Cost Behavior and Cost-Volume-Profit Analysis

These flashcards cover key terms and concepts related to cost behavior and cost-volume-profit analysis, which are crucial for understanding financial and managerial accounting.

Fixed Costs

Total fixed costs do not change as volume changes, while unit fixed costs decrease as volume increases.

Variable Costs

Total variable costs change in proportion to volume changes, but unit variable costs remain the same as volume changes.

Mixed Costs

Costs that include both fixed and variable components, greater than zero when volume is zero and increase with volume.

Step-Wise Costs

Costs that stay constant for a range of activity but 'jump up' to a new higher level when activity exceeds a threshold.

Contribution Margin

The difference between total sales revenue and total variable costs, reflecting how sales contribute to covering fixed costs and generating profit.

Break-Even Point

The sales level where total sales equal total costs, resulting in zero income, computable via various methods including formulas and contribution margin statements.

Degree of Operating Leverage

A measure of how a percentage change in sales volume will affect profits, indicating the potential for income variability.

Cost-Volume-Profit (CVP) Analysis

A financial modeling tool that helps managers predict how changes in costs and sales volume affect a company's profits.

Scatter Diagram

A graphical method used to analyze the relationship between costs and volume, allowing estimation of fixed and variable costs.

High-Low Method

A cost estimation technique that uses the highest and lowest activity levels to determine variable and fixed cost components.