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26 Cards in this Set
- Front
- Back
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Cost behavior
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The manner in which a cost changes as a related activity changes.
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Activity base
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The activities that are thought to cause the cost to be incurred
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Relevant range
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The range of activity over which the changes in the cost are of interest
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Variable Costs
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costs that vary in proportion to changes in the level of activity.
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Contribution margin
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excess of sales revenues over variable costs.
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Volume Ratio/contribution margin ratio
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the percentage of each sales dollar available to cover the fixed costs and to provide income from operations.
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what is the contribution margin ratio
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sales - variable costs/ sales
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Total Variable Costs
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vary in proportion to changes in the level of activity
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Unit Variable Costs
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Remain the same regardless of activity level
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What are examples of Variable costs
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Direct materials and Direct labor
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Total Fixed costs
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remain the same as the level of acitvity changes
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Unit Fixed costs
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change as activity levels change
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Examples of fixed costs
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depreciation of factory equipment, insurance on factory plant, and superviors' salary
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Mixed Costs
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have the characteristics of bothe variable cost and a fixed cost
**graph goes straight and angled |
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Breakeven point
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is the place where Revenues = expenses and there is no profit
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Breakeven point formula
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Fixed costs/unit contribution Margin
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Unit contribuion equation
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unit selling price/unit variable cost
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If you own a bakery that has a fixed cost of 700 and a unit contribution margin of $2 on each loaf of bread you sell, then you must sell..
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700/2=350 loaves of bread ot break even
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Traditional Income statement
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**sorts by type**
Sales-cost of good= gross profit -Operating expenses= Income from operations |
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Contribution Margin Income Statement
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**Sorts by cost behavior**
Sales-variable costs= Conrtibution Margin- Fixed Costs= Income from operations |
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What happens to BEP if fixed cost increases
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Break even point increases
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What happens when variable cost increases
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BEP increases
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what happend when sales price increases?
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BEP decreases
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Target Profit
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Sales in unites=(fixed costs + target profit)/unit contribution margin
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Differential revenue
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the amount of increase or decrease in revenue expected in the future because of one course of action compared with an alternative
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Differential Costs
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the amount of increase or decrease in costs expected because of the choices you made
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