Topic Four, Part 5 - Costing Methods Flashcards
What are indirect costs?
costs not attributed to a particular unit of output
What are Fixed costs?
do not change as output or sales change
What are variable costs?
costs that change in proportion to the level of production.
What are stepped fixed costs?
Purchase to increase output, increases fixed costs until investment pays off
What are direct costs?
costs that are directly attributable to a unit output
What is the formula for total costs?
FC + VC or indirect costs + direct costs
What is the formula for unit cost?
Total cost/output
How does increased output cause economies of scale?
Higher the output the lower the unit cost as fixed costs are spread over more units.
What is marginal cost?
The change in variable cost of producing one extra unit
What are social costs?
costs to stakeholders or environment due to the product. e.g. cigarettes or fuel
What is an opportunity cost?
what a business could have spent money on
What is revenue?
The cash that flows into a business from sales
What is the formula for average revenue?
Total revenue/number of sales
How does level of costs affect a business decision making process?
A business needs to remain competitive whilst profiting to please stakeholders.
What is costing?
The financial measure of the effects of any business activity
