9609 · 5.4.1
Cost information flashcards
Revision flashcards for Cambridge 9609 Cost information (syllabus 5.4.1). Flip, recall, then mark a real past-paper question.
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What is a fixed cost?
A cost that does not change with the level of output in the short run (e.g. rent, salaried staff, insurance).
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What is a variable cost?
A cost that changes in direct proportion to output (e.g. raw materials, commission, packaging).
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Total cost formula?
Total cost = Fixed costs + Total variable costs.
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Average cost formula?
Average cost = Total cost ÷ Output (units).
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Why classify costs as fixed vs variable?
Enables contribution analysis, break-even, pricing decisions, and budget control.
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Semi-variable (step) cost example?
Electricity with a standing charge plus usage - partly fixed, partly variable.
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Why is accurate cost data important?
Wrong costs lead to bad pricing, false profit figures, and poor investment decisions.
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Average cost and output relationship?
As output rises, average fixed cost falls (spreading overheads); average variable cost may rise if efficiency falls.