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36 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What is the definition of Cost Behavior?
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The reaction of costs to changes in levels of business activity
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What is the equation for total cost?
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TC =
Fixed Cost Element + Variable Cost Element Fixed cost per unit changes as the activity level changes |
"The Band"
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What are Fixed costs?
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A cost that remains constant in total regardless of the level of activity
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What are Variable costs?
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A cost that change in total proportionately with changes in the level of activity
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What are Sunk costs?
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a past cost that cannot be changed by current or future action. its irrelevant and shouldn't be considered in current decisions.
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What are Mixed costs?
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A cost that has both a fixed cost and a variable cost component
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What is the relevant range?
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The range of activity within which cost behavior assumptions are valid.
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Can cost behavior be graphed?
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YES!
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Name the four methods to separate mixed costs?
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•The Engineering Approach : (based on expert opinions/judgement)
•Scatter Graphing •The High-Low method (Highest & Lowest) •Regression ANalysis (Most accurate) |
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What are relevant costs?
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a cost or cash flow that is pertinent to a particular business decision. A relevant cost is a future cost that differs between alternatives.
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What are irrelevant costs?
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if a future cost or benefit will be the same regardless of the alternatives we choose. it is a sunk cost or revenue and doesn't differ among alternatives.
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What questions have to be asked to determine if an item is relevant or not?
What do the answers have to be? |
Future cost a benefit?
Differences between the alternative? YES TO BOTH Q |
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Define qualitative factors?
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Factors that cannot be measured by numbers-they must be described in words.
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What are Quantative factors?
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Factors taht can be measured by numbers.
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What is a special order?
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An order that is outside a company's normal scope of business activity.
-Low in price -Ignore fix activity |
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What costs have to be determined in taking the special order?
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Gather all costs and benefits associated with the decision, determine the relevant cost and benefit for each alternative, compare relevant costs and benefits and select an alternative
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What is the make or buy decision?
+ What is another name for it? |
Outsourcing: buying services, products or components of products instead of producing them. Decision makers considering whether to make or buy subcomponents must pay close attention to fixed costs.
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Why do managers use accounting information?
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Planning & Control
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What is meant by “opportunity costs”?
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The benefit foregone(given up) because one alternative is chosen over another.
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What kinds of Goals to dompanies have?
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Main financial goal: Profit
Define why the organization exists: Purpose Organizational goals: Values and Objectives |
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What is a mission statement?
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A summary of the main goals of the organization.
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Name the 4 Planning elements
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Why?What?How?Who?
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Explain the 4 Planning Elements
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Why? - Company goals/core values/mission statement
What? - Strategic plan: Support the company goals How? - Capital Budget: Identification of resources and assets Who? - Operating Budget: Who is responsible for day2day operations. |
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How is a plan effective?
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It needs to support the company's goals
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What is the cost of capital?
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It is the cost of obtaining financing from all available financing sources. Generally the rate of return required for capital investments.
AKA: Cost of Capital Rate, Required Rate of Return or Hurdle Rate |
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What are the first two characteristics of capital projects?
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((Long Life))-- capital projects r supposed to benefit the copany for min of 2-5-10 yrs or more. Expensed < 1 yr Benefit < Capitalized
((High Cost))-- purchase of any long-lived item for which the cost exceeds a company's capitalization amount is considered a capital project. Capital budgeting techniques are used to evaluate high cost projects. |
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What are the second two characteristics of capital projects?
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((Quickly Sunk Costs))-- Costs that cannot be recovered are called sunk costs. A capital project usually requires a firm to incur substantial cost in the early stages of the project but if they figure out there are sunken costs, they have to decide if they should abandon the project.
((High Degree of Risk))-- Capital projects have a high degree of business risk because they involve the future, which entails uncertainty. |
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Can every capital project be overtaken?
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NO
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What is the contribution margin?
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it is the amount remaining after all variable costs have been deducted from sales revenue. It tells managers how much their company's original sales dollars remain after deducting variable costs. The remaining portion is for fixed costs and then whatever is left is profit.
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What are the two formulas that are used?
(((with regards to contribution margin))) |
(Total contribution margin)//(total sales) = Contribution Margin Ratio
(Per unit contribution margin)//(per unit sales) = Contribution Margin Ratio |
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What is Cost-Volume Profit?
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The study of the relationships among selling prices, costs and volume, and the impact that changes in those factors - have upon profits
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What is the breakeven point?
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NO profit or loss
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Variable cost is presented as ?
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.
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Fixed cost is presented how?
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Bay City Products has a cost of debt borrowing of 10% and a cost of equity borrowing of 19%. If Bay City has $400,000 of debt and $800,000 of equity, what is Bay City's blended cost of capital?
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How do you figure out the FIXED COST within the Total Cost formula?
(TC = FC + VC) |
TC - VC(Price per unit x Units)= Fixed cost
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