short-term decision making Flashcards
short-term decisions
definition
day-to-day decisions that affect operations
cost behaviour patterns
how does cost vary at different levels of activity
variable costs
definition
costs that change in direct proporiton to level of activity
variable cost
example
raw materials
fixed costs
definition
costs remain unaffected by level of activity
fixed costs
example
salary of managing director
contribution
definition
portion of sales revenue not consumed by variabe costs so can contibute to fixed costs
contribution per unit
equation
sales price- variable costs
total contribution
equaiton
contribution per unit x number of units sold
contribution margin
total contribution/ total revenue x 100
if contribution is larger than fixed costs is there a profit or loss?
profit
what happens if contribution and fixed costs are equal?
break-even
profit using contribution
equation
total contribution - fixed costs
break-even point
definition
sales are suffiecent to pay total costs so profit equals zero
break-even units
equation
FC/ SP-VC
