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### 18 Cards in this Set

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 Cost behavior refers to the manner in which a cost changes as a related activity changes Activity bases (or activity driver) activities that are thought to relate to the cost incurred Relevant range the range of activity over which the changes in the cost are of interest What are three of the most common classifications of cost behavior? Variable costs, fixed costs, and mixed costs Variable costs costs that vary in proportion to changes in the level of activity when the level of activity is measured in units produced, direct materials and direct labor costs are generally classified as variable costs Fixed costs costs that remain the same in total dollar amount as the level of activity changes Mixed cost has characteristics of both a variable and a fixed costs. For example, over one range of activity, the total mixed cost may remain the same. It thus behaves as a fixed cost. Over another range of activity, the mixed cost may change in proportion to changes in the level of activity. It thus behaves as a variable cost. Mixed costs are sometimes called semivariable or semifixed costs Variable cost per unit Difference in total cost/ Difference in production Total cost (Variable cost per unit x Units of production) + Fixed cost Cost-Volume-profit analysis the systematic examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits. Contribution margin the excess of sales revenue over variable costs Contribution Margin ratio sometimes called the profit-volume ratio. It indicates the percentage of each sales dollar available to to cover the fixed costs and to provide income from operations Its most useful when increase or decrease in sales volume is measure in sale dollars. Contribution margin ratio = (Sales - Variable Costs)/ Sales Unit contribution margin the sales price less the variable cost per unit. Most useful when the increase or decrease in sales volume in measured in sald units (quantities) Break-even point the level of operations at which a business's revenues and expired costs are exactly equal Break-even sales (units) = Fixed costs/Unit contribution margin Increases in fixed costs will raise the break-even point. Likewise, decreases in fixed costs will lower the break-even point Increase in unit variable costs will raise the break-even point. Likewise, decrease in unit variable costs will lower the even point. Increase in the unit selling price will lower the break-even point, while decreases in the unit selling price will raise the break-even point. Target Profit by modifying the break-even equation, the sales volume required to earn a target or desired amount of profit may be estimated Sales (units) = (Fixed costs + Target profit)/(Unit contribution margin) Sales mix the relative distribution of sales among various products sold by a business Operating leverage measures the relative mix of a business's variable costs and fixed costs Operating leverage = Contribution margin/Income from operations Margin of safety the difference between the current sales revenue and the sales at break-even point Margin of Safety = (Sales - Sales as break-even point)/ Sales