Business Interruption Insurance & Claims: Questions & Answers

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Chapter 6

Q6. 1

Gross Profit is a term set down in accounting standards and, as such, has the same meaning across, and is used by, all industries and professions.



Q6. 2

Accountants tend to categorise costs incurred by a business in two ways: (i) Direct or Indirect; and (ii) Variable or Fixed.



Q6. 3

Labour can be a Direct or Indirect Cost in the eyes of an accountant.



Q6. 4

Labour can be a Fixed or Semi-Variable Cost, but never a Variable Cost.



Q6. 5

Direct Costs, as classified by an accountant, are always Variable.



Q6. 6

Where a business uses a Standard Cost system, it is periodically necessary to test Standard Costs to Actual Costs to determine if there are any variations in costs.



Q6. 7

If costs incurred are greater than the Standard Costs, then the variance is described as favourable, whilst if the cost is less than the Standard Cost, then the variance is described as adverse.



Q6. 8

When dealing with a manufacturing business and discussing their costing system, you must always check whether they use a Standard Cost system and, if so, ask to review the variance analysis. If variances are substantial, then you will need to adjust the Standard Cost to allow for this when calculating a claim for stock.



Q6. 9

If the Uninsured Working Expenses are not listed on the Policy Schedule, it may lead to a penalty due to under-insurance.



Q6. 10

Examples of Uninsured Working Expenses are purchases, bad debts, packing and freight.



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