Chapter 21: Cost Behavior And Cost-Volume-Profit Flashcards
Activity bases
The activities that causes the cost to change
Relevant range
The range of activity over which the changes in the cost are of interest
 Direct materials and direct labor costs are normally classified as this with the activity base is units produced
Variable costs
When the activity base is units produced, many of this are classified as fixed costs.
Factory overhead costs
 The high-low method is what?
A cost estimation method that may be used to separate variable and fixed in mixed costs.
Variable cost per unit =
Difference in total cost / difference in units produced
Highest and lowest levels in mixed costs
Fixed cost =
Total costs - (variable cost per unit * units produced)
Nerve variable costing, only what are included in the production cost?
Direct materials, Direct labor, and variable factory overhead ( variable manufacturing costs)
Contribution margin =
Sales-variable costs
Contribution margin ratio =
Contribution margin / sales
Change in income from Operations =
Change in sales dollars * contribution margin ratio
Unit contribution margin =
Sales price per unit - variable cost per unit
Change in income from Operations (units) =
Change in sales units * Unit contribution margin
Fixed cost / Unit contribution margin
Break-even point
Fixed Costs / contribution margin ratio
Break-even sales (dollars) =
Contribution margin ratio =
Unit contribution margin / unit selling price
Oh thanks cost may change due to what?
Changes in overhead costs
 Unit variable costs may be affected by what?
Hey changes in the cost per unit of direct materials, changes in the wage rate for direct labor, why changes in the sales commission paid to salespeople
Changes in the unit selling price affect the break even point by
Increases will increase the break even point, decreases or decrease the break even point
Sales (units) required for target Profit =
 Fixed costs + Target Profit / unit contribution margin
Sales (dollars) =
Fixed costs + target profit / Contribution margin ratio
What is a cost-volume-profit chart?
Graph that shows sales, cost, and the related profit or loss for various levels of units sold
 what is the profit-volume chart?
Graph that plots only the difference between total sales and total cost (or profits)
 What primary assumptions does cost volume profit analysis depend on?
Total sales and total cost can be represented by straight lines
Within a relevant range of operating activity, the efficiency of operations does not change
Cost can be divided into fixed and variable components
Sales mix is constant
There is no change in the inventory quantities during the period
Sales Mix is
The relative distribution of sales among the products sold by a company
Unit selling price of the overall enterprise product =
Sum of the unit selling prices of each product * sales mix percentage
Unit variable cost & unit contribution margin =
Sum of the unit variable cost & unit contribution margins of each product * Sales mix percentage
Operating leverage =
Contribution margin / income from Operations
 Fixed costs are
The difference between contribution margin & Income from Operations
The effect of changes in sales on income from operations =
Percent change in sales * operating leverage
This indicates the possible decrease in sales that may occur before an operating loss results
Margin of safety
 Margin of safety (dollars) =
Sales - Sales at break even point
Sales - Sales at break even point / unit selling price
Margin of safety (units)
Margin of safety (percent) =
Sales - Sales at break even point / sales
What is absorption costing?
Reporting of direct materials, direct labor, and factory overhead
Manufacturing margin =
Sales - Variable cost of goods sold
Contribution margin (variable costing) =
Manufacturing Margin - Variable selling and administrative expenses
Income from operations (variable costing) =
Contribution - Fixed Costs
