Lecture 1 B

Question 1

What are fixed costs

Answer 1

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

Question 2

What are some examples of fixed costs

Answer 2

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

Question 3

What are variable costs

Answer 3

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

Question 4

What are some examples of variable costs

Answer 4

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

Question 5

What are direct costs

Answer 5

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

Question 6

How are direct costs incurred

Answer 6

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

Question 7

What are examples of direct costs

Answer 7

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

Question 8

What are indirect costs

Answer 8

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

Question 9

What are examples of indirect costs

Answer 9

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

Question 10

What are semi variable costs

Answer 10

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

Question 11

What are examples of semi variable costs

Answer 11

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

Question 12

What are sunk costs

Answer 12

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

Question 13

Why are sunk costs irrelevant to future decisions

Answer 13

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

Question 14

What are examples of sunk costs

Answer 14

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

Question 15

What is opportunity cost

Answer 15

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

Question 16

What does opportunity cost represent

Answer 16

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

Question 17

What are marginal costs

Answer 17

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

Question 18

Why are fixed costs irrelevant for short term decision making

Answer 18

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

Question 19

What is the primary goal of cost control

Answer 19

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

Question 20

What can businesses ensure by closely monitoring and managing costs

Answer 20

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

Question 21

How does cost control work

Answer 21

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

Question 22

How does regularly comparing actual costs with budgeted costs help businesses

Answer 22

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

Question 23

What is cost reduction

Answer 23

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

Question 24

What do businesses need to understand to ensure profitability

Answer 24

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

Question 25

What does cost plus pricing involve

Answer 25

Cost plus pricing involves calculating the total cost of producing a product and adding a markup to achieve the desired profit margin

Question 26

What does break even analysis help businesses involve

Answer 26

Break even analysis helps determine the price at which a business can cover its fixed costs and start generating profit

Question 27

Why is cost information helpful for short and long term decision making

Answer 27

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

Question 28

What are the three primary purposes of cost information

Answer 28

The three primary purposes of cost information are:
- Cost control and management
- Pricing decisions
- Decision making and financial planning