Accounting 210 Exam 2

Front 1

Variable Cost

Back 1

a cost whose total dollar amount varies in direct proportion to changes in the activity level. It is variable with repect to an activity base. They are constant at a per unit basis, but they increase on a total basis.

Front 2

Activity Base

Back 2

is a measure of whatever causes the incurrence on a variable cost

Front 3

Relevant Range

Back 3

a range of activity within which the assumptions make about cost behavior by the manager are valid

Front 4

Fixed costs

Back 4

Remain constant in total dollar amount within the relevant range of activity. Decreases on a per unit basis, but they remain constant at a total basis, within a relevant range. Changes in planned activities are the ones that mostly change the amount of fixex costs that will be incurred throughout the year.

Front 5

Mixed Costs

Back 5

This is a cost that contains both variable and fixed cost elements.

Front 6

y=a+bx

Back 6

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

Front 7

Scatter Graphs

Back 7

used in order to analyze mixed costs. costs observed at various levels of activity are plotted on the graph, cost is on the vertical axis, and the level of activity is on the horizontal axis

Front 8

Drawbacks of scatter graph

Back 8

are that the placement of the regression line is subjective. Each person will fit the regression line differently from another.

Front 9

High-Low Method

Back 9

Used to analyze mixed costs, identify the period with the lowest level of activity and the period with the highest activity.

Front 10

Variable Cost=

Back 10

Change in cost / change in activity

Front 11

Fixed Cost=

Back 11

Total Cost-Variable Cost element

Front 12

Pros and Cons of High-Low Method

Back 12

Beneficial because it is simple to use everyone gets same answer

Drawback is that is relies only on two points. inaccurate data

Front 13

Independent variable

Back 13

the activity, x, horizontal axis, it causes variations in the dependent variable

Front 14

Dependant Variable

Back 14

Cost, y, vertica axis, is called dependent because the cost incurred during the period depends on the level of activity for the period

Front 15

Least-Squares Regression

Back 15

More objective and precise approach to estimating the regression line. Uses mathematical formulas to fit the regression line. Takes all the data into account when estimating the cost formula. Computes the regression line that minimizes the sum of the squared errors (the distance from the line to the plotted pts squared)

Front 16

Pros/Cons of Least-Squares Regression

Back 16

Advantage- the most accurate method out of the three

Drawback- extremely complicated unless have software

Front 17

Cost Volume Profit Analysis

Back 17

Most powerful managerial tool. Aids in understanding the interrelationship between cost, volume, and profit in an organization by focusing on the interactions between five elements. Vital tool should be used when making business decisions

Front 18

Five elements of Cost Volume Profit Analysis

Back 18

Prices of products, volume or level of activity, per unit variable costs, total fixed costs, and mix of products sold

Front 19

Contribution Margin

Back 19

the amount remaining from sales revenue after variable expenses have been deducted. the amount available to cover fixed expenses and to provide profits for the period

Front 20

CM per unit=

CM%=

Back 20

=Sales Revenue per unit - Variable cost per unit

=CM per unit / Sales Revenue per unit

Front 21

Break-Even Point

Back 21

is the level of sales at which the company's profit is zero, can be found by the equation method or the CM method

Front 22

CVP Graph

Back 22

highlights CVP relationships over wide ranges of activity, givs managers a perspective that can be obtained in no other way

Front 23

Break-even on CVP

Back 23

where total revenue and the total expenses line cross

Front 24

Profit area on CVP

Back 24

the area between the total revenue line, the total expenses line, above the break even point

Front 25

Margin of Safety

Back 25

the excess of budgeted (or actual) sales over the break-even volume of sales. the amount by which sales can drop before losses begin to be incurred.

Front 26

Margin of Safety $$ =

Margin of Safety (units)=

Margin of Safety%=

Back 26

Actual Sales-Break Even Sales

Actual Units-Break Even Units

Acutal Sales-Break even sales / Actual Sales

Front 27

Operating Leverage

Back 27

a measure of how sensitive net income is to percentage change in sales. actas as a multiplier. if the OL is high, a small percentage increase in sales can produce a much larger percentage increase in net inceome

Front 28

Degree of operating leverage=

Back 28

Contribution Margin
= --------------
Net Income

Front 29

Degree of operating leverage

Back 29

a measure, at a given level of sales, of how a percentage change in sales volume will affect profits

Front 30

% increase in net income=

Back 30

Degree of operating leverage X % increase in sales

Front 31

Sales Mix

Back 31

refers to the relative proportions in which a company's products are sold. Managers try to achieve the mix that yields the greatest amt of profits

Front 32

Absorption Costing

Back 32

treats all costs of production as product costs, regardless of whether they are variable or fixed.

Front 33

The cost of a unit of product under the absorption costing method

Back 33

consists of direct materials, direct labor, and both variable and fixed OH

Front 34

Variable costing

Back 34

treats fixed MFG OH as a period cost, not a product cost.

Front 35

Production > Sales

Back 35

Inventory Increases

Absorption Net Income > Variable Net Income

Front 36

Production < Sales

Back 36

Absorption Net Income < Variable Net Income