Cost analysis

Question 1

What is the order of activities when doing a short-term financial plan?

Answer 1

1. Forecast sales (on quarters/months)
2. Program the production (on quarters/months)
3. Estimate costs/expenses (on quarters/months)

Question 1

What do production costs include?

= COGS (cost of goods sold)

Answer 1

• Direct material costs (raw materials cost)
• Direct labor/salaries costs
• Indirect production costs (overhead)

Question 2

What do non-production costs include

Answer 2

• Selling costs
• Administrative costs

Question 3

What are some things included in indirect production costs?

Answer 3

• Maintenance
• Depreciation
• Loading/unloaidng

Question 4

What are selling costs?

Answer 4

Selling costs are those costs required to ensure the distribution of finished goods

They include:
* advertising
* logistics,shipments
* salaries for the sales team
* etc

Question 5

What does cost of goods produced measure?

Answer 5

It measures the production costs corresponding to the finished goods

Question 6

What are fixed costs?

Answer 6

Fixed costs are those costs that are not influenced by the production output

(they should not be interpreted as constant values regardless of quantity)

Question 7

What are discretionary fixed costs?

Answer 7

They are those costs that are planned over a short period of time (usually 1 year)

Question 8

What are variable costs?

Answer 8

Variable costs are those costs that are sensitive to changes in the production.

Question 9

What are the sources of scale economies?

Answer 9

• The unit variable cost decreases as output volume increases
• The unit fixed costs will reduce as output volume increases

Question 10

What do direct material costs include?

Answer 10

Direct material costs include mainly the raw materials that are found in the final form of the finished goods.

Question 11

What do direct labor costs include?

Answer 11

They include costs with the human resources.

Question 12

What are administrative costs?

Answer 12

Administrative costs are those costs generated by the administrative/management functions of the firm.

Ex:
* managerial team (CEO, CFO etc)
* financial-accounting department
* legal department
* etc

Question 13

What is cost of goods produced?

COGP

Answer 13

It measures the production costs of the finished goods

Question 14

What are engaged fixed costs?

Answer 14

They are those kind of costs that cannot be significantly reduced even during short periods of time, because they are vital to the firm’s activity