Costs Flashcards
Definitions
Break-even point
The level of output at which total costs equal total revenue, when neither a profit nor a loss is made.
Cost centre
The section of a business, such as a department or a product, that incurs the costs.
Direct costs
These costs can be clearly identified with each unit of production and can be allocated to a cost centre.
Indirect costs
Costs that cannot be identified with a unit of production or allocated accurately to a cost centre.
Fixed costs
Costs that do not vary with output in the short run.
Variable costs
Costs that vary with output.
Total cost
Variable cost plus fixed cost.
Profit centre
A section of a business to which both costs and revenues can be allocated, so profit can be calculated.
Average cost
Total cost divided by the number of units produced.
Full costing
A method of costing in which all indirect and direct costs are allocated to the products, services or divisions of a business.
Contribution costing
Costing method that allocates only direct costs to cost centres and profit centres, not overhead costs.
Marginal cost
The additional cost of producing one more unit of output.
Break-even analysis
Uses cost and revenue data to determine the break-even point of production.
Margin of safety
The amount by which the current output level exceeds the break-even level of output.
Contribution per unit
The price of a product less the direct (variable) costs of producing it.
