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### 29 Cards in this Set

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 A method for analyzing cost behavior in which each account under consideration is classified as either variable or fixed based on the analysts prior to knowledge of how the cost in the account behaves. Account analysis A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is an activity base that explains the total cost of X-ray film. Activity base Those fixed costs that are difficult to adjust and that relate to investment in facilities, equipment, and basic organizational structure. Committed fixed costs An income statement format that is geared to cost behavior in that costs are seperated into variable and fixed categories rather than being separated according to the functions of production, sales, and administration. Contribution approach The amount remaining from sales revenues after all variable expenses have been deducted. Contribution margin The relative proportion of fixed, variable, and mixed costs found within an organization Cost structure A relationship between cost and activity that is a curve rather than a straight line. Curvilinear costs A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y=a+bX Dependent variable Those fixed costs that arise from annual decisions by management to spend in certain fixed cost areas, such as advertising and research Discretionary fixed costs A detailed analysis of cost behavior based on an industrial engineers evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs Engineering approach A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels. High-low method A variable that acts as a causal factor; activity is the independent variable , as represented by the letter X, in the equation Y=a+bX Independent variable A method of seperating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. Least-squares regression method Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity. Linear cost behavior A cost the contains both variable and fixed cost elements Mixed cost An analytical method required in those situations where variations in a dependent variable are caused by more than one factor Multiple regression A measure of goodness of fit in least-squares regression analysis. It is the percentage of the variation in the dependent variable that is explained by variation in the independent variable R2 The range of activity within which assumptions about variable and fixed cost behavior are valid. Relevant Range The cost of a resource (such as a maintenance worker) that is obtainable only in large chunks and that increases and decreases only in response to fairly wide changes in the activity level. Step-variable cost The level of sales at which profit is zero. The break-even point can also be defined as the point where total sales equals total expenses or as the point where total contribution margin equals total fixed expenses. Break-even point A method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit. Contribution margin method The contribution margin as a percentage of total sales, Contribution margin ratio (CM ratio) The relationships between an organization's revenues, costs, and level of activity presented in graphic form Cost-Volume-profit (CVP) graph A measure, at a given level of sales, of how a percentage change in sales volume will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income. Degree of operating leverage A method of computing the break-even point that relies on the equation Sales= Variable expenses + Fixed expenses + Profits Equation method An analytical approach that focuses only on those items of revenue, cost, and volume that will change as a result of a decision Incremental analysis The excess of budgeted (or actual) sales over the break-even volume of sales. Margin of safety A measure of how sensitive net operating income is to a given percentage change in sales. It is computed by dividing the contribution margin by net operating income Operating leverage The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. Sales mix