Variable, Fixed, period, Product

Question 1

Define Fixed Costs

Answer 1

are those costs that do not vary when the level of sales changes, electricity

Question 2

Define Variable Costs

Answer 2

are those costs that increase in proportion to the output being produced by a business, cost of goods sold

Question 3

Define Contribution Margin

Answer 3

is a managerial accounting term that describes the amount of gross profit received from sales after variable costs are deducted

Question 4

Define Break -Even

Answer 4

when the total sales equal the total costs and the profit is zero.

Question 5

Define Product Costs

Answer 5

are all costs involved in the manufacture or provision of a particular good or service, nails

Question 6

Define Period Costs

Answer 6

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

Question 7

Explain the difference between fixed and variable costs, using an example.

Answer 7

fixed costs are costs such as salaries and electricity that do not increase or decrease with the change in sales but rather are set for the entire accounting period. However, variable costs such as cost of goods sold and materials change due to the proportion of output being produced or service given.

Question 8

Explain the difference between gross profit and contribution margin.

Answer 8

gross profit is equal to net sales less cost of goods sold whereas the contribution margin takes into consideration variable costs hence, contribution margin equals net sales less variable costs of which variable costs includes cost of goods sold. The difference between cost of goods sold and variable costs is that the variable costs also includes casual wages, packaging etc.

Question 9

Explain the difference between product and period costs.

Answer 9

Product costs are costs incurred to directly produce the product such as screws and direct labour. Whereas, period costs include advertising and office electricity of which do need to be covered however, are not associated with costs from making the item or providing the service.

Question 10

Explain why a business would calculate break-even point.

Answer 10

to know what levels of they must achieve as a minimum to cover costs.
to assess whether the current price structure is appropriate.