Costs

Question 1

Cost concept?

Answer 1

A word to describe money spent on a particular thing.

Reflects a monetary measure

Question 2

The difference between cost and price?

Answer 2

Cost is defined as the amount spent by a business making a product

Price is how much a customer has to pay for product or service

Question 3

What are direct costs?

Answer 3

A direct cost includes materials, labor, expenses and distribution costs associated with producing a product.

Can be easily traced to product or service.

Example is car parts bought to make a car

Question 4

What are indirect costs?

Answer 4

Cannot be traced directly to a product. Example is electricity that powers a company’s building

Question 5

What are fixed costs?

Answer 5

Remain unchanged despite changes in activity for example, a room a company leases for 2K per month, won’t change dependent on their output.

Question 6

What is cost accounting?

Answer 6

Methods of allocating costs to activities in order to set budgets

Question 7

What are variable costs?

Answer 7

Ones that vary in proportion to activity. For example packaging for a toy company. As sales go up packaging costs go up.

Question 8

Marginal costing equation?

Answer 8

Sales - variable costs = contribution

Total contribution - fixed costs = profits

Profit / volume = contribution / sales x 100