MOB Costing

Question 1

What is the Cost of Production?

Answer 1

Cost of Production refers to the total costs a business incurs for the production of a specific amount of products or services.

Question 2

What does the term direct costs refer to?

Answer 2

Direct costs refer to any cost that can be directly attributed to the cost of a specific product or service.

Question 3

What does the term indirect costs refer to?

Answer 3

Indirect costs refer to any cost that cannot be directly identified in the production of a specific product or service.

Question 4

What does the term fixed costs refer to?

Answer 4

Fixed costs refer to the expenses of a business that do not change regardless of its level of output.

Question 5

What does the term variable costs refer to?

Answer 5

Variable costs refer to the expenses of a business that change with the level of production.

Question 6

Contribution formula

Answer 6

Total revenue - Total variable cost

Question 7

Contribution Per Unit formula

Answer 7

Selling price - Variable cost per unit

Question 8

Profit using Marginal Costing Method formula

Answer 8

Total Contribution - Total fixed cost

Question 9

Marginal Costs per unit formula

Answer 9

Variable costs per unit/Units of output

Question 10

Marginal Costs formula

Answer 10

Change in costs/Change in quantity

Question 11

Absorption costs formula

Answer 11

Total Costs/Units of output

Question 12

Profit using the Absorption Costing Method formula

Answer 12

Total revenue - Total Costs

Question 13

Break-even Units

Answer 13

Total fixed cost/Contribution per unit

Question 14

Contribution to sales ratio

Answer 14

(Contribution per unit/Selling price) x 100

Question 15

Break-even Point in Sale

Answer 15

Fixed cost/Contribution to sales ratio

Question 16

What is a make or buy decision?

Answer 16

Make-or-buy decisions refer to the act of using a cost-benefit strategy to decide if to manufacture a product in-house or purchase it from suppliers

Question 17

What triggers a Make or Buy decision?

Answer 17

• Production costs and quality
• Managerial decisions and other long term strategies that dictate the company’s operations
• Historical policy decisions

Question 18

What are the benefits of a Make or Buy decision?

Answer 18

1. It can reduce costs and increase capital investment
2. It can be a source of competitive edge

Question 19

What does in-sourcing refer to?

Answer 19

In-sourcing refers to the utilization of a company’s internal team and resources to accomplish tasks, allowing for more control and oversight.

Question 20

Why would a company in-source?

Answer 20

1. Greater control of quality
2. Unsatisfactory results from suppliers
3. Existing idle production capacity

Question 21

What does the term outsourcing refer to?

Answer 21

Outsourcing refers to the use of external team members to provide access to specialized expertise and resources in the production of a product.

Question 22

Why would a business outsource?

Answer 22

1. Lack of internal expertise
2. Cost reduction
3. Reduced risk exposure