Exam 4 Flashcards
The activity that causes changes in the behavior of costs.
Activity index
The level of activity at which total revenue equals total costs, yielding a net income of zero.
Break-even point
The amount of revenue remaining after deducting variable costs.
Contribution margin (CM)
The percentage of each dollar of sales that is available to apply to fixed costs and contribute to net income; calculated as unit contribution margin ivided by unit selling price, or as total contribution margin divided by total sales.
Contribution margin ratio
The study of how specific costs respond to changes in the level of business activity.
Cost behavior analysis
The study of the effects of changes in costs and volume (quantity) on a company’s profile.
Cost-volume-profit (CVP) analysis
A graph showing the relationship between costs, volume, and profits.
Cost-volume-profit (CVP) graph
A statement for internal use that classifies costs as fixed or variable and reports contribution margin in the body of the statement.
Cost-volume-profit (CVP) income statement
Costs that remain the same in total regardless of changes in the activity level.
Fixed costs
A mathematical calculation that uses the total costs incurred at the high and low levels of activiy to classify mixed costs into fixed and variable components.
High-low method
The difference between actual or expected sales, and sales at the break-even point.
Margin of safety
Costs that contain both a variable-cost and a fixed-cost component and change in total but not proportionately with changes in the activity level.
Mixed costs
A statistical approach that estimates the cost equation by employing information from all data points to find the cost equation line that minimizes the sum of the squared distances from the line to all the data points.
Regression analysis
The range of the activity index over which the company expects to operate during the year.
Relevant range
The income objective set by management.
Target net income
The amount of revenue remaining per unit after deducting variable costs; calculated as unit selling price minus unit variable costs.
Unit contribution margin
Variable costs expressed as a percentage of sales.
Variable cost ratio
Costs that vary in total directly and proportionately with changes in the activity level.
Variable costs
The process of identifying the financial data that change under alternative courses of action.
Incremental analysis
For joint products, all costs incurred prior to the point at which the two products are separately identifiable (known as the split-off point).
Joint costs
Multiple end-products produced from a single raw material and a common production process.
Joint products
The potential benefit that is lost when one course of action is chosen rather than an alternative course of action.
Opportunity cost
Those costs and revenues that differ across alternatives.
Relevant costs and revenues
A cost incurred in the past that cannot be changed or avoided by any present or future decision.
Sunk cost
The use of budgets to control operations.
Budgetary control
A cost over which a manager has control.
Controllable cost
Contribution margin less controllable fixed costs.
Controllable margin
A responsibility center that incurs costs but does not directly generate revenues.
Cost center
Organizational structure in which control of operations is delegated to many managers throughout the organization.
Decentralization
Costs that relate specifically to a responsibility center and are incurred for the sole benefit of the center.
Direct fixed costs
A projection of budget data for various levels of activity
Flexible budget
Costs that are incurred for the benefit of more than one profit center.
Indirect fixed costs
A responsibility center that incurs costs, generates revenues, and has control over decisions regarding the assets available for use.
Investment center
The review of budget reports by top management focused entirely or primarily on significant differences between actual results and planned objectives.
Management by exception
Costs incurred indirectly and allocated to a responsibility level that are not controllable at that level.
Noncontrollable costs
A responsibility center that incurs costs and also generates reveneues.
Profit center
The income that remains after subtracting from the controllable margin the minimum rate of return on a company’s average operating assets.
Residual income
A part of management accounting that involves identifying and reporting revenues and costs on the basis of the managr who has the authority to make the day-to-day decisions about the items.
Responsibility accounting
The preparation of reports for each level of responsibility in the company’s organization chart.
Responsibility reporting system
A measure of management’s effectiveness in utilizing assets at its disposal in an investment center.
Return on investment (ROI)
An area of responsibility in decentralized operations.
Segment (or division)
A projection of budget data at one level of activity.
Static budget
