logo image

Ch 21

Cost behavior
the manner in which a cost changes as a related activity changes.
Cost behavior is useful to managers because knowing how costs behave allows managers to predict profits as sales and production volume change. T/F
Activity bases
the activities that cause the cost to change
Relevant range
The range of activity over which the changes in the cost are of interest
Understanding the behavior of a cost depends on:
1. Activity bases
2. Relevant range
Costs are normally classified as variable costs, fixed costs, or mixed costs T/F
Variable costs
costs that vary in proportion to changes in the activity base.
Fixed costs
costs that remain the same in total dollar amount as the activity base changes.
Mixed costs
costs that have a characteristic of both a variable and a fixed cost. This cost is also sometimes called semivariable or semifixed costs.
High low method
a cost estimation method that uses the highest and lowest activity levels and their related costs to estimate the variable cost per unit and the fixed cost.
Variable cost per unit
Difference in total cost / Difference in units produced
Fixed cost
Total costs – (Variable cost per unit x Units produced)
Variable costing
only the variable manufacturing costs (DM, DL, variable FOH) are included in the product cost.
Cost volume profit analysis
the examination of the relationships among the selling prices, sales and production volume, costs, expenses, and profits
Cost volume profit analysis is useful for managerial decision making T/F
Contribution margin
the excess of sales over variable costs

Sales – Variable costs

Sales – Variable costs = Contribution margin

Contribution margin – Fixed costs = income from operations

Contribution margin ratio
(sometimes called profit-volume ratio) indicates the percentage of each sales dollar available to cover fixed costs and to provide income from operations.

Contribution Margin / Sales

Unit contribution margin
Useful for analyzing the profit potential of proposed decisions

Sales prices per unit – Variable cost per unit

Break even point
the level of operations at which a company’s revenues and expenses are equal.
At break-even, a company reports neither an income nor a loss from operations T/F
Break even sales in units
Fixed costs / Unit Contribution margin
Break even sales in dollars
Fixed costs / Contribution margin ratio
If fixed costs go up, then break even point goes up
If fixed costs go down, then break even point goes down
If unit variable cost goes up, break even point goes up
If unit variable cost goes down, break even point goes down
If unit selling price goes up, break even point goes down
If unit selling price goes down, break even point goes up
Cost volume profit chart
(sometimes called a break-even chart) graphically shows sales, costs, and the related profit or loss for various levels of units sold
Cost volume profit chart assists in understanding the relationship among sales, costs, and operating profit or loss T/F
Profit volume chart
plots only the differences between total sales and total costs (or profits)
The profit-volume chart allows managers to determine the operating profit (or loss) for various levels of units sold T/F
Sales mix
the relative distribution of sales among the products sold by a company
Operating leverage
The relationship between a company’s contribution margin and income from operations

Contribution margin / Income from operations

The difference between contribution margin and income from operations is fixed costs.
Companies with high fixed costs will also have high operating leverage T/F
Percent change in income from operations
Percent change in sales x Operating leverage
Margin of safety
indicates the possible decrease in sales that may occur before an operating loss results

Sales – Sales at break even point / Sales

If the margin of safety is low, even a small decline in sales revenue may result in an operating loss T/F

Need essay sample on "Ch 21"? We will write a custom essay sample specifically for you for only $ 13.90/page

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
Complete Buyer Protection
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy