Cost Terms and Behaviors
Define a Step Variable cost
A step variable cost is a cost that stays fixed over a small range of activity, but jumps to a higher total when activity passes a certain level
How do you calculate contribution margin per unit?
Selling price per unit − Variable cost per unit
What are the 3 methods used to estimate cost?
Scattergraph
High-Low
Least Squares Regression
Who are the primary users of financial accounting information?
External users such as investors and creditors.
Is ethical behavior always legal behavior?
False — ethical behavior is not always the same as legal behavior.
Define a fixed cost
A cost that remains constant in total but decreases per unit as activity increases
What does the contribution margin ratio measure?
The percentage of each sales dollar that contributes to covering fixed costs and profit.
What is the formula for estimating costs? and what does each variable stand for?
y = a + b(x)
Total Costs = Fixed Costs + Variable Costs(units)
How often are managerial accounting reports prepared?
Prepared whenever managers need information.
Which managerial function involves choosing among alternative courses of action?
Decision making.
Define variable cost
A cost that remains constant per unit and increases in total as activity increases
What is the amount of fixed costs?
$40,000 = $17,000 x $23(1,000)
$17,000
What is the high-low method?
The cost estimation method that relies on only two data points and ignores all others
What is the timing focus of financial accounting?
Information used to evaluate past performance
True or False: Evaluating and controlling are the same managerial function.
Fasle
Define a mixed cost
Contains both a variable and fixed component
Using the following, calculate total costs:
Fixed Costs = $14,000
Variable Cost per Unit = $12
Total Units = 500
$20,000
Meadow, which uses the high-low method, had total costs of $278,600 at its lowest level of activity when 8,700 units were sold. When, at its highest level of activity, sales equaled 15,200 units, total costs were $399,500. Meadow would estimate fixed costs as:
$116,780
399,500-(15,200*18.6)=116,780
How often are financial accounting reports prepared?
Prepared at regular intervals such as quarterly or annually.
What are the four types of managerial decisions?
Planning, controlling, evaluating, and decision making.
In the equation y = mx + b, what does b represent?
Total fixed cost
A product sells for $50 and has variable costs of $30 per unit.
What is the contribution margin per unit?
20
True or False: Cost estimation methods guarantee exact cost predictions
False
Which type of accounting reports use both monetary and nonmonetary data?
managerial accounting
What is evaluating?
The managerial function used to analyze why actual results differ from planned results.