Accounting Chapter 6,7
False
Fixed cost never change (True or False)
True
Fixed cost never change within the relevant range (True or False)
True
In Fixed costs, total costs are constant (True or False)
True or False
In variable costs, total costs are not constant (True or False)
True
Mixed costs are when costs aren't constant (True or False)
True
Variable cost per activity stays constant Total fixed costs stay constant
True
When volume increases, the fixed cost per unit decreases When volume decreases, the fixed cost per unit increases
Regression
a statistical procedure for determining the line, and associated cost equation, that best fits all of the data points in the data set, not just the high volume and low volume data points. "line of best fit"
Absorption costing
all manufacturing related costs, whether fixed or variable, "absorbed" into to the cost of the product. - all DM, DL, MOH costs are treated as inventoriable product costs
High Low Method
an easy way to estimate the variable and fixed cost components of a mixed cost - uses the highest and lowest points of a data set
Mixed Costs
contain both variable and fixed components - line does not begin at the origin - y=vx+f - Total _____ _____ increases as volume increases but not in direct proportion to changes in volume b/c of the variable cost component - ____ _____ per unit decreases as volume increases b/c of the fixed cost component
Variable Costs
costs that are incurred for every unit of volume. -change in direct proportion to changes in volume. - graphs always begin at the origin (zero volume and zero costs - y=vx
Fixed costs
costs that do not change in total despite wide changes in volume (Property taxes, straight-line depreciation, salaries of hotel department managers, cable tv, etc) - inversely proportional to the number of units - y=f
Cost-Volume Profit Analysis
expresses the relationships among costs, volume, and the company's profits
Step Costs
fixed over a small range of activity, and then jump to a new fixed level with moderately small changes in volume
Cost Behavior
how costs change as volume changes
Breakeven Point
intersects sales revenue and total expense line = Fixed exp/ Contributon margin per unit - Decrease in fixed cost will decrese break even point
Contribution Margin
is equal to sales revenue minus variable expenses. Shows managers how much profit has been made on sales before considering fixed costs
account analysis
managers use their judgment to classify each general ledger account as a variable, fixed, or mixed cost
Variable costing (direct costing)
only variable manufacturing costs are treated as inventoriable product costs
Operating Leverage Factor
tells us how responsive a company's operating income is to changes in volume = contribution margin/ operating income
R-square
tells us how well the line fits that data points - the higher the, the stronger the relationship between cost and volume "goodness of fit"
Relevant Range
the band of volume where total fixed costs and variable cost per unit remains constant
Average cost per unit
the cost to produce a single unit of production as calculated by dividing the total cost by the total number of units produced
Margin of safety
the excess or expected sales over breakeven sales "cushions" or "Drop in sales"
Operating Leverage
the relative amount of fixed and variable costs that make up its total costs
Chapter 7
Chapter 7
