chapter 19 - costs, scale of production & break even analysis Flashcards
1
Q
definition of:
fixed costs
A
cost that remains the same whether or not a business produces anything
2
Q
variable costs
A
costs that varies with the level of production
3
Q
total costs
A
overall costs of making a certain num of goods
formula= FC + VC
4
Q
average cost
A
shows how much it costs to make one product
formula= total cost/ output level
5
Q
how does costs data help business?
A
- setting prices
- decide whether to continue or stop the production
- decide best location
- level of output they should produce
6
Q
types of economies of scale
A
- purchasing
- marketing
- technical
- managerial
- finance
7
Q
types of diseconomies of scale
A
- poor communication
- low morale
- slow decision making
8
Q
definition of:
break even
A
the level of production where no profit or loss is made, it’s just enough to cover cost
9
Q
advantages of break even
A
- it shows the margin safety
- shows expected level of profit at diff level of output
- shows what happens to break even if costs changes
- supports lona application
10
Q
disadvantages of break even
A
- price changes quickly due to competition
- fixed costs changes as new equipment might be needed
- not everything is sold
- variable costs fall as output increases due to economies of scale
