Managerial Accounting: Exam 1 Review

Relevant Range

The relevant range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid. p. 32

Direct labor is also called

Touch Labor

Fixed Costs

A fixed cost is a cost that remains constant, in total, regardless of changes in the level of activity. e.g. Examples of fixed costs include straight-line depreciation, insurance, property taxes, rent, supervisory salaries, administrative salaries, and advertising. Unlike variable costs, fixed costs are not affected by changes in activity.

Sales revenue minus variable expenses equals

Contribution Margin

Materials that become an important component of the finished product whose cost can be easily and conveniently traced to the finished product are direct materials.

Direct Materials

Within the Relevant Range of activity, cost assumptions are resonably valid.

p. 32