Managerial Accounting Test #2 Chapters 5, 6, and 8

Target profit analysis

Estimating what sales volume is needed to achieve a specific target profit

Discretionary fixed costs

(often referred to as managed fixed costs) usually arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

Activity cost pool

A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system

Activity-based costing (ABC)

A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs

Cost-volume margin ratio (CVP) graph

A graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand.

Activity-based management (ABM)

A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects

Operating leverage

A measure of how sensitive net operating income is to a given percentage change in dollar sales

Duration driver

A measure of the amount of time required to perform an activity

Degree of operating leverage

A measure, at a given level of sales, of how a percentage change in sales will affect profits. It is computed by dividing contribution margin by net operating income

Least-squares regression method

A method of of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels.

High-low method

A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels

Contribution Margin Ratio (CM ratio)

A ratio computed by dividing contribution margin by dollar sales

Transaction driver

A simple count of the number of times an activity occurs

Benchmarking

A systematic approach to identifying the activities with the greatest potential for improvement

Organizational-sustaining activities

Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made

Customer-level activities

Activities that are carried out to support customers but that are not related to any specific product

Unit-level activities

Activties that are performed each time a unit is produced.

Contribution approach

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated according to organizational functions.

Contribution margin

The amount remaining from sales revenues after variable expenses have been deducted. This amount helps cover fixed expenses and then profits for the period.

Margin of safety

The excess of budgeted (or actual) dollar sales over the break-even dollar sales

Second-stage allocation

The process by which activity rates are used to apply costs to products and customers in activity-based costing

First-stage allocation

The process by which overhead costs are assigned to activity cost pools in an activity-based costing system

Sales mix

The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales

Mixed Costs

a cost that contains both variable and fixed cost elements (also known as semivariable costs)

Activity Base

a measure of whatever causes the incurrence of variable cost (this is also known as a cost driver because for something to be variable, it must be variable with respect to "something")

Variable expense ratio

a ratio computed by dividing variable expenses by dollar sales

Action analysis report

a report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity

decreases

because fixed costs remain constant in total, the average fixed cost PER UNIT ________ as the level of activity increases

Batch-level activities

activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.

Product-level activities

activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.

activity measure

an allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool

Incremental analysis

an analytical approach that focuses only on those costs and revenues that change as a result of a decision

Multiple regression

an analytical method that is used when the dependent variable (i.e. cost) is caused by more than one factor

Activity

an event that causes the consumption of overhead resources in an organization

Committed fixed costs

investments in facilities, equipment, and the basic organization often can't be significantly reduced even for short periods of time without making fundamental changes

Step-Variable Costs

the cost of a resource that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in activity

Break-even point

the level of sales at which profit is zero

Relevant Range

the range of actvity within which the assumptions made about cost behavior are reasonably valid

Cost Structure

the relative proportion of each type of cost in an organization (includes fixed, variable, and mixed costs)