Costing & Breakeven Point Flashcards
What are the different types of costs?
fixed, variable, semi fixed, semi variable, stepped
What does fixed costs mean?
where costs tend to remain constant regardless of operating levels
What does variable costs mean?
where costs tend to vary depending on changes in operating levels
What does semi fixed/semi variable costs mean?
Costs with both a fixed and variable element
What are examples of fixed costs?
rent, general rates, building insurance, depreciation, licenses
What are examples of variable costs?
labor used in production, materials used in production, machine power, after sales packing
What does stepped costs mean?
Where the costs increase when certain levels of activity are achieved.
What is an example of semi fixed and semi variable costs?
A BT fixed line telephone bill consists of a fixed line charge and then a variable element, where calls are charged based on the number of minutes used (activity).
Wages too can be semi-variable, where there is a fixed payment for work (salary), with an overtime element where extra hours are worked in addition to the terms of the employment contract.
What are examples of stepped costs?
Supervisors.
Additional power generators.
Storage space, such as commercial drinks coolers, extra coolers are used as the number of customers at an event increases.
Safety stewards, similar to storage space, as a manager you will have to budget for extra safety stewards as the number of people for an event is forecast to increase. For example, if you are running a small activity event for children, then you would employ child supervisors on a ratio of, say 1 supervisor for up to 10 children as more children sign up for your event and you have 12 children attending, then you would need to have 2 supervisors.
Other simple things such as flowers on a event dining table. Typically, dining tables at an event will seat 10 people, as more customers sign up then additional tables will be required to accommodate them, and so additional flowers will be needed for each of the additional tables.
What is the formula for break-even point in units?
fixed costs/contribution per unit
What is the formula for target profit in units?
fixed costs+required profit/contribution per unit
What is the formula for break-even point in sales value?
fixed costs/contribution per unitXsales price
What is the formula for target profit in sales value?
fixed costs+required profit/contribution per unitXsales value
What is the Profit Volume ratio or C/S ratio?
contribution/salesX100
How do you find out contribution?
Contribution= revenue or sales - variable costs
