Chapter 5.4 COSTS
Short answer questions
1. Define the terms:
a. ‘costs’ [2]
b. ‘revenues’. [2]
2 a. Explain one difference between average costs and marginal costs. [3]
b. Explain one reason why average costs might fall as a business increases its level of output. [3]
3 a. Define the term ‘full costing’. [2]
b. Explain one way in which a large manufacturing business might allocate its overheads between the different products that
it supplies. [3]
4 Explain one reason why it might be difficult for the manufacturer in question 3b to allocate its overheads accurately. [3]
5 Explain one reason why a business might refuse an order for its products at a price that is higher than
normal. [3]
6 Explain one reason why a business might decide to accept an order for its products at a price of $300 per
unit when its normal selling price is $400 perk unit. [3]
7 Explain one way in which a business might calculate the marginal cost of a single unit of output. [3]
8 Explain one reason why contribution costing avoids the need to allocate overheads. [3]
9 a. Define the term ‘break-even output’. [2]
b. A business sells its products for an average price of $40, has fixed costs of $100 000 and contribution per unit of $15.
Calculate the level of output required to break even. [2]
10 a. Define the term ‘margin of safety’. [2]
b. Calculate the margin of safety if a business has sales of 10 000 units per year and its break-even output is 6500 units
Let’s go at 2.15 and slowly go down