5.4 Costs Flashcards

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Costs

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are expenses that a business has to pay to engage in its trading activities.

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Revenue

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is the income a business receives from selling its goods or services.

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Direct costs

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can be related to the production of a

particular product and vary directly with the level of output.

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Indirect costs

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are overheads that cannot be allocated to

the production of a particular product and relate to the business as a whole.

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Full costing

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allocates all the costs of production for the

whole business. Therefore, these costs are absorbed into each output unit.

This is also known as absorption costing.

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Contribution

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can be defined as the difference between

sales revenue and variable costs of production.

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Break-even

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is the level of production or output at which a

business’ sales or total revenue is exactly equal to its total costs of production.

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Profits

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are the amount by which revenue exceeds total costs.

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Contribution costing

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calculates the cost of a product

solely on the basis of variable costs, thus avoiding the need to allocate fixed costs.

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Average costs

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are the total cost of production divided by

the number of units produced.