openstax

____ OrganizationsBusinesses that purchase ____ goods and ___ them to consumers.

merchandising, finished, resell

Walmart, Target, Macy’s are examples of __ orgs

merchandising

merchandising org Source of Revenue: Sale of ___ (__ goods).

merchandise finished

merchandising Key Costs:

• Purchase of ___.

• Rent for retail ___.

• ___for sales staff.

inventory, space, wages 

merchandising org Income Statement:

sales revenue - cost of goods sold = gross profit

merchandising org Focus: Managing ___ costs and ___ pricing to maintain profit margins.

inventory, supplier

2. ___ OrganizationsBusinesses that use ___ materials and components to produce ___ goods.

manufacturing, raw, finished

Ford, Toyota, Nike. are __ orgs

manufacturing

manufacturing Source of Revenue: ___ of ___products (directly or through __).

sale, manufactured, retailers 

___Materials: ___materials used in production.

direct raw 

Direct ____: Wages for workers __ the product.

labor assembling

Manufacturing ___: ___ costs (utilities, __, maintenance).

overhead indirect depreciation

key costs of manufacturing - ____ materials, direct ____, ___ overhead

direct, labor, manufacturing

Income Statement for manufacturing orgs

sales revenue - cost of goods manufactured/sold = gross profit

manufacturing orgs - Focus: Managing production ____ and ___control in manufacturing processes.

efficiency, cost 

3. ____OrganizationsFirms that provide ___products or services (not physical goods).

service intangible 

Airlines, law firms, hospitals, accounting firms are __ orgs

service

service org - Source of Revenue: Providing professional __ (consulting, treatment, legal work).

services

service orgs Key Costs:

• ___of professional staff.

• Office and ____ expenses.

• Supplies and ___.

salaries, admin, equipment 

service orgs - income statement

service revenue - operating expenses = operating income

service orgs - Focus: Managing ____ and ____ costs while maintaining quality of ___.

labor, admin, service 

____ Firms

• Some businesses operate across all three types.

Apple manufactures iPhones (____), sells in stores (___), and provides AppleCare (__).

manufacturing merchandising service

___Classifications: Costs are grouped based on how they ___when activity levels __.

cost, behave, change 

Fixed Cost

Costs that ___ constant in total within the relevant range

___total; ____per unit when activity increases

__, insurance, manager salary

remain, unchanged, decreases, rent 

___Cost

Costs that change directly with ____level

Increases or decreases ___

Direct __, hourly labor, sales commissions

variable, activity, proportionally, materials 

__ Cost

Contains both fixed and variable components

___ change with activity

__, phone bills

mixed, partial, utilities

___ Cost

___ for a range, then “steps up” when ___ exceeded

Increases in __

___ added per production range

step, fixed, range, chunks, supervisors

• Product Costs:

  • Related directly to __.

production 

product costs - Include ___ Materials + Direct ___ + Manufacturing ___.

direct, labor, overhead

product costs - Recorded as ____ (asset) until goods are ___ → then become ___ of Goods Sold (___).

inventory, sold, cost, expense

__Costs: - ____ expenses like ___and administrative costs.

period, non-manufacturing, selling 

___Costs

Direct production costs

Direct ___+ Direct Labor

prime, materials 

____Costs

Costs of converting materials into ___

Direct Labor + ___Overhead

conversion, product, manufacturing 

___ Range - The normal range of activity in which ____ costs remain __.

relevant, fixed, constant

relevant range - Outside this range, cost behavior changes (new ___ or facility expansion may ___ fixed costs).

equipment, increase

The Cost Equation: Y=

a + bX

The Cost Equation: Y = a + bX

Where:

• Y = Total____

• a = Total ___Cost

• b = _____Cost per unit

X = Number of ___units (cost driver)

cost, fixed, variable, activity 

If fixed costs = $3,000 and variable cost per unit = $350, Y = ___

This formula helps predict total cost at any ___level.

3000 + 350x, activity 

Methods for Estimating Costs

1. ____Graph

   • Plots historical cost data.

Helps visualize if ___and activity have a ____relationship.

scatter, cost, linear 

1. High-Low Method

   • Uses highest and lowest activity levels to estimate ____ cost per unit.

Formula: ____
Then find fixed cost using equation

variable, b = Y2 - Y1 / (x2 - x 1), a = Y - bX

Least ____ Regression: Statistical method that gives the most ___ linear relationship between cost and activity (uses ___ data points).

squares, accurate, all

Contribution Margin - The amount ___ from ___ revenue after ___ costs have been deducted; it contributes to covering ___ costs and ___.

remaining, sales, variable, fixed, profit

Contribution Margin per Unit =

selling price per unit - variable c ost per unit

CM Ratio =

contribution margin per unit / selling price per unit

If selling price = $100, variable cost = $20 → CM = $80

CM Ratio = 

80 / 100 = 80% 

CM ratio Uses

• Measures how much of each ___ dollar contributes to ___ costs and profit.

• Helps managers prioritize ____-margin products and evaluate ___ decisions.

sales, fixed, high, pricing

Break-Even Point (Units and Dollars)

The level of ___ at which total ___ = total ___ (no profit, no loss).

sales, revenue, costs

break-even point In Units: Break-Even (Units) = 

fixed costs / CM per unit

break-even point In Dollars: Break-Even (Sales $) =

fixed costs / CM ratio

If fixed costs = $36,000, selling price = $400, variable cost = $160 → CM per unit = $240

Break-Even Units = ___

Break-Even Sales = ____

36 000 / 240 = 150 150 × 400 = 60 000

Break-Even at Target Profit - To earn a target profit: Required Units  =

(fixed costs + target profit) / CM per unit

Break-Even Sensitivity (Single Product)

Understanding ____: Shows how changes in ___, ___costs, or ___costs affect the ___-even point.

sensitivity, price, variable, fixed, break 

Change	Effect on Break-Even
↑ Selling Price	__Break-even (fewer sales needed)

decrease

↓ Selling Price

__ Break-even

increase

↑ Variable Costs

___Break-even

increase 

↓ Variable Costs

__Break-even

decrease 

↑ Fixed Costs

__Break-even

increase 

↓ Fixed Costs

__ Break-even

decrease 

Total Cost

Y = __

a + bX 

CM per Unit

selling price - variable cost

CM Ratio

CM / selling price 

Break-Even (Units)

fixed costs / CM per unit 

Break-Even ($)

fixed costs / CM ratio 

Target Profit (Units)

(fixed costs + target profit) / CM per unit