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accounting chap. 11

activity base
A measure of activity that is related to changes in cost and is used in the denominator in calculating the predetermined factory overhead rate to assign factory overhead costs to cost objects.
break-even point
The level of business operations at which revenues and expired costs are equal.
contribution margin
Sales less variable cost of goods sold and variable selling and administrative expenses.
contribution margin ratio
The percentage of each sales dollar that is available to cover the fixed costs and provide income from operations.
cost behavior
The manner in which a cost changes in relation to its activity base (driver).
cost-volume profit analysis
The systematic examination of the relationships among costs, expenses, sales, and operating profit or loss.
cost-volume profit chart
A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss.
fixed costs
Costs that tend to remain the same in amount, regardless of variations in the level of activity.
high low method
A technique that uses the highest and lowest total cost as a basis for estimating the variable cost per unit and the fixed cost component of a mixed cost.
margin of safety
The difference between current sales revenue and the sales at the break even point.
mixed cost
A cost with both variable and fixed characteristics.
operating leverage
A measure of the relative mix of a business’s variable costs and fixed costs, computed as contribution margin divided by income from operations.
profit-volume chart
A chart used to assist management in understanding the relationship between profit and volume.
relevant range
The range of activity over which changes in cost are of interest to management.
sales mix
The relative distribution of sales among the various products available for sale.
unit contribution
The dollars available from each unit of sales to cover fixed costs and provide income from operations.
variable costing
A method of reporting variable and fixed costs that includes only the variable manufacturing costs in the cost of the product.
variable costs
Costs that vary in total dollar amount as the level of activity changes.

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