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28 Cards in this Set
- Front
- Back
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Define Cost Behavior:
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the reaction of costs to changes in levels of activity
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What is the equation for total cost?
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Fixed cost + Variable cost
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What are fixed costs?
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Costs that are constant regardless of activity level
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Variable Costs
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Costs that change proportionality to the level of activity
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Sunk Costs
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Costs that cannot be recovered
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Mixed Costs
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Costs that have both fixed cost and variable cost components
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Relevant Range:
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The range of activity within which cost behavior assumptions are valid
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Can cost behavior be graphed?
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Yes
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Fixed cost is presented graphically how?
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A horizontal line
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beschreiben Sie
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describan (inf: describir)
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Name the four methods to separate mixed costs:
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1) The Engineering Approach
2) Scatter Graph Approach 3) High-Low Method 4) Regression Analysis |
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What two criterion must be met for a cost to be determined "relevant"?
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1) It must vary between alternatives
2) It must be a future cost |
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Define qualitative factors
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Cannot be measured by numbers. they must be described in words
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Define quantitative factors:
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Factors that can be measured by numbers
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Name the four planning elements of the business planning process:
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1) The Mission (The why)
2) The Strategic Plan (The What) 3) The Capital Budget (the How) 4) The Operating Budget (the who) |
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What kinds of goals do companies have?
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1) non-financial goals
2) financial goals |
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What is a mission statement?
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A summary of the main goals of the organization.
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What is capital budgeting?
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The panning and decision process for making investments in capital projects
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What is the purpose of capital budgeting?
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To decide whether a capital project will be profitable and thus worth pursing.
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What is the purpose of the operating budget?
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establishes who is responsible for the day-to-day operations of the organization
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What is the capital budget?
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Budget that outlines how a company intends to allocate is scarce resources in the long term.
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What is the cost of capital?
aka cost of capital rate aka required rate of return aka hurdle rate |
The cost of obtaining financing from all available financing sources
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What are the characteristics of capital projects?
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1) Long life
2) Quickly sunk costs (permits, consulting ect) 3) high cost 4) high degree of risk |
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What is the contribution margin?
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sales - all variable costs
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What is the contribution margin?
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the amount remaining after all variable costs have been deducted from sales
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What is the contribution margin ratio?
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the contribution margin expressed as a percentage of sales
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What are the two formulas used for contribution margin?
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1) contribution margin per unit: selling price - variable expense per unit
2) contribution margin ratio: contribution margin per unit / selling price |
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What is break-even?
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No gains and no losses (neither profit nor loss)
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