#5 Flashcards
High-low method
One begins by identifying the period with the lowest level of activity and the period with highest activity. The difference in cost observed at the two extremes is devided by the change in activity between extremes in order to estimat the variable cost per units of acitivity
Total Maintenance cost
y=Fixed cost + X*variable costs.
The scattergraph method
Takes all cost data into account.It is a regression line, in effect, is a line of averages, with the average variable cost per unit of activity represented by the slope of the line and the average total fixed cost represented by the point where the regression line interect with the cost axis.
The least-squares regression method
A method of seperating a mixed cost into its fixed and variable element by fitting a regression line that minimizes the sum of squared errorrs.
Volume-profit-analysis
The relations between revenues, cost and level of activity in an organization. Focus on: price of products, volume or level of activity, per unit variable cost, total fixed costs and mix of products sold.
Contribution margin
Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted
Contribution margin rate
CM ratio=contribution margin/sales.
High unit contribution advertise heavilty and low contribution margin (dischware) tend to spend much less for advertising.
Break-even analysis
The equation method: Sales=variable expenses+fixed exspenses+profits (profit=0)
Contribution margin method: break-even point in units sold=fixed exspenses/unit contribution margin
Margin of safety
margin of safety=total budgeted sales-break-even sales.
Operating leverage
Degree of operation leaverage=Contribution margin/profit
Variable costing
All cost that vary with the activity of a product. Kinda the same as the contribution margin, this is just per unit
Absorption costing
Include all cost, both fixed and variable in per unit prices. Not good for decision making.
