Costing

Question 1

Fixed costs

Answer 1

Remain constant regardless of the level of production or sales
Parallel to horizontal axis
Unit fixed cost declines with increased production
E.g. rent and depreciation

Question 2

Variable costs

Answer 2

Change with the level of production and sales
Assume a simple straight line graph
E.g. direct materials

Question 3

Semi variable costs

Answer 3

A combination of a fixed cost and a variable cost
A cost line parallel to the horizontal then at a specific point changing direction to slope upwards
E.g. contract mobile phone charges

Question 4

Semi fixed costs (step fixed)

Answer 4

Acts like any fixed cost over a given range of production but at a critical point increases vertically to set off a new plateau
Looks like steps
E.g. supervisor wages where a factory moves between one or more shifts

Question 5

Product costs

Answer 5

Those costs linked with the production/service provision process.
Expensed when the product is sold, or when the work is invoiced to the client

Question 6

Period costs

Answer 6

Any cost that cannot be capitalised into prepaid expenses, inventory or fixed assets
Expensed in the accounting period to which they relate (accruals)

Question 7

Sunk costs

Answer 7

Not relevant
A historic cost which bears no relation to a decision which is to be made more or in the future
A cost which cannot be changed by a future decision

Question 8

Incremental costs

Answer 8

The costs of something changing
E.g. if considering a different approach to manufacturing, the costs which differ will be the costs which will be taken into account. The costs that are ignored will not be incremental costs

Question 9

Opportunity costs

Answer 9

When there is a choice of uses for something

Represents the benefits an individual misses out on when choosing one alternative over another