Chapter 19 Cost Behavior Flashcards
The manner in which a cost changes in relation to its activity base (driver)
Cost behavior
Activities that cause the cost to change
Activity bases
The range of activity over which the changes in the cost are of interest
Relevant Range
Costs that vary in total dollar amounts as the level of the activity changes.
Variable Costs
Costs that tend to remain the same in amount, regardless of variations in the level of activity
Fixed Costs
Costs with both variable and fixed characteristics; sometimes called semivariable or semifixed costs
Mixed Costs
A technique that uses the highest and lowest total costs as a basis for estimating the variable cost per unit and the fixed cost component of a mixed cost
high-low method
The concept that considers the cost of products manufactured to be composed only of those manufacturing costs that increase or decrease as the volume of production rises or falls (direct materials, direct labor, and variable factory overhead)
Variable costing
The systematic examination of the relationships among selling prices, volume of sales and production, cost, expenses, and profits.
Cost-volume-profit analysis
Sales less variable costs and variable selling and administrative expenses
Contribution margin
The percentage of each sales dollar that is available to cover the fixed costs and to provide income from operations
Contribution margin ratio
contribution margin / sales
contribution margin ratio
The dollars available from each unit of sales to cover fixed costs and provide operating profit
unit contribution margin
The level of business operations at which revenues and expenses are equal
break-even point
Fixed costs / unit contribution margin
Break-Even Sales (units)
Fixed costs / contribution margin ratio
Break-Even Sales (dollars)
A chart used to assist management in understanding the relationships among sales, costs, and operating profit or loss, sometimes called a break-even chart
Cost-volume-profit chart
Fixed Costs + Target Profit / Unit Contribution Margin
Target Sales (units)
Fixed Costs + Target Profit / Contribution Margin Ratio
Target Sales (dollars)
A chart that plots only the difference between total sales and total costs (or profits), used to assist management in understanding the relationship between profit and volume
Profit - volume chart
Total sales and total cost can be represented by straight lines
Assumption of cost-volume profit analysis
Within the relevant range of operating activity, the efficiency of operations does not change
Assumption of cost-volume profit analysis
Cost can be divided into fixed and variable components
Assumption of cost-volume profit analysis
The sales mix is constant
Assumption of cost-volume profit analysis
There is not change in the inventory quantities during the period
Assumption of cost-volume profit analysis
The relative distribution of sales among the various products sold by a company; sometimes referred to as product mix
sales mix
A measure of the relative mix of a business’s variable cost and fixed costs, computed as contribution margin divided by operating income
Operating leverage
Contribution Margin / Income from Operations
Operating leverage
Indicates the possible decrease in sales that may occur before an operating loss results
margin of safety
Sales - Sales at Break-Even Point / Sales
margin of safety
