Chapter 19 Flashcards
What is cost behavior?
Cost behavior is how a cost changes as a related activity changes.
What are the three types of costs?
Variable costs, fixed costs, and mixed costs.
What are variable costs?
Costs that vary in proportion to changes in the activity base (e.g., direct materials and direct labor).
What are fixed costs?
Costs that remain the same in total dollar amount as the activity base changes (e.g., factory overhead costs like depreciation).
What are mixed costs?
Costs that have characteristics of both variable and fixed costs.
What is the high-low method?
A cost estimation method that uses the highest and lowest activity levels to estimate variable and fixed costs.
What is the formula for total costs?
Total costs = Fixed costs + Variable costs
What is cost-volume-profit (CVP) analysis?
The study of the relationships among selling prices, sales and production volume, costs, expenses, and profits.
How do you calculate contribution margin?
Contribution margin = Sales – Variable costs
How do you calculate the contribution margin ratio?
Contribution margin ratio = (Sales – Variable costs) ÷ Sales × 100%
What is the break-even point?
The level of operations at which total revenue equals total expenses.
What is the formula for break-even point in units?
Break-even point (units) = Fixed costs ÷ Contribution margin per unit
What is the formula for break-even sales in dollars?
Break-even sales ($) = Fixed costs ÷ Contribution margin ratio
How do you calculate operating leverage?
Operating leverage = Contribution margin ÷ Income from operations
What is the margin of safety?
The possible decrease in sales before an operating loss occurs.
What is the contribution margin?
The excess of sales over variable costs.
What does the contribution margin ratio indicate?
The percentage of each sales dollar available to cover fixed costs and generate income from operations.
What is a cost-volume-profit chart?
A graphical representation that shows sales, costs, and related profit or loss for various sales levels.
What is operating leverage?
The relationship between a company’s contribution margin and income from operations, measured by fixed costs.
How do you calculate contribution margin per unit?
Sales price per unit – Variable costs per unit
How do you calculate operating leverage?
Operating leverage = Contribution margin ÷ Income from operations
