Lecture 1 B Flashcards

1
Q

What are fixed costs

A

Fixed costs are costs that do not change with the level of production or sales

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2
Q

What are some examples of fixed costs

A

Examples of fixed costs are:
- Rent for office or factory space
- Salaries of permanent employees
- Insurance premiums
- Depreciation

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3
Q

What are variable costs

A

Variable costs are costs that fluctuate in direct proportion to the level of production or sales

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4
Q

What are some examples of variable costs

A

Examples of variable costs are:
- Raw materials
- Direct labor
- Utilities
- Shipping costs

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5
Q

What are direct costs

A

Direct costs are costs that can be directly traced to the production of specific goods or services

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6
Q

How are direct costs incurred

A

Direct costs are incurred directly as a result of manufacturing or delivering a product

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7
Q

What are examples of direct costs

A

Examples of direct costs are:
- Direct materials
- Direct labour

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8
Q

What are indirect costs

A

Indirect costs are costs that are not directly traceable to a specific product or service but are necessary for the overall operation of the business

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9
Q

What are examples of indirect costs

A

Examples of indirect costs are:
- Rent for the building
- Utilities
- Administrative salaries

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10
Q

What are semi variable costs

A

Semi variable costs are costs that have both fixed and variable components

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11
Q

What are examples of semi variable costs

A

Examples of semi variable costs are:
- Utility bills
- Salaries of employees
- Maintenance costs

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12
Q

What are sunk costs

A

Sunk costs are costs that have already been incurred and cannot be recovered

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13
Q

Why are sunk costs irrelevant to future decisions

A

Sunk costs are irrelevant to future decisions because they cannot be altered

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14
Q

What are examples of sunk costs

A

Examples of sunk costs are:
- Money spent on research and development for a product that was discontinued
- Investment in a project that has already been completed

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15
Q

What is opportunity cost

A

Opportunity cost is the cost of forgoing the next best alternative when making a decision

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16
Q

What does opportunity cost represent

A

Opportunity cost represents the benefits that could have been obtained by choosing the alternative

17
Q

What are marginal costs

A

Marginal costs are additional cost incurred by producing one more unit of output

18
Q

Why are fixed costs irrelevant for short term decision making

A

Since fixed costs are incurred regardless of whether a decision is made to increase or decrease production, they are not relevant for short-term decisions

19
Q

What is the primary goal of cost control

A

The primary goal of cost control is to ensure that a business’s actual costs align with its budgeted or expected costs

20
Q

What can businesses ensure by closely monitoring and managing costs

A

By closely monitoring and managing costs, businesses can ensure they stay within budget and identify areas for improvement or potential inefficiencies

21
Q

How does cost control work

A

Cost control works by:
- Budgeting
- Variance Analysis
- Cost Reduction

22
Q

How does regularly comparing actual costs with budgeted costs help businesses

A

Regularly comparing actual costs with budgeted or standard costs helps identify variances and investigate the reasons for discrepancies

23
Q

What is cost reduction

A

Cost reduction is identifying areas where costs can be reduced without affecting the quality or output of the business

24
Q

What do businesses need to understand to ensure profitability

A

To ensure profitability, businesses need to understand their cost structure and set prices that cover both fixed and variable costs

25
What does cost plus pricing involve
Cost plus pricing involves calculating the total cost of producing a product and adding a markup to achieve the desired profit margin
26
What does break even analysis help businesses involve
Break even analysis helps determine the price at which a business can cover its fixed costs and start generating profit
27
Why is cost information helpful for short and long term decision making
Cost information is necessary for short-term and long-term decision-making, helping businesses choose the most cost-effective alternatives and make strategic decisions regarding operations
28
What are the three primary purposes of cost information
The three primary purposes of cost information are: - Cost control and management - Pricing decisions - Decision making and financial planning