Chapter 31 - Costs

Question 1

Cost Centre

Answer 1

A section/department of a business that incurs costs

Question 2

Direct Costs

Answer 2

Costs linked directly to the production of goods & services or a unit of production, and can be allocated to a cost centre

Question 3

Indirect Costs

Answer 3

Costs that cannot be directly allocated to a unit of production or a cost centre

Question 4

Fixed Costs

Answer 4

Costs that do not vary with output in the short run

Question 5

Variable Costs

Answer 5

Costs that vary with output

Question 6

Total Cost

Answer 6

Fixed + variable costs

Question 7

Average Cost

Answer 7

Total cost divided by the number of units produced. AKA cost per unit

Question 8

Profit Centre

Answer 8

A section of a business to which both costs and revenue can be allocated to allow the calculation of profit

Question 9

Full Costing

Answer 9

A method of costing in which all direct and indirect costs are allocated to the products, services or divisions of a business

Question 10

Contribution costing

Answer 10

A costing method that allocates only direct costs to cost and profit centres, not overhead costs

Question 11

Contribution per unit

Answer 11

The selling price of a product minus its variable costs

Question 12

Marginal Cost

Answer 12

The cost of producing one extra unit of output

Question 13

Break-Even Analysis

Answer 13

The use of cost and revenue data to determine and calculate the break-even point of production

Question 14

Break-Even Point

Answer 14

The level of output at which revenue equals total costs - here, neither profit nor loss is made

Question 15

Margin of Safety

Answer 15

The amount by which the current/actual output level exceeds the break-even output level