensated or charged (the cost to the third party)
What is a profit centre?
Separately identified as a part of a business responsible for its own revenues and costs
What is a cost centre?
Part of a business where costs can be identified and allocated with ease
How might costs centres be allocated?
Product produced, department, location, capital equipment, physical size
State 3 advantages of cost centres
Allows to monitor performance, motivation, looks at suppliers
What are the disadvantages of a cost centre?
Issues collecting data, allocation of costs can impact performance, some costs cannot be controlled, can be unfair
Give examples of a profit centre
Individual shops in a retail chain, a team or individual
