Term 4- Manergerial Decision Making Theory Flashcards
Fixed Cost
Fixed Costs remain the same as the level of activity changes
Variable Costs
Variable Costs change as the level of activity changes
Contribution Margin
Contribution Margin is the Sales Less Variable Costs
Break Even
Break-even is when sales equals costs and no profit is made
Product Costs
Product Costs are all costs involved in the manufacture or provision of a particular good or service
Period Cost
Period Costs are non-product costs incurred by not directly required to produce a particular item or service.
Explain the Difference between Fixed and Variable Costs. Give Examples
Fixed Costs remain the same as the level of activity changes, for example, rates. Whereas Variable costs change as the level of activity changes, for instance salesmen’s wages.
Grease
Variable
Franchise Fees
Fixed
Mechanics Wages
Variable
Advertising
Fixed
Factory Rent
Fixed
Electricity
Fixed
Gardener’s Wages
Fixed
Tyres
Variable
Explain the difference between gross profit and contribution margin
Contribution Margin is sales less variable costs, which include Cost of Goods Sold and casual wages. Whereas Gross Profit is sales less Cost of Goods Sold and Sales Returns
Explain the difference between product and period cost
Product Cost are the costs involved in the manufacture or provision of a particular good or service. Whereas Period Costs are non product costs incurred but not directly required to produce a particular item or service
Explain why a business would calculate break-even point
Business’ calculate their break-even point, to know what level of sales they must achieve to cover costs and to assess whether the current price structure is appropriate
If the fixed expense of a business increase, what will happen to the break even point for that business?
If the fixed costs of a business increases, the break-even point of the business will also increase requiring more sales to cover their larger costs
Break Even
Fixed Costs/Contribution Margin
Target Profit
(Fixed Cost +Target Profit)/ contribution Margin
Contribution Margin
Selling Price- Variable Cost
Product Unit Cost
Product Cost/ Units Produced
Total Unit Cost
Total Cost/ Units Produced
When deciding whether to make or buy the product, compare the _________ cost
Product cost.
When Calculating break-even or Target Profit, Round to
Greater whole number (UP)
When calculating Product unit cost and total unit cost round to.
Two Decimal Place.
