Chapter 2

Question 1

Fixed Cost

Answer 1

Constant or unchanging regardless of the level of output or activity

Question 2

Variable Costs

Answer 2

Depends on the level of output or activity

Question 3

Marginal Cost

Answer 3

Variable costs for one more unit; used for last-minute pricing

Question 4

Average Cost

Answer 4

Total cost divided by number of units; used for regular pricing

Question 5

Profit-Loss Breakeven Chart

Answer 5

Plot of revenues against costs

Question 6

Breakeven Point

Answer 6

Costs are equal to revenue

Question 7

Profit Region

Answer 7

X > breakeven point; revenue > cost

Question 8

Loss Region

Answer 8

X < breakeven point; revenue < cost

Question 9

Sunk Cost

Answer 9

Money already spent as part of a past decision

Question 10

Opportunity Cost

Answer 10

Associated with using a resource in one activity instead of another; really foregone benefits

Question 11

Recurring Costs

Answer 11

Refer to any expense that is known & anticipated and that occurs regularly

Question 12

Nonrecurring Costs

Answer 12

One-of-a-kind expenses that occur at irregular intervals

Question 13

Incremental Costs

Answer 13

Focus on difference between alternatives

Question 14

Cash Cost

Answer 14

Involves transaction of dollars

Question 15

Book Cost

Answer 15

Costs form past decisions that are recorded “in the books”; like depreciation

Question 16

Life-Cycle Costing

Answer 16

The concept of designing products, projects, and services with a full and explicit recognition of the associated costa and benefits over various phases of their life cycles.

Question 17

Internal Costs

Answer 17

Incurred & Paid by the firm & are used to calculate production cost

Question 18

External Costs

Answer 18

Outside firm’s normal accounting

Question 19

Rough Estimate

Answer 19

High level planning (-30% to +60%)

Question 20

Semidetailed Estimate

Answer 20

Mid level planning for budgeting (-15% to +20%)

Question 21

Detailed Estimate

Answer 21

Detailed design and project bidding (-3% to +5%)

Question 22

Difficulties in Estimation

Answer 22

One-of-a-kind estimates
Time & effort available
Estimator expertise

Question 23

Cash Flow Characteristics

Answer 23

Initial Cost, operating and maintenance, salvage, revenue, overhaul