Exam 4

Question 1

The activity that causes changes in the behavior of costs.

Answer 1

Activity index

Question 2

The level of activity at which total revenue equals total costs, yielding a net income of zero.

Answer 2

Break-even point

Question 3

The amount of revenue remaining after deducting variable costs.

Answer 3

Contribution margin (CM)

Question 4

The percentage of each dollar of sales that is available to apply to fixed costs and contribute to net income; calculated as unit contribution margin ivided by unit selling price, or as total contribution margin divided by total sales.

Answer 4

Contribution margin ratio

Question 5

The study of how specific costs respond to changes in the level of business activity.

Answer 5

Cost behavior analysis

Question 6

The study of the effects of changes in costs and volume (quantity) on a company’s profile.

Answer 6

Cost-volume-profit (CVP) analysis

Question 7

A graph showing the relationship between costs, volume, and profits.

Answer 7

Cost-volume-profit (CVP) graph

Question 8

A statement for internal use that classifies costs as fixed or variable and reports contribution margin in the body of the statement.

Answer 8

Cost-volume-profit (CVP) income statement

Question 9

Costs that remain the same in total regardless of changes in the activity level.

Answer 9

Fixed costs

Question 10

A mathematical calculation that uses the total costs incurred at the high and low levels of activiy to classify mixed costs into fixed and variable components.

Answer 10

High-low method

Question 11

The difference between actual or expected sales, and sales at the break-even point.

Answer 11

Margin of safety

Question 12

Costs that contain both a variable-cost and a fixed-cost component and change in total but not proportionately with changes in the activity level.

Answer 12

Mixed costs

Question 13

A statistical approach that estimates the cost equation by employing information from all data points to find the cost equation line that minimizes the sum of the squared distances from the line to all the data points.

Answer 13

Regression analysis

Question 14

The range of the activity index over which the company expects to operate during the year.

Answer 14

Relevant range

Question 15

The income objective set by management.

Answer 15

Target net income

Question 16

The amount of revenue remaining per unit after deducting variable costs; calculated as unit selling price minus unit variable costs.

Answer 16

Unit contribution margin

Question 17

Variable costs expressed as a percentage of sales.

Answer 17

Variable cost ratio

Question 18

Costs that vary in total directly and proportionately with changes in the activity level.

Answer 18

Variable costs

Question 19

The process of identifying the financial data that change under alternative courses of action.

Answer 19

Incremental analysis

Question 20

For joint products, all costs incurred prior to the point at which the two products are separately identifiable (known as the split-off point).

Answer 20

Joint costs

Question 21

Multiple end-products produced from a single raw material and a common production process.

Answer 21

Joint products

Question 22

The potential benefit that is lost when one course of action is chosen rather than an alternative course of action.

Answer 22

Opportunity cost

Question 23

Those costs and revenues that differ across alternatives.

Answer 23

Relevant costs and revenues

Question 24

A cost incurred in the past that cannot be changed or avoided by any present or future decision.

Answer 24

Sunk cost

Question 25

The use of budgets to control operations.

Answer 25

Budgetary control

Question 26

A cost over which a manager has control.

Answer 26

Controllable cost

Question 27

Contribution margin less controllable fixed costs.

Answer 27

Controllable margin

Question 28

A responsibility center that incurs costs but does not directly generate revenues.

Answer 28

Cost center

Question 29

Organizational structure in which control of operations is delegated to many managers throughout the organization.

Answer 29

Decentralization

Question 30

Costs that relate specifically to a responsibility center and are incurred for the sole benefit of the center.

Answer 30

Direct fixed costs

Question 31

A projection of budget data for various levels of activity

Answer 31

Flexible budget

Question 32

Costs that are incurred for the benefit of more than one profit center.

Answer 32

Indirect fixed costs

Question 33

A responsibility center that incurs costs, generates revenues, and has control over decisions regarding the assets available for use.

Answer 33

Investment center

Question 34

The review of budget reports by top management focused entirely or primarily on significant differences between actual results and planned objectives.

Answer 34

Management by exception

Question 35

Costs incurred indirectly and allocated to a responsibility level that are not controllable at that level.

Answer 35

Noncontrollable costs

Question 36

A responsibility center that incurs costs and also generates reveneues.

Answer 36

Profit center

Question 37

The income that remains after subtracting from the controllable margin the minimum rate of return on a company’s average operating assets.

Answer 37

Residual income

Question 38

A part of management accounting that involves identifying and reporting revenues and costs on the basis of the managr who has the authority to make the day-to-day decisions about the items.

Answer 38

Responsibility accounting

Question 39

The preparation of reports for each level of responsibility in the company’s organization chart.

Answer 39

Responsibility reporting system

Question 40

A measure of management’s effectiveness in utilizing assets at its disposal in an investment center.

Answer 40

Return on investment (ROI)

Question 41

An area of responsibility in decentralized operations.

Answer 41

Segment (or division)

Question 42

A projection of budget data at one level of activity.

Answer 42

Static budget