Accounting Quiz 3

Fixed costs

A cost that remains constant despite increases or decreases in sales volume (number of guests/ number of rooms)

payments for insurance policies, property taxes, management salaries

Name examples of fixed costs

variable cost

This cost increases as sales increase and decrease as sales decrease

Mixed costs

This cost can be divided into fixed and variable components in order to effectively control the variable cost portion

mixed cost

This example is which type of cost:

A hotel pays a telephone bill monthly, (FC), When the occupancy is higher, the telephone use is higher (VC)

fixed cost + variable cost

what is the total cost formula?

step cost

This cost increases as a range of activity increases or as a capacity is reached

Step cost

This is an example of what type of cost?

1 server is able to provide service for 1-30 guests, there are 40 anticipated guests, so one more server is needed.

direct cost

This cost can be directly attributed to a specific area or profit center within a business

indirect cost

this cost is not easily assigned to one specific unit or department

this cost is also known as undistributed or non-operating or overhead cost

controllable cost

costs that a manager has primary control over

non-controllable cost

costs that managers cannot control

joint cost

A cost that should be allocated to two or more departments or profit centers

Incremental cost

the increased cost of “each additional unit” or simply the cost of “one more”

incremental cost

what cost is this an example of?

Selling a room to a single traveler vs selling a room to a couple, how much more does it cost to sell to the couple

standard cost

the costs that should be incurred given a specific level or volume

sunk cost

a cost that has already been incurred and whose amount cannot now be altered

opportunity cost

the cost of foregoing the next best alternative when making a decision

break-even point

at this point, operational expenses are exactly equal to sales revenue

operating leverage

the relative size of fixed cost percent compared to variable cost

sherman antitrust act

This law, passed in 1890, prevents monopolistic business practices and encourages competition

CVP analysis

this predicts the sales dollars and volume required to achieve a break even point or desired profit based on known costs

Sarbanes Oxley Act

This law was created after the company Enron went bankrupt due to fraudulent financial statements; it was created to protect investors and the companies assets

contribution margin

The dollar amount, after subtracting variable costs from total sales, that contributes to covering fixed costs and providing for a profit.

margin of safety

shows how close a projected amount of sales will be to break-even and thus how close an operation will be to incurring a loss

minumum sales point

defined as the dollar sales volume required to justify staying open for a given period of time

rules, policies, and procedures

What is a simple way to remember what internal controls are?

determine break even point, help in profit plannng, marginal safety, make or buy decision, cost structure

What are the benefits of CVP

control environment

What internal control principle is being described?

Set overall tone within a organization; everybody follows the same rules

risk assessment

What internal control principle is being described?

where could we be losing money?

monitor

What internal control principle is being described?

are the rules actually being followed?

control activities

What internal control principle is being described?

seek approval / authorization

segregation of duties

What internal control principle is being described?

Minimize errors, conflicts of interest, and prevent fraud or theft by assigning people different jobs