ch6 vocab

Question 1

absorption costing

Answer 1

the costing method where products “absorb” both fixed and variable manufacturing costs

Question 2

account analysis

Answer 2

a method for determining cost behavior that is based on a manager’s judgment in classifying each general ledger account as a variable, fixed, or mixed cost

Question 3

committed fixed costs

Answer 3

fixed costs that are locked in because of previous management decisions; management has little or no control over these costs in the short run

Question 4

contribution margin

Answer 4

sales revenue minus variable expenses

Question 5

contribution margin income statement

Answer 5

income statement that organizes costs by behavior (variable costs or fixed costs) rather than by function

Question 6

cost behavior

Answer 6

describes how costs change as volume chagnes

Question 7

cost equation

Answer 7

a mathematical equation for a straight line that expresses how a cost behaves

Question 8

curvilinear costs

Answer 8

a cost behavior that is not linear(not straight line)

Question 9

discretionary fixed costs

Answer 9

fixed costs that are a result of annual management decisions; fixed costs that are controllable in the short run

Question 10

high-low method

Answer 10

a method for determining cost behavior that is based on two historical data points; the highest and lowest volume of activity

Question 11

mixed cost

Answer 11

costs that change, but not in direct proportion to changes in volume. Mixed costs have both variable cost and fixed cost components

Question 12

regression analysis

Answer 12

a statistical procedure for determining the line that best fits the data by using all of the historical data points, not just the high and low data points

Question 13

relevant range

Answer 13

the band of volume where total fixed costs remain constant at a certain level and where the variable costs per unit remains constant at a certain level

Question 14

scatter plot

Answer 14

a graph that plots historical cost and volume data

Question 15

step costs

Answer 15

a cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume

Question 16

outliers

Answer 16

abnormal data points; data points that do not fall in the same general pattern as the other data points

Question 17

variable costs

Answer 17

costs incurred for every unit of activity. As a result, total variable costs change in direct proportion to changes in volume

Question 18

variable costing

Answer 18

the costing method that assigns only variable manufacturing costs to products. All fixed manufacturing costs (fixed MOH) are expensed as period costs