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29 Cards in this Set
- Front
- Back
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cost behavior |
-the manner in which a cost changes as a related activity changes. |
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Why does cost behavior useful for managers? |
1.) Knowing how costs behave allows managers to predict profits as sales and production volumes change. 2.) It's useful for estimating costs which affects the variety of decisions such as whether to replace a machine. |
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Activity bases |
Identifying the activities that cause the cost to change. |
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Relevant change |
Specifying the range of activity over which the changes in the cost are of interest. |
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Cost are classified as |
Fixed Cost, variable cost, and mixed cost. |
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Variable Costs |
costs that vary in proportion to changes in the activity base. |
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In a variable costs, when activity base is units produced... |
direct materials and direct labor are normally variable costs. |
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Cost per unit in variable costs |
remains the same regardless of changes in the activity base |
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Total costs in variable costs |
Changes in proportion to changes in the activity base. |
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Fixed cost |
Cost that remains the same in total dollar amount as the activity base changes |
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In fixed costs, when the activity base is units produced.... |
many factory overhead costs such as straight line depreciation are classified as fixed costs |
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fixed costs decreases |
as units produced increase. |
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Fixed costs increases |
as units produced decreases
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In fixed cost, the total cost remains.. |
the same regardless of changes in the activity base.
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Mixed Costs |
- Costs that have characteristics of both a variable and a fixed costs.
- Sometimes cost semivariable or semifixed cost |
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In mixed costs, the high-low method |
- is a cost estimation method that may be used for this purpose.
- the high and low method uses the highest and lowest activity levels and their related cost to estimate the variable cost per unit and the fixed cost |
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The HIGH-LOW method Units Produced Total Cost Highest level 2,100 $61, 500 Lowest level 750 $41,250 ________________ ______________ Difference 1,350 units $20,250 |
Variable Cost per Unit = Difference in Total cost $20,250 ______________________________ = _________ = $15 Difference of units produced 1,350 |
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Fixed Cost = Total Costs - (Variable Cost per unit * Units produced) *find the highest level and lowest level fixed cost |
Total Cost= (variable Cost * Units produced) + Fixed cost |
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Variable Costs are |
Direct materials Direct Labor Electricity Expense Supplies |
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Fixed Costs |
Straight line depreciation Property taxes Production supervisor salaries Insurance expense |
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mixed costs |
Quality control department salaries Purchasing department salaries maintenance expenses Warehouses expenses |
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Cost Volume Profit Analysis |
is the examination of the relationships among selling prices, sales and production volume, costs, |
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Contribution Margin |
is the excess of sales over variable costs
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Contribution margin= Sales - Variable Costs |
Contribution margin income statement Sales - Variable Costs = Contribution Margin Contribution Margin - Fixed Costs = Income from operations |
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Contribution Margin Ratio |
Contribution Margin Ratio = Contribution Margin _____________________ Sales |
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Change in income from operations |
Change in income from operations = Change in sales dollars * Contribution Margin ratio |
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Breakeven point |
is the level of operations at which a company's revenues and expenses are equal |
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Break-even sales (units) = Fixed costs ________________________ Unit Contribution Margin |
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target profit |
fixed cost + target profit Sales (units) = __________________________ Unit Contribution Margin |
