Types of costs Details

Question 1

Categories of costs

Answer 1

-Fixed costs and variable costs
-Direct costs and indirect costs(overheads)

Question 2

Relationship between fixed costs and production

Answer 2

Fixed costs do not increase directly with production

Question 3

Relationship between variable costs and production

Answer 3

Variable costs increase directly with production

Question 4

If there is no production, the variable cost must be zero(T/F)

Answer 4

True

Question 5

Examples of variable costs

Answer 5

-Materials
-Packaging
-Delivery
-Piece-rate wages and sales commission

Question 6

Examples of fixed costs

Answer 6

-Rent and mortgage payments
-Salaries and wages(not dependent on output)
-Utility bills
-Insurance
-Machines(and other capital equipment)

Question 7

Why don’t fixed costs start at zero?

Answer 7

A business still has to pay for rent, equipment and other fixed cost even if the business produces no output

Question 8

Examples of semi-variable costs

Answer 8

-Electricity(monthly bill in addition to cost extra electricity used for equipment)
-Production staff(who are paid a basic salary plus a bonus for additional output)

Question 9

Examples of direct costs

Answer 9

-Staffing cost of employees in the part of the business linked to the sale of goods/services
-Utility costs
-Material costs for a product line
-Equipment

Question 10

Examples of indirect costs

Answer 10

-Advertising campaigns
-Accountancy and auditor’s fees
-Salaries of the board of directors
-ICT and infrastructure costs
-Insurance