CUET Entrepreneurship-Chapter-Determination of cost

(b)

Exp: In the process of manufacture and sales, the entrepreneur forgoes certain advantages, which he should have otherwise availed. The value of the best alternative forgone in measurable terms, amounts to the opportunity cost of that action.

(d)

Exp: The advantages associated with the best alternative forgone by the entrepreneur in the process of manufacture as well as sales are termed as the opportunity cost.

(d)

Exp: The human input is essential for the conversion of raw materials into finished products, which is possible through the accumulated skill and knowledge of the workers employed, termed as human capital.

(b)

Exp: Fixed assets such as building, plant and machinery etc. have a definite span of life after which they lose their usefulness for the business operations. So, the process of allocation of cost of a fixed asset over its useful life is known as depreciation.

(a)

Exp: The raw materials, power, wages of labour etc. are the variables which contribute directly to the product and are called as direct costs.

(c)

Exp: The expenditure such as electricity bill, telephone bill etc. fall under the category of semi-variable costs as they do not bear any relationship with the time or quantity of production.

(b)

Exp: For the efficient functioning of an enterprise, estimation of cost is very crucial. The accurate estimation of cost is very significant for an enterprise in the process of decision making.

(d)

Exp: The telephone bill consists of fixed as well as variable part, thus categorised as semi-variable cost. It has a fixed rental cost part and a variable cost portion depending upon the usage.

(d)

Exp: The costs that remain unchanged and static irrespective of the changes in the output of the product are called fixed costs.

(a)

Exp: The depreciation of plant, machinery and building etc. constitute the fixed cost of an enterprise. This amount is fixed and does not change with respect to quantity of production.

(a)

Exp: Variable costs are those which vary with the output, time and other factors. The royalty cost can be categorised as variable cost as it varies with time.

(b)

Exp: The fixed costs are those that remain unchanged as well as static and are not affected by the changes in the output of the product.

(c)

Exp: materials are the inputs of required in manufacturing of the product. These are of two types, direct materials and indirect materials. Examples of materials are raw materials, components purchased, construction materials etc.

(b)

Exp: Raw materials are categorised as the direct material because they are primary input for the production of a product. These are indispensible for production.

(c)

Exp: The human input is essential for the conversion of the raw materials into finished products and the cost involved in their employment is termed as cost of labour.

(d)

Exp: The materials which indirectly facilitate in the manufacture of a product are called as the ancillary materials such as oils and grease, office stationary etc.

(b)

Exp: The balance sheet is usually made for a period of one year and reflects the annual closing status of the enterprise for the year under consideration. It reflects the assets on one side and the liabilities on the other.

(d)

Exp: The balance sheet preparation is an important exercise and provides the entrepreneur an understanding of the financial position of the enterprise indicating the actual profit earned as well as total income and expenditure incurred in that specific year.

(a)

Exp: The balance sheet facilitates the market to asses the strengths and weaknesses of the company, its trade worthiness, its efficiency, its sustainability and its economic viability.

(c)

Exp: An insight into the determination of costs facilitates the entrepreneur to become cost effective and helps in planning and organising the purchases, controlling the inventory as well as minimising the price.

(c)

Exp: The insurance premium, depreciation and salary would be categorised under fixed costs, while the cost of wood required to make custom tables would be variable cost as it would vary with the quantity of production.

(c)

Exp: The enterprise may incur several other expenses which are indirectly attributed to the production such as wages of the time keepers, store personnel, advertising etc. such costs are incurred as a part of the system.

(b)

Exp: The entrepreneur may have several types of income through the operation of the enterprise. It can be in the form of lease or rent income earned by lending a part of the building, interest income, dividend income etc.

(d)

Exp: An enterprise incurs several overhead costs in due course of operation, such as on office building, telephone, communication network, furniture and equipment etc. These costs are important for the day to day functioning of the enterprise.

(c)

Exp: Thehuman input is essential for the conversion of the raw materials into finished products and is called as labour.

(a)

Exp: Bad debts forms the expenditure of an enterprise as it may be incurred by the entrepreneur while running the enterprise.

(a)

Exp: An insight into the determination of costs facilitates the entrepreneur to make the enterprise cost effective as it helps in controlling as well as estimating cost of manufacturing and marketing the product.

(b)

Exp: An effective an appropriate determination of cost helps an enterprise to reduce its cost of operations and thus become cost effective.

(c)

Exp: An effective an appropriate determination of cost helps an enterprise to plan as well organise its purchases. This in turn helps in reducing wastages and overall expenditure.

(a)

Exp: An entrepreneur can control the inventory levels of the enterprise through the effective cost determination process. Keeping an appropriate level of inventory helps an enterprise to reduce cost.

(d)

Exp: an entrepreneur can minimise the price of its products through an appropriate determination of cost. Effective cost determination helps in reducing cost of operation, making the product cheaper and providing the entrepreneur a competitive edge over others.

(d)

Exp: The output of the enterprise’s resources can be maximised by the entrepreneur through the process of effective cost determination.

(c)

Exp: An enterprise is said to be incurring losses if the total amount of its expenditure is greater than the total revenue earned.

(b)

Exp: Anenterprise is said to be earning profit if its total revenue exceeds its total cost thus providing surplus.

(a)

Exp: Anentrepreneur needs to engage the services of an expert or a cost accountant to closely look at various aspects of cost management and cost control.

(b)

Exp: The costs involved in the employment of human input who are essential for the conversion of the raw materials into finished products are categorised under direct costs.

(a)

Exp: An organisation employs several employees such as time keepers, stores assistants, foreman, and salesmen etc. who are not directly involved in the production process but are working as indirect support and thus referred as indirect labour.

(c)

Exp: According to the terminology adopted by C.I.M.A, England, the term cost refers to the amount of expenditure actual or notional incurred on, or attributable to a given thing.

(a)

Exp: It is very important for an entrepreneur to be sensitive towards various inputs that determine the cost of products, because they are crucial for the formulation of the market strategies of the enterprise.

(a)

Exp: The cost of the product at the production stage, excluding the marketing as well as selling expenditure is referred to as the site cost.

(c)

Exp: The value offixedassets like plant and machinery etc. used in the due course of production decrease with passage of time and because of wear and tear, thus referred to as depreciable assets.

(a)

Exp: In order to ascertain the true income during a particular accounting year, an entrepreneur has to estimate the value of the portion of fixed asset utilised for generating revenue, referred as depreciation.

(c)

Exp: The expenditure made on purchasing a truck, which is a fixed asset, by the entrepreneur would amount to the fixed cost of the enterprise. Expenditure on such assets is made for availing useful services in the course of production.

(a)

Exp: Capital expenditure is the amount spent by an enterprise on purchase of fixed assets that are used in the business to earn income and not intended for resale.

(a)

Exp: Since this expenditure on building repair and whitewashing are necessary to make the building usableso they would be added to the cost of the building, which is the fixed asset.

(c)

Exp: As the expenditure incurred on the fees of lawyer or registration fees are being done in association with the purchase of fixed assets so they are categorised as fixed cost.

(a)

Exp: A profit and loss account is prepared to calculate the net profit or net loss of the enterprise for a given accounting period. For the proper administration of an enterprise, the entrepreneur should have a fair idea of profit and loss accounts of his enterprise.

(c)

Exp: Abalance sheet is prepared with a view to measure the true financial position of a business at a particular point of time. It is a screen picture of the financial position of the business.

(b)

Exp: Tangible fixed assets refers to those fixed assets which can be seen and touched such as land and building, plant and machinery, furniture etc.

(a)

Exp: Investments of an enterprise represents capital expenditure on purchase of shares, debentures, bonds etc. to earn interest, dividend, and other benefits.