Chapter 1 Flashcards
True or false: Costs can be defined as ‘the monetary value sacrificed in the production of products and/or services for the purpose of resale’
True.
Name the 1st, 2nd and 3rd steps in the budgeting process, respectively.
Estimating: sales; production; costs
What are distinguishing names for costs when classifying costs by nature?
Direct and indirect.
What are distinguishing names for costs when classifying costs by behaviour?
Fixed,variable, semi-variable, and step.
What are fixed costs?
Expenses that remain constant regardless of changes in the level of business activity.
What are variable costs?
Costs that change directly with the level of activity or output.
What are semi-variable costs?
Costs that have both a fixed and a variable component
What are step costs?
Costs that remain fixed within a certain range of activity but jump to a new level once that range is exceeded. They increase in “steps” rather than gradually
What method is used when splitting fixed and variable costs? name and explain it.
High-low method. Identifies the highest and lowest activity levels with their respective costs. Variable cost is calculated first and then used as an input to calculate the fixed cost.
What are direct costs?
Expenses incurred in production or services.
What is coding?
The process of assigning specific numerical/alphanumerical symbols to transactions, accounts or items so that they can be easily identified/classified/organised.
