9609 · 5.4.3
Uses of cost information flashcards
Revision flashcards for Cambridge 9609 Uses of cost information (syllabus 5.4.3). Flip, recall, then mark a real past-paper question.
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How does cost data help pricing?
Sets minimum price (cover VC or full cost depending on horizon); supports cost-plus and contribution-based pricing.
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Cost control use?
Compare actual costs to budget; investigate variances; hold managers accountable.
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Product profitability use?
Identify which products/lines cover their costs and contribute most to profit.
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Make-or-buy decision?
Compare internal cost (including opportunity cost) with supplier quote — often using relevant costs only.
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Limitation: historical costs?
Past costs may not predict future — inflation, technology, and volume changes make data outdated.
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Limitation: allocation of overheads?
Arbitrary overhead allocation can make a product look unprofitable when it is not.
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Benchmarking link?
Compare unit costs with industry best practice to find efficiency gaps.
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Link to marketing?
Cost floor interacts with demand and positioning — price must cover costs AND match market willingness to pay.
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What is 'contribution per limiting factor'?
A method to decide production priorities when a resource (e.g., machine hours, skilled labour) is scarce. It's calculated as (Contribution per unit) / (Amount of limiting factor per unit). Products with the highest result should be prioritised.