chapter 29- costs

Question 1

name 3 uses of cost data

Answer 1

business costs are a key factor in the profit equation so profits or losses can’t be calculated without accurate cost data, important to marketing departments to inform pricing decisions, keeping costs records allows for past comparisons, comparing cost data allows for managers to be informed about resource and allocation, past data can help set future budgets, calculating the costs of different methods can assist manager decisions

Question 2

define direct costs

Answer 2

clearly identified with each unit of production and can be allocated to a cost centre

Question 3

define indirect costs

Answer 3

costs that can’t be identified with a unit of production or allocated accurately to a cost centre

Question 4

define fixed costs

Answer 4

costs that don’t vary with output in the short run

Question 5

define variable costs

Answer 5

costs that vary with output

Question 6

define marginal costs

Answer 6

the extra cost of producing one more unit or output

Question 7

name a problem with classifying costs

Answer 7

some costs dont have particular categories

Question 8

define break even point of production

Answer 8

the level of output at which total costs equal total revenue, neither a profit nor a loss is made

Question 9

define margin of safety

Answer 9

the amount by which the sales level exceeds the break even

Question 10

what are the 4 lines on a break even graph

Answer 10

sales revenue, total costs, fixed costs, variable costs

Question 11

name the x and y axis of a break even graph

Answer 11

x is units sold/output

y is revenue

Question 12

give 2 advantages of a break even graph

Answer 12

easy to construct and interpret, provides guidelines to management, comparisons can be made, equation is precise

Question 13

give 2 disadvantages to break even graphs

Answer 13

straight lines are unrealistic as fluctuation normally occurs, not all costs can be classified into one label