BS5- Costs, Revnue And Profits Flashcards
What are fixed costs?
Fixed costs are costs that do not vary with the level of output (e.g the factory, mashies, business rates)
Give three examples of fixed costs
The factory
Mashies
Business rates
What are variable costs?
Costs that change in production to the level of goods or services a business produces
Give two examples of variable costs
Sales commission
Direct labour costs
Costs of raw materials
How do you calculate total costs?
Fixed costs + variable costs = total costs
Define unit costs and show how it can be calculated
The cost of putting out one unit
Total costs / output = unit cost
Define marginal cost
The cost of producing one extra unit
What is an opportunity cost? Give an example
It is what the business could have spent there money on, it is the loss of other alternatives when the other is chosen
What social cost might a business produce? Give some real-life examples
Putting fuel into there lorry to be able to transport goods around
What is standard costing?
The cost that the business would normally expect for the production of a particular product or to complete a activity.
What is a cost centre and how may costs be allocated?
Is a specific part of a business where costs can be identified and allocated with reasonable ease.
What are the benefits and drawbacks of cost centres?
Advantages- it highlights those departments that are performing well
-can be used to help motivate the workforce
Disadvantages-it can be expensive taking a lot of time and money
-the way that costs are allocated can have a big impact on the performance of a particular cost center
What is a profit center?
Similar to a cost centre but in this case the profits coming in are ascribed to different parts of the business.
What are the benefits and drawbacks of profit centres?
Advantages- The profit center helps in devising strategies for low performing units by allocating resources, increasing or increasing revenues.
-When management focuses on the revenue-generating capacity of a particular unit it leads to an increase in its overall productivity.
Disadvantages- In practice, it may be difficult to allocate costs to a particular division / centre.
- Cost and profit centres may add to pressures and stress on staff.
- Senior managers may be unable to recognise whether a cost or profit centre is running effectively / ineffectively.
What is absorption costing?
All the indirect costs or overheads of a business are absorbed by different cost centres
