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the cost that is not affected by the units that we produce, the more we produce, the less it costs per unit.
What is the fixed cost?
Y= a+ bX
a= fixed cost
b= the variable cost per unit
X= the units or activity level
What is the equation of mixed cost?
the belief that the value of the dependent variable (cost) will change at a constant rate depending on the independent variable (activity).
What is linearity assumption?
the range of activity that the company is expected to be operating.
What is relevant range?
classifying and estimating the fixed and variable cost components
What is the analysis of mixed cost?
the cost refers to an increase in cost from one alternative to another.
What is incremental cost?
all indirect manufacturing costs that cannot be readily traced to specific products.
What is manufacturing overhead?
selling, general, and administration costs
What is Nonmanufacturing Costs?
the fixed or variable future costs that differ between two alternatives.
What is differential cost?
the cost that is difficult to reduce or change over a period of time unless we make the fundamental changes in investments.
What is the committed fixed cost?
the potential benefit that is given up when one alternative is selected over another and can be found in every alternative.
What is the opportunity cost?
the cost that will not affect the profit even if the management cuts or reduces some fixed costs.
What is discretionary fixed cost?
the method that uses all the data to separate the mixed costs into fixed and variable costs.
What is the least-squares regression method?
the format where the income statement organizes the costs into two categories– cost of goods sold and selling and administrative expenses.
What is traditional format of income statement?
the cost that has already been incurred and that cannot be changed by any decision made now or in the future.
What is sunk cost?
the semi variable cost that includes both fixed and variable costs?
What is a mixed cost?
selling and administrative costs that are not product costs.
What are the period costs?
the total of both direct labor and manufacturing overhead
What is a conversion cost?
a cost that is incurred to support a number of cost objects but cannot be traced individually.
What is the common cost?
raw materials that become an integral part of the finished product and can be traced.
What is the direct materials?
a cost driver that measures the causes of incurrence of a variable cost.
What is the activity base?
the diagnosis that we must do before the high-low or least-squares regression calculations.
What is diagnosing cost behavior with a scattergraph plot?
In contribution format, the costs are separated into fixed and variable categories by deducting all variable expenses from sales.
How do we calculate contribution margin in contribution format?
the future revenue that differs between two alternatives but any cost that does not differ will be ignored.
What is differential revenue?
the method based on the rise-over-run formula for the slope of a straight line. Assuming that the relation between cost and activity can be represented by the straight line, then the slope of the line is equal to the variable cost per unit of activity.
What is the high-low method?