Cost Classifications
A cost that does not change with the volume of production.
What is a fixed cost?
A graph of unit volume and cost data.
What is a scatter diagram?
Sales price per unit - variable cost per unit
What is contribution margin?
Direct Materials
Direct Labor
Variable Overhead
Fixed Overhead
What are the four parts of product cost?
Contribution Margin
divided by
Income
Shows how a change in sales effects income.
What is Degree of Operating Leverage?
A cost that changes in proportion with the volume of production.
What is a variable cost?
A line drawn on a scatter diagram to show the relation between cost and unit volumes.
What is the estimated line of cost behavior?
divided by
Sales prices per unit
What is contribution margin ratio?
Direct Material
Direct Labor
Variable Overhead
What are Variable Costing product costs?
Fixed Cost + Target Income
divided by
Contribution Margin per Unit
What is Unit Sales at Target Income?
A cost that includes both fixed and variable cost components.
What is a mixed cost?
Using just two points to estimate the cost equation: the highest and lowest volume levels.
What is the High-low Method?
Fixed costs
divided by
Contribution Margin per unit
What is the breakeven point in units?
How fixed overhead is treated in variable costing.
An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received.
What is Cost Volume Profit Analysis?
A cost that has a step pattern but fixed in each relevant range
What is a step-wise cost?
Cost at highest volume - cost at lowest volume
divided by the
highest volume - lowest volume
What is variable cost per unit?
Fixed costs
divided by
Contribution Margin Ratio
What is breakeven point in dollars?
When evaluating a special order, if incremental revenue exceeds total variable product costs.
The sales level at which a company neither earns a profit nor incurs a loss.
What is the break even point?
Normal range of operations.
What is the relevant range of operations?
TC = FC + (VC X the number of units)
What is the total cost formula?
Expected sales - Breakeven sales
divided by
Expected sales
What is the margin of safety?
Variable costing income + Fixed Overhead in Ending Finished Goods inventory - Fixed Overhead in Beginning Finished Good inventory
How Variable costing income is converted to Absorption costing income?
Which costing method uses a traditional Multiple Step Income Statement Format
and which costing method uses a Contribution Margin Income Statement Format
Wha is Absorption Costing and Variable Costing?