Term 4- Manergerial Decision Making Theory

Question 1

Fixed Cost

Answer 1

Fixed Costs remain the same as the level of activity changes

Question 2

Variable Costs

Answer 2

Variable Costs change as the level of activity changes

Question 3

Contribution Margin

Answer 3

Contribution Margin is the Sales Less Variable Costs

Question 4

Break Even

Answer 4

Break-even is when sales equals costs and no profit is made

Question 5

Product Costs

Answer 5

Product Costs are all costs involved in the manufacture or provision of a particular good or service

Question 6

Period Cost

Answer 6

Period Costs are non-product costs incurred by not directly required to produce a particular item or service.

Question 7

Explain the Difference between Fixed and Variable Costs. Give Examples

Answer 7

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.

Question 8

Grease

Answer 8

Variable

Question 9

Franchise Fees

Answer 9

Fixed

Question 10

Mechanics Wages

Answer 10

Variable

Question 11

Advertising

Answer 11

Fixed

Question 12

Factory Rent

Answer 12

Fixed

Question 13

Electricity

Answer 13

Fixed

Question 14

Gardener’s Wages

Answer 14

Fixed

Question 15

Tyres

Answer 15

Variable

Question 16

Explain the difference between gross profit and contribution margin

Answer 16

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

Question 17

Explain the difference between product and period cost

Answer 17

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

Question 18

Explain why a business would calculate break-even point

Answer 18

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

Question 19

If the fixed expense of a business increase, what will happen to the break even point for that business?

Answer 19

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

Question 20

Break Even

Answer 20

Fixed Costs/Contribution Margin

Question 21

Target Profit

Answer 21

(Fixed Cost +Target Profit)/ contribution Margin

Question 22

Contribution Margin

Answer 22

Selling Price- Variable Cost

Question 23

Product Unit Cost

Answer 23

Product Cost/ Units Produced

Question 24

Total Unit Cost

Answer 24

Total Cost/ Units Produced

Question 25

When deciding whether to make or buy the product, compare the _________ cost

Answer 25

Product cost.

Question 26

When Calculating break-even or Target Profit, Round to

Answer 26

Greater whole number (UP)

Question 27

When calculating Product unit cost and total unit cost round to.

Answer 27

Two Decimal Place.