4. Answer the questions

1. What for to calculate the costs of different products or services?

2. What are the examples of direct and indirect costs?

3. What is the difference between fixed costs and variable costs?

4. When is a breakeven analysis done?

5. What does a breakeven analysis compare?

6. What do pricing decisions depend on?

V. Match the words in the box with the definitions below. Look at a, b and c opposite to help you

breakeven point overheads

cost centre variable costs

fixed costs profitable

1. expenses that are not clearly related to production or manufacturing

2. a unit of activity in an organization for which costs are calculated separately

3. costs that depend on the amount produced

4. adjective meaning providing income for a company

5. costs that do not change according to the production volume

6. the sales volume at which a company doesn’t make a loss, but doesn’t make a profit

VI. Sort the following into direct, indirect, fixed and variable costs. Look at a and b opposite to help you

Cost	Direct	Indirect	Fixed	Variable
Advertising expenses
Bad debts		√		√
Components	√			√
Electricity to run machines
Electricity for heating
Equipment repairs
Factory canteen
Overtime pay
Raw materials
Property tax
Rent

VII. Which of the following statements describes:

1. absorption costing?

2. activity-based costing?

a

b

VIII. Over to you

What do you think were the most important factors in the pricing of:

- two products you bought recently?

IX. Test your English a) Fill in the missing words in the terms below. Choose from the box.

apportionment center conversion direct fixed integrated indirect interlocking labour marginal

Term Definition

1. direct_______costs Costs which are directly related to making

a product (e.g. materials, labour, and expenses).

2. ____________costs Costs of changing materials into products.

3. ____________costs Costs which are not directly related to making

a product, e.g. rent, administration.

4.Costs_______________ This could be a location, a function, a piece of

equipment or a group of employees where

you can identify and allocate costs for control

purposes.

5. Costs_______________ You divide the common overhead costs

between the various activities which use them

according to how much they use.

6. ________________costs Costs which always stay the same even if

the number of items produced changes.

7. ________________costs The cost of paying workers to make the

product.

8. ________________cost The cost of making a single extra unit above

the number already planned.

9. ________________cost You don't separate financial and cost

accounts accounting.

10. ________________costs Separate cost and financial accounts which

are accounts reconciled sometimes.

Key: 42 Costs

B) Take one word from the left hand column and one from the right to complete each of the following sentences

financial facilities prime analysis functional decisions consumable process maximum data business profit arbitrary materials manufacturing cost

• Accountancy provides financial data which is used to make future business decisions.

• In order to succeed, company managers try to make _____________because this is where capital growth comes from.

• Because accountants rely on estimates rather than true costs, they often have to make ____________________________.

• _______________________are used up in the manufacturing process but are not part of the final product.

• All the direct costs of manufacturing are referred to as__________________________.

• Overhead is the cost of providing _____________________ which you need produce goods.

• The management account should understand the __________________ used to make a product in the factory.

• Cost accounting uses ______________________ which looks at where each transaction comes from.

Key: 43 Cost analysis