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48 Cards in this Set
- Front
- Back
cost structure
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the relative proportion of fixed, variable, and mixed costs in an organization
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activity base
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A measure of whatever causes the incurrence of a variable cost.
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A measure of whatever causes the incurrence of a variable cost.
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activity base
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the relative proportion of fixed, variable, and mixed costs in an organization
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cost structure
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what is an activity base sometimes referred to as?
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a cost driver
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what are some of the most common activity bases? (4)
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-direct labor-hours
-machine-hours -units produced -units sold |
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Unless stated otherwise what can you assume is the activity base under consideration?
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the total volume of goods and services provided by an organization
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When is the only time the activity base will be specified?
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When it is something other than total output
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Costs that are normally variable with respect to volume of output in a merchandising company:
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Cost of goods sold
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Costs that are normally variable with respect to volume of output in a Manufacturing company: (7)
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-Direct Materials
-Direct Labor -Variable elements of Manufacturing Overhead: -(Indirect Materials) -(Lubricants) -(Supplies) -(Power) |
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True Variable costs
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the amount used in a period will vary in direct proportion to the level of production activity
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the amount used in a period will vary in direct proportion to the level of production activity
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True Variable costs
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Step-variable cost
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The cost of a resource that is obtained in large chunks and that increases and decreases only in response to fairly wide changes in activity
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The cost of a resource that is obtained in large chunks and that increases and decreases only in response to fairly wide changes in activity
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Step-variable cost
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relevant range
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that range of activity within which the assumptions made about cost behavior are reasonably valid
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that range of activity within which the assumptions made about cost behavior are reasonably valid
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relevant range
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What are fixed costs commonly referred to as?
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capacity costs
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Why are fixed costs commonly referred to as capacity costs?
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because they result from outlays made for buildings, equipment, skilled professional employees, and other items needed to provide the basic capacity for sustained operations
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For planning purposes, Fixed costs can be viewed as:
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either committed or discretionary
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committed fixed costs
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Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes
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Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes
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committed fixed costs
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discretionary fixed costs
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Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research
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Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research
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discretionary fixed costs
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examples of committed fixed costs: (4)
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-depreciation of buildings and equipment
-real estate taxes -insurance expenses -salaries of top management and operating personnel |
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what are discretionary fixed costs often referred to as?
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managed fixed costs
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examples of discretionary fixed costs: (5)
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-advertising
-research -public relations -management development programs -internships for students |
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two key differences between discretionary fixed costs and committed fixed costs
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-the planning horizon for a discretionary fixed cost is short-term while that of a committed fixed cost is long-term
-discretionary fixed costs can be cut for short periods of time with minimal damage to the long-run goals of the organization |
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Why would management choose to treat employee compensation as a fixed cost? (2)
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-many managers are reluctant to decrease their workforce in response to short-term declines in sales
-managers do not want to be caught with a bloated payroll in an economic downturn |
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fixed costs can change:
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but not in response to small changes in activity
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unless otherwise stated, direct labor is considered what kind of cost?
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variable cost
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What are the differences between step-variable costs and fixed costs? (2)
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-step-variable costs can often be adjusted quickly as conditions change, whereas once fixed costs have been set, they usually can't be changed easily
-the width of the steps depicted for step-variable costs is much narrower than the width of the steps depicted for the fixed costs |
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mixed cost
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a cost that contains both fixed and variable cost elements
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a cost that contains both fixed and variable cost elements
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mixed cost
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what are mixed costs also known as?
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semivariable costs
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What does each variable represent in this equation: Y = a + bX
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Y = total mixed cost
a = total fixed cost (vertical intercept of the line b = the variable cost per unit of activity (the slope of the line) X = the level of activity |
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What does the fixed cost portion of a mixed cost represent?
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The minimum cost of having a service READY and AVAILABLE FOR USE
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What does the variable cost portion of a mixed cost represent?
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the cost incurred for ACTUAL CONSUMPTION of the service
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account analysis
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the account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves
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engineering approach
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involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on
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involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on
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engineering approach
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the account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves
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account analysis
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dependent variable
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a variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y
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independent variable
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a variable that acts as a causal factor; activity is the independent variable, as represented by the letter X
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What is the high-low method based on?
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The rise over run formula for the slope of a straight line
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Variable cost =
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(Change in Cost)/(Change in activity)
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(Change in Cost)/(Change in activity) =
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Variable cost
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multiple regression
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analytical method that is used when the dependent variable is caused by more than one factor
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analytical method that is used when the dependent variable is caused by more than one factor
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multiple regression
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