Chapter 22 Flashcards
(16 cards)
the activity that causes changes in the behavior of costs
activity index
the level of activity at which total revenues equal total costs
break-even proint
the amount of revenue remaining after deducting variable costs
contribution margin (CM)
the amount of revenue remaining per unit after deducting variable costs; calculated as unit selling price minus unit variable cost
contribution margin per unit
the percentage of each dollar of sales that is available to apply to fixed costs and contribute to net income; calculated as contribution margin per unit divided by unit selling price
contribution margin ratio
the study of how specific cots respond to changes in the level of business activity
cost behavior analysis
the study of the effects of changes in costs and volume of a company’s profits
cost volume profit (CVP) analysis
a graph showing the relationship between costs, volume, and profits
cost volume profit (CVP) graph
a statement for internal use that classifies costs as fixed or variable and reports contribution margin in the body of the statement
cost volume profit (CVP) income statement
costs that remain the same in total regardless of changes in the activity level
fixed costs
a mathematical method that uses the total costs incurred at the high and low levels of activity to classify mixed costs into fixed and variable components
high low method
the difference between actual or expected sales and sales at the break-even point
margin of safety
costs that contain both a variable and a fixed cost element and change in total but not proportionately with changes in the activity level
mixed costs
the range of the activity index over which the company expects to operate during the year
relevant range
the income objective set by management
target net income
costs that vary in total directly and proportionately with changes in the activity level
variable costs
