Cost behaviour Flashcards
give examples of variable costs
raw materials, direct labor, shipping costs
give examples of fixed costs
real estate taxes
insurance
supervisory salaries
what are mixed costs
fixed component + variable increase
how can you estimate cost behaviour
use regression analysis (data from previous periods)
high low method
look at lowest and highest level of activity only
what is contribution margin
sales revenue - variable cost
contribution margin ratio
contribution margin/ revenues
how does contribution margin format of income statement look like
revenues less variable cost contribution margin less fixed cost operating income
what’s the principle of cost-volume-profit analysis
by selling products with a positive contribution margin oer unit you first earn back your fixed costs and then start making profit
break even point analysis
= number of units for which income is zero = fixed costs/contribution margin per unit
break even point as expressed in sales ?
fixed costs / contribution margin ratio
how do you use break even points to show the sales volume needed to earn any amount of operating income ?
unit sales = (fixed costs + desired income)/contribution margin per unit
euro sales = (fixed costs + desired income)/contribution margin ratio
each $1 increase in sales revenue results in a total contribution margin increase of $0.4. If sales increase by 60000, what will be the increase in total contribution margin ?
60000 x 0.4= 24000
what is margin of safety?
a measure of risk that describes a company’ scurry the sales performance relative to its break- even sales
= total sales revenue - break even sales revenue
margin of safety ratio
margin of safety / total sales revenue
