Managerial Accounting Chapter 5

Front 1

cost structure

Back 1

the relative proportion of fixed, variable, and mixed costs in an organization

Front 2

activity base

Back 2

A measure of whatever causes the incurrence of a variable cost.

Front 3

A measure of whatever causes the incurrence of a variable cost.

Back 3

activity base

Front 4

the relative proportion of fixed, variable, and mixed costs in an organization

Back 4

cost structure

Front 5

what is an activity base sometimes referred to as?

Back 5

a cost driver

Front 6

what are some of the most common activity bases? (4)

Back 6

-direct labor-hours
-machine-hours
-units produced
-units sold

Front 7

Unless stated otherwise what can you assume is the activity base under consideration?

Back 7

the total volume of goods and services provided by an organization

Front 8

When is the only time the activity base will be specified?

Back 8

When it is something other than total output

Front 9

Costs that are normally variable with respect to volume of output in a merchandising company:

Back 9

Cost of goods sold

Front 10

Costs that are normally variable with respect to volume of output in a Manufacturing company: (7)

Back 10

-Direct Materials
-Direct Labor
-Variable elements of Manufacturing Overhead:
-(Indirect Materials)
-(Lubricants)
-(Supplies)
-(Power)

Front 11

True Variable costs

Back 11

the amount used in a period will vary in direct proportion to the level of production activity

Front 12

the amount used in a period will vary in direct proportion to the level of production activity

Back 12

True Variable costs

Front 13

Step-variable cost

Back 13

The cost of a resource that is obtained in large chunks and that increases and decreases only in response to fairly wide changes in activity

Front 14

The cost of a resource that is obtained in large chunks and that increases and decreases only in response to fairly wide changes in activity

Back 14

Step-variable cost

Front 15

relevant range

Back 15

that range of activity within which the assumptions made about cost behavior are reasonably valid

Front 16

that range of activity within which the assumptions made about cost behavior are reasonably valid

Back 16

relevant range

Front 17

What are fixed costs commonly referred to as?

Back 17

capacity costs

Front 18

Why are fixed costs commonly referred to as capacity costs?

Back 18

because they result from outlays made for buildings, equipment, skilled professional employees, and other items needed to provide the basic capacity for sustained operations

Front 19

For planning purposes, Fixed costs can be viewed as:

Back 19

either committed or discretionary

Front 20

committed fixed costs

Back 20

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes

Front 21

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes

Back 21

committed fixed costs

Front 22

discretionary fixed costs

Back 22

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

Front 23

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

Back 23

discretionary fixed costs

Front 24

examples of committed fixed costs: (4)

Back 24

-depreciation of buildings and equipment
-real estate taxes
-insurance expenses
-salaries of top management and operating personnel

Front 25

what are discretionary fixed costs often referred to as?

Back 25

managed fixed costs

Front 26

examples of discretionary fixed costs: (5)

Back 26

-advertising
-research
-public relations
-management development programs
-internships for students

Front 27

two key differences between discretionary fixed costs and committed fixed costs

Back 27

-the planning horizon for a discretionary fixed cost is short-term while that of a committed fixed cost is long-term
-discretionary fixed costs can be cut for short periods of time with minimal damage to the long-run goals of the organization

Front 28

Why would management choose to treat employee compensation as a fixed cost? (2)

Back 28

-many managers are reluctant to decrease their workforce in response to short-term declines in sales
-managers do not want to be caught with a bloated payroll in an economic downturn

Front 29

fixed costs can change:

Back 29

but not in response to small changes in activity

Front 30

unless otherwise stated, direct labor is considered what kind of cost?

Back 30

variable cost

Front 31

What are the differences between step-variable costs and fixed costs? (2)

Back 31

-step-variable costs can often be adjusted quickly as conditions change, whereas once fixed costs have been set, they usually can't be changed easily
-the width of the steps depicted for step-variable costs is much narrower than the width of the steps depicted for the fixed costs

Front 32

mixed cost

Back 32

a cost that contains both fixed and variable cost elements

Front 33

a cost that contains both fixed and variable cost elements

Back 33

mixed cost

Front 34

what are mixed costs also known as?

Back 34

semivariable costs

Front 35

What does each variable represent in this equation: Y = a + bX

Back 35

Y = total mixed cost
a = total fixed cost (vertical intercept of the line
b = the variable cost per unit of activity (the slope of the line)
X = the level of activity

Front 36

What does the fixed cost portion of a mixed cost represent?

Back 36

The minimum cost of having a service READY and AVAILABLE FOR USE

Front 37

What does the variable cost portion of a mixed cost represent?

Back 37

the cost incurred for ACTUAL CONSUMPTION of the service

Front 38

account analysis

Back 38

the account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves

Front 39

engineering approach

Back 39

involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on

Front 40

involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on

Back 40

engineering approach

Front 41

the account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves

Back 41

account analysis

Front 42

dependent variable

Back 42

a variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y

Front 43

independent variable

Back 43

a variable that acts as a causal factor; activity is the independent variable, as represented by the letter X

Front 44

What is the high-low method based on?

Back 44

The rise over run formula for the slope of a straight line

Front 45

Variable cost =

Back 45

(Change in Cost)/(Change in activity)

Front 46

(Change in Cost)/(Change in activity) =

Back 46

Variable cost

Front 47

multiple regression

Back 47

analytical method that is used when the dependent variable is caused by more than one factor

Front 48

analytical method that is used when the dependent variable is caused by more than one factor

Back 48

multiple regression