Cost behaviour and break-even analysis

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1. Margin of Safety in units of output

  • Planned Sales (units) – Break-even Point (units) x 100 / Planned Sales (units)
  • Planned Sales (units) – Break-even Point (units)
  • Planned Sales (units) / Break-even Point (units)
  • Planned Sales (units) + Break-even Point (units)
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2. Historic cost

  • Cost already incurred
  • Cost that has gone up since original price
  • Cost that has been impacted by inflation

3. Variable Cost

  • It is a mixture of fixed and variable cost
  • Vary according to the volume of activity
  • Remain constant (fixed) when changes occur to the volume of activity

4. Minimum price a business should charge for a lorry (£10,000) fitted with new engine (£2500) which could be sold immediately for (£9,000)

  • Historic cost (£10'000) + Engine cost (£2500) - Opportunity cost
  • Opportunity cost + Engine cost
  • Historic cost (£10'000) + Engine cost (£2500)

5. Semi-Variable Cost or Semi-Fixed Cost

  • It is a mixture of fixed and variable cost
  • Remain constant (fixed) when changes occur to the volume of activity then changes
  • Vary according to the volume of activity

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