Cost

Question 1

Cost centre

Answer 1

A section of a business, such as a department, to which costs can be allocated or changed

Question 2

Profit centres

Answer 2

A section of a business to which both costs and revenues can be allocated-so profit can be calculated

Question 3

Advantages of having a cost and profit centre

Answer 3

• targets to work towards
• way to monitor and control
• method to assess performance
• means to make decisions

Question 4

Disadvantages of having costs and profit centres

Answer 4

• The concept of profit applies to the business as a whole
• Breaking into costs and profits distorts the holistic nature of business
• Not all influences on a centre are within the businesses control `

Question 5

Cash flow forecast

Answer 5

A prediction of the future cash inflows and outflows for a business over a specified time period.

Question 6

Fixed cost

Answer 6

A cost that will not change with an increase or decrease in the level of output

Question 7

Variable cost

Answer 7

a cost that will vary directly with the level of output

Question 8

Marginal cost

Answer 8

The additional cost of producing one extra unit of a product.

Question 9

Semi-variable costs

Answer 9

A business cosst that will have a fixed cost element and a variable cost element.

Question 10

Indirect costs

Answer 10

A cost that cannot be directly linked to the production of a particular product.
eg, rent, insurance premiums, wages of clerical staff

Question 11

Total costs

Answer 11

Fixed costs + variable costs.

All of the costs involved in making a product or providing a service.

Question 12

Average cost

Answer 12

TOTAL COSTS/ TOTAL OUTPUT

Question 13

Contribution

Answer 13

The amount of revenue remaining after the deduction of variable costs.
This can be put towards covering the fixed costs of the business.

Question 14

Contribution FORMULA

Answer 14

Fixed cost/ contribution per unit( selling price per unit- variable costs per unit)

Question 15

Break even

Answer 15

The level of output at which total revenue= total costs

Question 16

Full absorption costing

Answer 16

When all og the costs of a business are absorbed into the costs of the. products made. The cost will include a proportion of the fixed and variable costs of the business

Question 17

unit cost FORMULA

Answer 17

total cost of producing/ number of units produced

Question 18

Limitation of full absorption costing

Answer 18

Arbitrary or unfair allocation of costs
Does not allow exceptional order
penetration pricing cannot be used
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Question 19

Contribution or marginal costing

Answer 19

Costing method that allocates only direct costs to cost/profit centres, not overhead costs

The calculation of the cost of producing an additional product

Question 20

Contrubution fomula

Answer 20

Price- Direct cost per unit

Question 21

Total contribution formula

Answer 21

Total revenue- Total Direct costs