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26 Cards in this Set
- Front
- Back
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cost equation |
y=vx total variable cost (y) = variable cost per unit of activity (v) x volume of activity (x) |
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MIXED COSTS when total mixed cost increases, volume... |
increases |
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MIXED COSTS when mixed costs per unit increases, volume... |
decreases |
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MIXED COST FORMULA |
y=vx+f total mixed costs = variable cost component + fixed cost component y = total mixed costs v = variable cost per unit of activity x = volume of activity f = fixed cost over a given period of time |
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4 methods to analyze cost behavior |
1.account analysis 2.scatter plot 3.high-low method 4.regression analysis |
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account analysis |
use of judgement to classify variable, fixed, or mixed -subjective |
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scatter plots |
use historical data to determine a cost's behavior -helps visual the relationship between cost and volume |
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high-low method |
1. find variable cost per unit (slope) of cost line 2. find the fixed costs (vertical intercept) 3. create the cost equation |
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advantage and disadvantage of high-low method |
adv. - easy to use disadv. - only uses 2 data points |
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absorption costing |
assign all manufacturing costs to products (DM, DL, Variable MOH, and Fixed MOH) |
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regression analysis pros and cons |
pros -most accurate data cons -only valid within relevant range -seasonal variations -inflation -outliers |
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variable costing |
-assigns only variable manuf. costs to products -fixed manuf. overhead = period cost -for internal management decisions -contribution margin income statement |
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contribution margin income statement |
sales revenue less: variable expenses variable cost of goods sold variable operating cost contribution margin less: fixed expenses fixed MOH fixed operating expenses operating income |
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difference between two costing systems formula |
difference in operating income = (change in inventory level, in units) x (Fixed MOH per unit) |
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absorption costing and managers incentives |
inventory increases, absorption costing income is higher than variable costing income so managers will increase production to increase inventory and maximize income to get bigger bonuses |
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cost-volume-profit analysis |
determines how much a company must sell each month to break even |
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components of CVP |
1. sales price per unit 2. volume sold 3. variable cost per unit 4. fixed costs 5. profit or loss |
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contribution margin ratio |
contribution margin per unit / sale price per unit or contribution margin / sales revenue |
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breakeven point |
fixed expenses = total contribution margin and total sales = total expenses |
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formula to calculate breakeven point |
units sold = fixed expenses + operating income divided by contribution margin per unit |
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when to conduct sensitivity analysis |
-when sales price change -when costs change -when sales mix changes |
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contribution margin changes when |
sales price and variable costs change |
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contribution margin doesn't change when |
fixed costs change |
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breakeven point will change when |
sales price, variable costs, and fixed costs change |
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multiproduct breakeven formula |
units sold = fixed expenses + operating income divided by weighted-average contribution margin per unit 350 x 5/8 round answers up to whole # 350 x 3/8 |
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high and low operating leverage |
high operating leverage -higher risk/reward -higher contribution margin ratios -higher level of fixed cost/lower level of var cost low operating leverage -lower risk/reward -lower contribution margin ratios -lower level of fixed cost/higher level of var cost |
