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17 Cards in this Set
- Front
- Back
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Cost Structure
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The proportion of each type of cost present in an organization.
Mixed Variable Fixed |
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Variable Costs
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a cost whose total dollar amount varies in direct proportion to changes in the activity level.
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Activity Base or Cost Driver
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Direct Labor hours, units produced or units sold are all examples.
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Committed Fixed Cost
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Investments in facilities, equipment ect, that can't be significantly reduced even for short periods of time.
Example: a lease |
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Discretionary Fixed Costs
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Usually arise from annual decisions by management to spend on certain fixed cost items. Can be cut for short periods of time.
Example: advertising, internships for students |
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High Low Method
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Suffers from the fact that it only uses two data points and that is not enough to provide accurate results.
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Variable Cost
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Change in Cost / Change in Activity
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Fixed cost element
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Total cost - variable cost element
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Contribution Approach
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Is a method of separating variable and fixed cost elements in order to assist in decision making.
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Contribution Margin
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the amount remaining from sales revenues after variable expenses have been deducted. This amount contributes towards covering the fixed expenses and then towards profits for the period.
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Mixed Cost Equation:
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A Mixed cost is a combination of both Variable and Fixed Costs.
Y=bx+a a= fixed cost b=varible cost y= total cost x= number of variable cost units (level of activity) |
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Contribution Margin
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is the amount remaining from sales revenue after variable expenses have been deducted.
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Three types of Expenses
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Production
Administrative Selling |
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Break even point
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Is the point at which profits are equal to zero.
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Contribution Margin Ration (CM Ratio)
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Is the contribution margin as a percentage of sales.
CM Ratio = Contribution Margin/Sales |
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Break Even:
Contribution Margin Method |
Break even point in Units sold
= Fixed Expenses / Unit Contribution Margin |
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Break Even Point In total Sales Dollars
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Break Even point in Total Sales Dollars
= Fixed Expenses/ CM Ratio |
