Costs and Profit Analysis 31

Flashcards covering key concepts related to costs, profit analysis, and decision-making in business.

What is required to calculate profits or losses accurately?

Accurate cost information.

How can calculating and comparing costs aid decision making?

It helps in making choices between different options.

What do marketing managers use cost data for?

To make pricing decisions.

What are direct costs?

Costs that can be easily identified with a particular cost center.

Give an example of a direct cost for a manufacturing business.

Labor and materials used in production.

What are indirect costs?

Overheads that cannot be easily divided among cost centers.

What is a fixed cost?

Cost that does not change with the level of output.

What is a variable cost?

Costs that change as the level of output changes.

What is the total cost formula?

Fixed costs plus variable costs.

What is a cost center?

A function within an organization that incurs costs but does not directly add to profit.

What is a profit center?

An organizational unit responsible for generating revenue and managing costs.

What are overhead costs?

Costs of running a business that are not directly related to producing a good or service.

What is average cost?

Total cost of producing a product divided by the number of units produced.

What is full costing?

A method of costing in which all fixed and variable costs are allocated to products.

What is contribution costing?

A costing method that allocates only direct costs to cost/profit centers, not overhead costs.

What is breakeven analysis?

The point of production where a firm's revenue equals its total costs, resulting in no profit or loss.

What is the margin of safety?

The amount by which sales level exceeds the breakeven level of output.

What does contribution indicate?

Selling price per unit minus variable costs per unit, representing the portion that contributes to fixed costs.

What are the benefits of breakeven analysis?

Easy to construct and interpret charts, provides guidelines on breakeven points, safety margin, and profit levels.

What are limitations of breakeven analysis?

Limited to single-product analysis, static analysis, and may not consider changes in market conditions.