3.3.1BM30 flashcards

Types of costs

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Card 1 of 303.3.1

3.3.1

Question

Define variable costs.

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All 30 Flashcards — Types of costs

Card 1definition

Question

Define variable costs.

Answer

Variable costs are costs that change in direct proportion to the level of output or sales.

💡 Hint

More output = higher cost.

Card 2definition

Question

What is the zero-output test for classifying costs?

Answer

If the cost is still paid when output is zero, it is fixed; if it falls to zero, it is variable.

💡 Hint

Zero output check.

Card 3definition

Question

Define fixed costs.

Answer

Fixed costs are costs that do not change with the level of output or sales in the short run.

💡 Hint

Same even if output changes.

Card 4definition

Question

State the formula for average cost per unit.

Answer

Average cost per unit = Total costs ÷ Number of units produced.

💡 Hint

AC = TC / Q.

Card 5example

Question

Fixed costs do not change with ______.

Answer

Output or sales.

💡 Hint

Same at different output levels.

Card 6definition

Question

State the formula for total costs (TC).

Answer

Total costs (TC) = Fixed costs (FC) + Variable costs (VC).

💡 Hint

TC = FC + VC.

Card 7example

Question

Variable costs change in proportion to ______.

Answer

Output or sales.

💡 Hint

Move with activity.

Card 8example

Question

Give one example of a variable cost.

Answer

Raw materials used to make the product.

💡 Hint

Materials rise with output.

Card 9example

Question

Give one example of a fixed cost.

Answer

Rent for business premises.

💡 Hint

Rent stays the same.

Card 10example

Question

Rent is paid even when the factory produces nothing. Classify this cost.

Answer

Fixed cost.

💡 Hint

Still paid at zero output.

Card 11definition

Question

Define semi-variable (mixed) costs.

Answer

Semi-variable costs have both a fixed component and a variable component.

💡 Hint

Fixed base + variable part.

Card 12example

Question

Why does average cost often fall when output increases?

Answer

Because fixed costs are spread over more units, reducing cost per unit.

💡 Hint

Spread fixed costs.

Card 13example

Question

Raw materials increase when more units are produced. Classify this cost.

Answer

Variable cost.

💡 Hint

Moves with output.

Card 14example

Question

Why are fixed costs sometimes called overheads?

Answer

Because they must be paid even if the business produces or sells nothing.

💡 Hint

Paid even at zero output.

Card 15example

Question

If output falls to zero, what happens to most variable costs?

Answer

They fall to zero because no units are being produced.

💡 Hint

No output = no variable cost.

Card 16example

Question

Give one example of a semi-variable cost.

Answer

An electricity bill with a standing charge plus charges per unit used.

💡 Hint

Standing charge + usage.

Card 17example

Question

If total costs are $15,000 for 1,000 units, what is the average cost per unit?

Answer

$15 per unit.

💡 Hint

Divide TC by units.

Card 18example

Question

State the total cost formula.

Answer

Total costs = Fixed costs + Variable costs.

💡 Hint

TC = FC + VC.

Card 19example

Question

Semi-variable costs contain a ______ part and a ______ part.

Answer

A fixed part and a variable part.

💡 Hint

Two components.

Card 20example

Question

If output doubles, what usually happens to total fixed costs (short run)?

Answer

They usually stay the same.

💡 Hint

Fixed = unchanged.

Card 21example

Question

Why is sales commission usually a variable cost?

Answer

It increases when more sales are made and decreases when sales fall.

💡 Hint

Linked to sales volume.

Card 22example

Question

A phone bill has a fixed monthly charge plus extra call charges. Classify this cost.

Answer

Semi-variable cost.

💡 Hint

Fixed base + variable usage.

Card 23example

Question

A sales employee receives a base salary plus commission. What type of cost is this?

Answer

Semi-variable, because it has a fixed part (salary) and a variable part (commission).

💡 Hint

Salary + commission.

Card 24example

Question

A firm’s average cost falls from $15 to $10 when output rises. State one likely reason.

Answer

Fixed costs are being spread across more units (or economies of scale).

💡 Hint

More units share fixed costs.

Card 25example

Question

Average cost per unit equals total costs divided by ______.

Answer

Units produced.

💡 Hint

AC = TC / Q.

Card 26example

Question

Why is average cost useful for pricing decisions?

Answer

It helps a business judge whether its selling price covers costs and what margin might be earned per unit.

💡 Hint

Pricing needs cost info.

Card 27example

Question

Explain why fixed costs per unit fall when output increases.

Answer

Fixed costs are spread across more units, reducing the fixed cost per unit.

💡 Hint

Spread fixed costs.

Card 28example

Question

In a per-unit model, what is usually true about variable cost per unit?

Answer

It is roughly constant per unit (each extra unit adds a similar extra cost).

💡 Hint

Cost added per extra unit.

Card 29example

Question

Exam trap: Wages can be fixed or variable. Give one example of variable wages.

Answer

Piece-rate wages where workers are paid per unit produced.

💡 Hint

Paid per unit.

Card 30example

Question

A firm has FC=$10,000 and VC=$5 per unit. It produces 2,000 units. Calculate total costs.

Answer

VC = 2,000 × $5 = $10,000. TC = $10,000 + $10,000 = $20,000.

💡 Hint

TC = FC + (VC/unit × units).

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Costs and revenues

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