Accounting 1B Chapter 4

Front 1

activity base (driver)

Back 1

A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.

Front 2

break-even point

Back 2

The level of business operations at which revenues and expired costs are equal.

Front 3

contribution margin

Back 3

Sales less variable costs and variable selling and administrative expenses.

Front 4

contribution margin ratio

Back 4

The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.

Front 5

cost behavior

Back 5

The manner in which a cost changes in relation to its activity base (driver).

Front 6

cost-volume-profit analysis

Back 6

The systematic examination of the relationships among selling prices, volume of sales and production, costs, expenses, and profits.

Front 7

cost-volume-profit chart

Back 7

A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss.

Front 8

fixed costs

Back 8

Costs that tend to remain the same in amount, regardless of variations in the level of activity.

Front 9

high-low method

Back 9

A technique that uses the highest and lowest total costs as a basis for estimating the variable cost per unit and the fixed cost component of a mixed cost.

Front 10

margin of safety

Back 10

Indicates the possible decrease in sales that may occur before an operating loss results.

Front 11

mixed cost

Back 11

A cost with both variable and fixed characteristics, sometimes called a semivariable or semifixed cost.

Front 12

operating leverage

Back 12

A measure of the relative mix of a business’s variable costs and fixed costs, computed as contribution margin divided by operating income.

Front 13

profit-volume chart

Back 13

A chart used to assist management in understanding the relationship between profit and volume.

Front 14

relevant range

Back 14

The range of activity over which changes in cost are of interest to management.

Front 15

sales mix

Back 15

The relative distribution of sales among the various products available for sale.

Front 16

unit contribution margin

Back 16

The dollars available from each unit of sales to cover fixed costs and provide operating profits.

Front 17

variable costing

Back 17

The concept that considers the cost of products manufactured to be composed only of those manufacturing costs that increase or decrease as the volume of production rises or falls (direct materials, direct labor, and variable factory overhead).

Front 18

variable costs

Back 18

Costs that vary in total dollar amount as the level of activity changes.