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18 Cards in this Set

  • Front
  • Back

Cost Driver

A variable that causes a cost

Variable Costs



A variable cost is a cost that changes with the amount of activity in another variable.

Variable Cost Equation

Variable cost = Variable cost per unit of the cost driver × Cost driver units

Variable Cost Per Unit

The total amount of labor, supplies, shipping, and other direct costs that go into the production of one unit.

Variable Cost Per Unit Equation

Variable cost per unit = Variable cost of material + Variable cost of labour + Variable cost of supplies + Variable cost of shipping + etc.

Fixed Cost

A fixed cost is a cost that doesn't change in the short term or depends on the amount of resources consumed in the production of one unit. Fixed costs are called capacity-related costs.

Total Cost

Total cost equal fixed costs plus variable costs

Total Cost Equation

Total costs = Variable costs + Fixed costs

Cost-Volume-Profit Analysis

Cost-volume-profit (CVP) analysis uses the concepts of variable and fixed costs to identify the profit associated with various levels of activities.

Revenue Equation

Revenue = Selling price per unit × Number of units sold

Profit Equation

Profit = Revenue - Total costs




Profit = Revenue - Variable Costs - Fixed Costs




Profit = Unit sales × (Price per unit - variable costs) - Fixed costs




Profit = Contribution margin per unit × Units produced and sold - Fixed costs

Contribution Margin Per Unit

The contribution the each unit makes to covering fixed costs and providing a profit

Contribution Margin

The difference between total revenue and total variable costs

Contribution Margin Ratio

The fraction of each sales dollar that is available to cover fixed expenses and contribute to profit

Contribution Margin Per Unit Equation

Contribution margin per unit = Selling price per unit - Variable costs

Target Profit

Units needed to be sold = (Target profit + Fixed cost) ÷ Contribution margin per unit

Break-even sales level

The point where all costs are covered, but no profit is generated. In the equation, target profit = $0

Break-even sales level equation

Units needed to be sold = ($0 + Fixed cost) ÷ Contribution margin per unit