Term
| Variable cost behavior, is _______ per unit |
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Term
| Constant cost behavior is _________ per unit |
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Term
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Definition
a measure of the event that causes the incurrence of a variable cost- a cost driver.
Ex. Units produced, units sold, machine hours, miles driven, etc. |
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Term
| Total cost remains constant within: |
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Definition
a narrow range of activity.
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activity |
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Term
| Example of normally variable costs: |
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Definition
Merchandiser: cost of goods sold is a variable cost,
purchase ^, COGS ^
Manufcturer: Direct materials, Direct Labor, Variable MO
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Term
| Examples of normally fixed costs: |
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Definition
Real estate taxes, depreciation of buildings and equipment, advertising
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Term
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Definition
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Term
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Definition
| Long term in nature, can't be changed in the short run. Ex. Depreciation of buildings and equipment |
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| Discretionary Fixed Costs: |
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Definition
| Annual decisions, can be changed in the short run. Ex. Advertising, R&D |
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Term
| Fixed costs and Relevant Range |
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Definition
| Consistant over relevant range but outside that range, new fixed costs. With of the step is the difference between this and step variable cost. Step variable cost is much more narrow. |
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Term
| T/F: Fixed costs per unit vary with the level of activity. |
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Definition
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| T/F:Variable costs per unit are constant within the relevant range. |
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| T/F: Total fixed costs are constant within the relevant range. |
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Definition
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Term
| T/F: Total variable costs are constant within the relevant range. |
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Definition
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Term
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Definition
| A mixed cost has both fixed and variable components. Fixed minimum rate and variable after that according to activity. Ex. Electricity bill... |
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Term
| Equation for mixed costs: |
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Definition
Y=a+bX, or Y=total FC+ total VC.
Y= total mixed cost,
a=total FC,
b=variable cost per unit,
X=level of activity |
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Term
| Account analysis and engineering estimates: |
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Definition
Each account is classified as either fixed or variable based on the analyst's knowledge of how the account behaves.
Cost estimates are based on an evaluation of production methods and material, labor, and overhead requirements. |
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Term
| Scattergraph method for evaluation of mixed costs: |
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Definition
| Data of total cost and activity(X&Y) is plotted as scattergraph and evaluated for a linear relationship. Can you draw a line where half of points are above and half are below. Y intercept is fixed cost amount. |
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Term
| High- Low method of analyzing mixed costs: |
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Definition
Analyzing maintenance costs: production to cost. Must have two observations of X&Y(high and low activity)
1.Solve for variable cost per unit= change in cost/ change in activity.
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=Delta Y over Delta X
2. Solve for fixed cost= total cost- total variable cost
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=cost at one level- units(cost per unit) |
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Term
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Definition
Total Cost=Fixed cost+variable cost(Y=a+bX)
For any activity, one can predict total cost. |
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Term
| Test Question: Sales salaries and commissions are $10,000 when 80,000 units are sold and $14,000 when 120,000 units are sold. Using the high low method, what is the variable portion of sales salaries and commission?(FC=2,000) |
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Definition
$.10 per unit
so,
Cost formula= Y=2000+.10X |
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Term
Test Question: Sales salaries and commissions are $10,000 when 80,000 units are sold and $14,000 when 120,000 units are sold. Using the high low method, what is the fixed portion of sales salaries and commission?(Var cost per unit is $.10)
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Definition
$2,000
so,
Cost formula= Y=2000+.10X |
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Term
| Least-Squares Regression method |
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Definition
| Modeling technique for analyzing cost function, preferred method because can use technology. Finds best fitting line through data. Tells R^2, or the relationship between X and Y. |
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Term
| Contribution Income Statement |
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Definition
**For internal uses only.
Sales revenue
Less: VC
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=Contribution Margin
Less: FC
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=Net Income |
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