Cost behaviour and break-even analysis

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1. Opportunity cost

  • Value of an opportunity that has passed or been missed
  • Weighing up the value of each opportunity before decision is made
  • Value of an opportunity a business will take
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2. Relevant cost examples:

  • Differential future cost
  • Opportunity cost & Differential future cost
  • Differential future cost & Historic cost
  • Opportunity cost & Historic cost

3. Min. price for sale if product no longer used anyway?

  • Re-sale value £12
  • Replacement cost £14
  • Historic cost £/Unit £10

4. BEP = [Total sales revenue =

  • Total cost - Fixed cost]
  • Total cost]
  • Total cost + Variable cost]
  • Total cost - Variable cost]

5. Break-even point (BEP):

  • It is the level of (output) at which total cost is equal total revenue.
  • When company generates a positive profit that is also an even number
  • When a company breaks into a bank

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