6A-End of Term Revision

What are direct costs in production?

• Indirect costs that cannot be traced to specific products

• Direct costs in production are expenses that can be directly traced to the production of specific goods or services.

• General administrative expenses unrelated to production

• Costs associated with marketing and advertising

How do indirect costs differ from direct costs?

• Indirect costs are always higher than direct costs.

• Indirect costs are always fixed expenses, while direct costs are variable.

• Direct costs can be allocated to multiple projects, while indirect costs cannot.

• Indirect costs differ from direct costs in that they cannot be directly traced to a specific project, while direct costs can.

What is the definition of variable costs?

• Costs that are unrelated to production activities.

• Variable costs are costs that vary with production volume.

• Fixed costs that remain constant regardless of production volume.

• Costs that are incurred only during the off-season.

Can you give an example of fixed costs in a business?

• Rent for office space

• Cost of raw materials

• Employee salaries

• Utility bills

What is included in production overhead?

• Utilities, rent, salaries of supervisors, depreciation, maintenance costs.

• Raw materials costs

• Shipping fees

• Marketing expenses

What is the primary difference between marginal costing and absorption costing?

• There is no difference; they are two terms for the same costing method.

• Absorption costing includes both variable and fixed manufacturing costs, while marginal costing includes only variable costs.

• Marginal costing is used for external reporting, while absorption costing is used for internal decision-making.

• Marginal costing includes fixed costs in product costs, while absorption costing does not.

Which of the following is a disadvantage of absorption costing?

• It can lead to overproduction to increase reported profits.

• It does not allocate fixed manufacturing costs to products.

• It is simpler to understand than marginal costing.

• It provides better insights for short-term decision-making.

In which scenario is marginal costing particularly useful?

• When assessing the long-term profitability of a product line.

• When determining the break-even point for a new product.

• When preparing budgets for fixed costs.

• When calculating the total cost of goods sold for financial statements.

What is the break-even point in financial terms?

• The point where profits are maximized.

• The point where total revenue equals total costs.

• The point where variable costs exceed fixed costs.

• The point where fixed costs are covered.

Which of the following is an advantage of calculating the break-even point?

• It simplifies tax calculations.

• It guarantees profitability.

• It eliminates the need for budgeting.

• It helps in setting sales targets.