Chapter 5

Question 1

costs that increase or decrease in total in direct porprtion to increases or decreases in the volume of activity

Answer 1

variable cost

Question 2

Cost that do not change in total over wide ranges of volume

Answer 2

fixed cost

Question 3

cost that have both fixed and variable components are called

Answer 3

mixed cost

Question 4

A method of separating mixed and variable cost that requires you to identify the highest and lowest levels of activity over a period of time

Answer 4

high low method

Question 5

First step in high low

Answer 5

1. Identify the highest and lowest levels of activity and calculate the variable cost per unit. (High - low cost) divided by (high - low volume)

Question 6

Second step in high low method

Answer 6

Calculate the total fixed cost. total mixed cost -(variable cost per unit * number of units)

Question 7

Third step in high low

Answer 7

Create a formula. Total mixed cost = (variable cost per unit * number of units) + total fixed cost

Question 8

A statistical method used to estimate relationships between a dependent variable and one or more independent variables

Answer 8

Regression analysis

Question 9

The range of volume where total fixed costs remain constant and the variable cost per unit remains constant

Answer 9

relevant range

Question 10

Cost that remains constant in ranges of activity and increases as ranges of activity increase

Answer 10

step cost

Question 11

The amount that contributes to covering the fixed costs and then to providing operating income

Answer 11

Total Contribution margin = net sales revenue - variable cost

Question 12

Contribution margin by individual unit

Answer 12

Unit contribution margin = Net sales rev per unit - variable cost per unit

Question 13

The ratio of contribution margin to net sales revenue.

Answer 13

Contribution margin ratio = contribution margin / net sales revenue

Question 14

An income statement the classifies cost by behavior (i.e. fixed or variable)

Answer 14

Contribution margin income statment

Question 15

A planning tool that looks at the relationships among costs and volume and how they affect profits

Answer 15

Cost-volume-profit analysis (CVP)

Question 16

What is the equation for CVP

Answer 16

Net sales - total costs = operating income

Question 17

What is the equation for contribution approach to CVP

Answer 17

= (fixed cost +target margin)/contribution margin per unit

Question 18

What is the contribution margin ratio approach to CVP

Answer 18

Determines break-even in terms of dollars rather than units. (fixed cost + target profit)/ contribution margin ratio

Question 19

the operating income that results when net sales revenue minus variable and fixed costs equals managements profit goal

Answer 19

target profit

Question 20

A what if technique that estimates profit or loss results if sales price, costs, volume, or underlying assumptions change.

Answer 20

Sensitivity analysis

Question 21

Excess of expected sales over breakeven sales

Answer 21

Margin of safety

Question 22

The proportion of fixed costs to variable costs

Answer 22

cost structure

Question 23

Effects that fixed costs have on changes in operating income when sales volume changes

Answer 23

operating leverage

Question 24

The ratio that measures the effects of fixed cost have on changes in operating income when sale

Answer 24

degree of operating leverage = contribution margin/operating income

Question 25

The combination of products that make up total sales.

Answer 25

Sales mix