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6. Total Cost =

  • Fixed Cost + Semi-Variable Cost
  • Product price x Revenue / Fixed Cost
  • Fixed Cost + Variable Cost
  • Variable Cost + Semi-Fixed Cost

7. Margin of Safety in units of output

  • Planned Sales (units) – Break-even Point (units)
  • Planned Sales (units) – Break-even Point (units) x 100 / Planned Sales (units)
  • Planned Sales (units) + Break-even Point (units)
  • Planned Sales (units) / Break-even Point (units)

8. Weaknesses of break-even analysis:

  • Non-linear relationships, Stepped fixed costs, Multi-product businesses
  • Linear relationships, curved fixed costs, Multi-product businesses
  • Linear relationships, flat rate fixed costs, Multi-product businesses

9. Relevant cost examples:

  • Differential future cost & Historic cost
  • Opportunity cost & Differential future cost
  • Opportunity cost & Historic cost
  • Differential future cost

10. Historic cost

  • Cost already incurred
  • Cost that has gone up since original price
  • Cost that has been impacted by inflation

11. Variable Cost

  • Vary according to the volume of activity
  • Remain constant (fixed) when changes occur to the volume of activity
  • It is a mixture of fixed and variable cost

12. Contribution margin ratio =

  • contribution / cost revenue x 100%
  • contribution / cost of sales x 100%
  • contribution / sales revenue x 100%
  • contribution / fixed cost per unit x 100%

13. Margin of Safety in percentage

  • Planned Sales (units) – Break-even Point (units) x 100 / Planned Sales (units)
  • Planned Sales (units) / Break-even Point (units) x100
  • Planned Sales (units) + Break-even Point (units) / Unplanned debt x100 - 5
  • Planned Sales (units) + Break-even Point (units) x 100 / Planned Sales (units)

14. Fixed cost

  • It is a mixture of fixed and variable cost
  • Remain constant (fixed) when changes occur to the volume of activity
  • Vary according to the volume of activity

15. Irrelevant cost examples:

  • Sunk / Expired / Historic cost; a cost that doesn't require the decision of management
  • Sunk / Expired / Historic cost; a cost that will not impact the company
  • Sunk / Expired / Historic cost; a cost that will be avoided by the company

16. Opportunity cost

  • Value of an opportunity that has passed or been missed
  • Weighing up the value of each opportunity before decision is made
  • Value of an opportunity a business will take

17. Units to produce and sell to achieve a Target Profit

  • Variable Cost + Fixed cost / Contribution per unit
  • Fixed cost + Target Profit / Contribution per unit
  • Variable Cost + Target Profit / Contribution per unit

18. Minimum price a business should charge for a lorry (£10,000) fitted with new engine (£2500) which could be sold immediately for (£9,000)

  • Historic cost (£10'000) + Engine cost (£2500) - Opportunity cost
  • Opportunity cost + Engine cost
  • Historic cost (£10'000) + Engine cost (£2500)

19. Margin of Safety:

  • It is the excess of planned volume (equity) of activity compared to the depreciation of (Capital) at Break-even Point
  • It is the excess of planned volume (sales revenue) of activity over volume (sale revenue) at Break-even Point
  • It is the excess of planned volume (equity) of activity over volume (Capital) at Break-even Point