Topic 2 - The Behavior of Costs

Question 1

Costs that vary directly and proportionately with volume.

Answer 1

Variable Cost

Question 2

Costs that do not vary with volume and remain constant.
* Can vary overtime ex. increase in rent
* The unit cost decreases as volume increases
* Ex. salary of permanent staff, rent, depreciations of assets

Answer 2

Fixed Costs (non-variable costs)

Question 3

A combination of VC and FC
* The total amount varies less than proportionally with changes in volume.
* Ex. utilities, salary of commissioned staff.

Answer 3

Semi-variable costs

Question 4

can be described by the equation y = mx +b
TC = UVC*X + FC
*Total costs = Unit Variable Costs * #units + Fixed Costs

Answer 4

Cost-Volume Diagrams

Question 5

Shows the relationship between total costs and revenue at different levels of output.

Answer 5

Profitgraphs

Question 6

The number of units sold, that results in total costs being equal to total revenue.
TFC / (UP-UVC) = ?
*Total fixed cost / (Unit price - Unit Variable Cost)

Answer 6

Breakeven volume

Question 7

(X_T)= ( TFC + T) / (UP-UVC)

Answer 7

Target profit Volume

Question 8

Average profit per unit = (UP - UVC) * X - TFC / X

Answer 8

Operating Leverage

Question 9

The amount of product revenue that covers fixed cost.
UP - UVC = ?

Answer 9

Unit contribution

Question 10

?(%) = UP - UVC / UP

Answer 10

Contribution margin

Question 11

Margin of safety

Answer 11

Measure how much the current sales can drop before reaching breakeven sales
(TR - BeP) / TR