# Shared Flashcard Set

## Details

MA_CH5
in class notes
26
Accounting
02/16/2010

Term
 Variable cost behavior, is _______ per unit
Definition
 Constant
Term
 Constant cost behavior is _________ per unit
Definition
 Variable
Term
 activity base
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.
Term
 Total cost remains constant within:
Definition
 a narrow range of activity. _|            _|              C    _|                O      _|                   S                            T      activity
Term
 Example of normally variable costs:
Definition
 Merchandiser: cost of goods sold is a variable cost, purchase ^, COGS ^ Manufcturer: Direct materials, Direct Labor, Variable MO
Term
 Examples of normally fixed costs:
Definition
 Real estate taxes, depreciation of buildings and equipment, advertising
Term
 Types of fixed costs:
Definition
 Committed, Dscretionary
Term
 Committed fixed costs:
Definition
 Long term in nature, can't be changed in the short run. Ex. Depreciation of buildings and equipment
Term
 Discretionary Fixed Costs:
Definition
 Annual decisions, can be changed in the short run. Ex. Advertising, R&D
Term
 Fixed costs and Relevant Range
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.
Term
 T/F: Fixed costs per unit vary with the level of activity.
Definition
 True
Term
 T/F:Variable costs per unit are constant within the relevant range.
Definition
 True
Term
 T/F: Total fixed costs are constant within the relevant range.
Definition
 True
Term
 T/F: Total variable costs are constant within the relevant range.
Definition
 False
Term
 Mixed Costs
Definition
 A mixed cost has both fixed and variable components. Fixed minimum rate and variable after that according to activity. Ex. Electricity bill...
Term
 Equation for mixed costs:
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
Term
 Account analysis and engineering estimates:
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.
Term
 Scattergraph method for evaluation of mixed costs:
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.
Term
 High- Low method of analyzing mixed costs:
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.  OR  =Delta Y over Delta X 2. Solve for fixed cost= total cost- total variable cost OR  =cost at one level- units(cost per unit)
Term
 High Low method equation
Definition
 Total Cost=Fixed cost+variable cost(Y=a+bX) For any activity, one can predict total cost.
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)
Definition
 \$.10 per unit   so, Cost formula= Y=2000+.10X
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)
Definition
 \$2,000   so, Cost formula= Y=2000+.10X
Term
 Least-Squares Regression method
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.
Term
 Contribution Income Statement
Definition
 **For internal uses only.    Sales revenue Less: VC ____________ =Contribution Margin Less: FC ____________ =Net Income
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