Chapter 11

Question 1

Break-even Point

Answer 1

the amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss

Question 2

Contribution

Answer 2

the difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit

Question 3

Contribution Margin Ratio

Answer 3

the percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue

Question 4

Cost Behavior

Answer 4

the way a cost affected by changes in activity levels

Question 5

Fixed Costs

Answer 5

costs that remain constant in total, regardless of activity level, at least over a certain range of activity

Question 6

High-low Method

Answer 6

a method of segregating the fixed and variable components of a mixed cost by analyzing the costs at the highest and the lowest activity levels within a relevant range

Question 7

Method

Answer 7

a method of segregating the fixed and variable components of a mixed cost by plotting on total costs at several activity levels and drawing a regression line through the points

Question 8

Mixed Costs

Answer 8

costs that contain both variable and fixed costs components

Question 9

Operating Leverage

Answer 9

the extent to which fixed costs replace variable costs as part of a company’s cost structure, the higher the proportion of fixed costs to variable costs, the faster income increases or decreases with changes in sales volume

Question 10

Per-unit Contribution

Answer 10

the excess of the sales price of one unit over its variable costs

Question 11

Profit Graph

Answer 11

a graph that shows how profits vary with changes in volume

Question 12

Regression Line

Answer 12

on a scatter-graph, the straight line that most closely expresses the relationship between the variables

Question 13

Relevant Range

Answer 13

the range of operating level, or volume of activity, over which the relationship between total costs (variable plus fixed) and activity level is approximately linear

Question 14

Return on Sales Revenue

Answer 14

a measure of operating performance; computed by dividing net income by total sales revenue. similar to profit margin

Question 15

Sales Mix

Answer 15

the relative proportion of total sales dollars (or total units sold) that is represented by each of a company’s products

Question 16

Scattergraph

Answer 16

a method of segregating the fixed and variable components of a mixed cost by plotting on total costs at several activity levels and drawing a regression line through the point

Question 17

Stepped Costs

Answer 17

costs that change in total in a stair-step fashion (in large amounts) with changes in volume of activity

Question 18

Target Income

Answer 18

a profit level desired by management

Question 19

Variable Cost Rate

Answer 19

the change in cost divided by the change in activity; the slope of the regression line

Question 20

Variable Costs

Answer 20

costs that change in total in direct proportion to changes in activity level

Question 21

Visual-fit

Answer 21

a method of segregating the fixed and variable components of a mixed cost by plotting on total costs at several activity levels and drawing a regression line through the points