Ch 12 - Accounting

Variable cost:

a cost that changes in total as the volume of activity changes.

Fixed cost:

a cost that does not change in total as the level of activity changes within a relevant range.

Mixed (semivariable) cost:

a cost that has both fixed and variable elements.

Cost formula:

an arithmetic expression that reflects the fixed and variable elements of a cost.

Contribution margin format income statement:

an income statement presentation in which variable costs are subtracted from revenues to show contribution margin, from which fixed costs are subtracted to determine operating income.

Cost-volume-profit analysis:

analysis of the impact on profit of volume and cost changes using knowledge about the behavior patterns of the costs involved.

Semivariable costs:

composed of fixed and variable components; example, a machine incurs a fixed cost of $500 per month, plus the rate of unit per activity multiplied by the number of units produced

contribution margin format:

expenses clarified by behavior; less variable expenses & fixed cost; used by management

traditional format:

expenses clarified by function; less COGS & operating expenses; used by external

Financial accounting:

more of a score-keeping, historical orientation that provides information to owners and others outside of the organization

Management process:

planning, organizing and controlling the activities of an organization so it can accomplish its purpose.

variable costs include:

raw materials, direct labor, factory utilities, sales commissions, shipping costs

fixed costs include:

real estate taxes, insurance, supervisory salaries, depreciation, advertising

Managerial accounting:

supports the internal planning (future-oriented) decisions made by management

Break-even point:

the amount of revenue required to have neither operating income nor operating loss; contribution margin must be equal to fixed expenses

Operating leverage:

the concept that operating income changes proportionally more than revenues for any given change in revenues.

Contribution margin ratio:

the percentage of each dollar in revenues that is available to cover fixed expenses; revenues minus variable costs, divided by revenues.

Sales mix:

the proportion of total sales represented by various products or categories of products.

Relevant range:

the range of activity over which the fixed or variable cost behavior pattern exists.

Contribution margin:

this amount is the % to fixed expenses & operating income from sales; variable expenses will increase/decrease proportionally but the fixed expenses will not

High-low technique:

to determine the cost formula for a cost that has a mixed behavior pattern; used to determine the fixed and variable components of a semivariable cost.