Managerial Accounting EXAM 2

Cost behavior

A behavior that describes how costs change as volume changes

variable, fixed, and mixed

what are the 3 most common cost behaviors?

Variable costs

_______ are the costs incurred for every unit of activity.

Variable cost per unit of activity x volume of activity

total variable cost=

fixed costs

_______ are costs that do not change in total despite wide changes in volume

total fixed costs

fixed amount over a period of time =

mixed costs

______ are costs that change but not in direct proportion to changes in volume. Has both variable cost and fixed cost components

variable cost component + fixed cost component

= total mixed costs

decreases

mixed costs per unit _______ as volume increases because of the fixed cost component

increases

total mixed costs ______ as volume increases because of the variable cost component

cost equations

____ help managers predict total costs at different operating volumes so that they can better plan for the future

high low method

______ is a method for determining cost behavior that is based on 2 historical data points; the highest and lowest volume of activity

relevant range

the band of volume where total fixed costs remain constant at a certain level and where the variable cost per unit remains constant at a certain level

direct proportion

Total variable costs increase in _______ to increases in volume.

not

Total mixed costs increase but _____ in direct proportion to increases in volume.

constant

On a per-unit basis, variable costs stay _______.

decrease

On a per-unit basis, fixed costs ______ in proportion to increases in volume

upward

Variable cost lines slope ______ and begin at the origin.

flat (no slope)

Fixed cost lines are ________ and intersect the y-axis at a level equal to total fixed costs (this is known as the vertical intercept

cost equation

The high-low method produces the_______ describing this mixed cost line.

y (high) - y (low)/ x(high) - x(low)

slope=

y= vx + f

vertical intercept formula

regression analysis

is a statistical procedure for determining the line and associated cost equation that best fit all of the data points in the data set, not just the high-volume and low-volume data points.

R-squared

(technically known as the coefficient of determination) generated by regression analysis tells us how well the line fits the data points.

0.80

An R-squared value over _____ generally indicates that the cost equation is very reliable for predicting costs at other volumes within the relevant range.

0.50 and 0.80

An R-squared value between ______ means that the manager should use the cost equation with caution since the equation will likely result in some estimation error.

contribution margin

________ income statement is organized by cost behavior.

sales revenue - variable expenses

contribution margin =

contribution margin/ sales revenue

contribution margin ratio=

cost volume profit analysis (cvp)

expresses the relationships among costs, volume, and the company’s profit.

sales revenue

Less: Variable expenses

= Contribution margin

Less: fixed expenses

= operating income

the contribution margin income statement formula

breakeven point

_______ is the sales level at which operating income is zero

Sales revenue - variable expenses - fixed expenses = operating income

Breakeven point income statement approach formula

sales in units = (fixed expenses + operating income) / contribution margin per unit

breakeven point shortcut method using contribution margin formula

sales in dollars = (fixed expenses + operating income) / contribution margin ratio

breakeven point shortcut method using contribution margin ratio formula

margin of safety

_____ is the excess of actual or expected sales over the sales needed to break even.

expected (or actual) sales in units - breakeven sales in units

margin of safety in units =

expected (or actual) sales in dollars - breakeven sales in dollars

margin of safety in dollars=

margin of safety in dollars/ expected (or actual) sales in dollars

margin of safety in dollars as a percentage =

margin of safety in units/ expected (or actual) sales in units

margin of safety in units as a percentage=

relevant information

expected future data that differ among alternatives

it pertains to the future and it differs among alternatives

2 characteristics of relevant information

irrelevant information

________—the costs and revenues that won’t differ between alternatives.