unit 5

• Total revenues = price of sale x quantity sold
• Total cost = fixed costs + variable costs
• What are fixed costs?

  costs that dont change regardless of the amount you produce
• What is an example of fixed costs?

  rent
• What are variable costs?


  costs that depend entirely on the amount you produce
• Variable costs are volume driven
• What is an example of varieble costs?

  materials and direct labor
• Is direct labor a fixed or variable cost?

  variable
• Breakeven is the point where total revenues equal total costs and profit is exactly zero
• What is the formula for breakeven?

  fixed costs/(price - variable cost)
• Contribution margin = price - variable cost
• Outsourcing is hiring an external company to do things for you
• Outsourcing decreases fixed costs but increases variable costs
• What is one disadvantage of outsourcing?

  you lose control
• When a company is big, they try to eliminate intermediaries so they are less likely to outsource
• You should never outsource in aspects that are essential/key to the business
• Outsourcing is the opposite of 'vertical integration' as it adds intermediaries instead of eliminating them
• What are the 4 benefits of outsourcing?

  reduces labor costs, cheaper administrative task, allows you to focus on your own employees and if an employee is absent, you dont need to find a replacement (the comapny is obligated to send them)
• What are the 3 disadvantages of oursourcing?

  you pay more, you have less control and external employees are less loyal
• What is offshoring?

  hiring another company located in a different country
• Offshoring is an extension of outsourcing
• Offshoring is a strategy implemented especially by medium and large companies
• What is internalization?

  when a company moves the manufacturing abroad
• What is reshoring?

  returning to the country of origin
• What are other names for reshoring?

  inshoring and backshoring
• Variance analysis = comparing the actual achievement of the business during a period with the budget for the same time period