Flashcards in Deck 4 Deck (20):

1

## Units needed to achieve profit above break even level =

### Pretax profit / CM per unit

2

## Accounting profit =

### Total revenue - total explicit costs

3

## Explicit vs. implicit costs

### Explicit - out of pocket costs; implicit - opportunity costs

4

## The relevance of a particular cost to a decision is determined by

### The potential effect on the decision

5

## What costs are relevant to maximizing profit?

### Separable costs after the split off point

6

## The minimum price for a special order is

### The sum of the VC plus CM from next best alternative

7

## Definition and example of sunk costs

### Costs that have occurred in the past and are unavoidable; research and development

8

## Definition of relevant costs

### Costs that will change under different alternatives

9

## Definition of Incremental costs

### Additional costs incurred to produce an additional amount of the unit

10

## Decision rule for accepting special orders, accept if:

### Price > VC per unit

11

## Decision rule for make vs. buy decisions; make if:

### Relevant costs (avoidable costs) < outside purchase price

12

## Sell or process further decisions; process further if:

### Incremental revenue > incremental costs

13

## Incremental revenue =

### Final selling price - selling price at split-off point

14

## Keep or drop a segment decisions; Keep the segment if:

### Contribution margin for the segment > Avoidable FC

15

## The most accurate method to classify costs of an object as fixed or variable is

### Regression analysis

16

## Regression analysis

### Model that estimates the dependent variables based on changes in the independent variable

17

## Linear regression equation

### Y= a + bx (Y is total costs, x is units produced, a is fixed costs, and b is VC/unit)

18

## R squared vs. R

### R: coefficient of correlation ( -1 to 1); R squared: coefficient of determination (0-1)

19

## Net joint costs to be allocated =

### Joint costs less NRV of byproduct

20