Managerial Accounting: Ch 18

Question 1

variable costs

Answer 1

costs incurred for every unit of activity (DM and DL)

Question 2

fixed costs

Answer 2

costs that do not change in total even when the activity level changes - fixed cost per unit of activity changes with level of activity

Question 3

mixed costs

Answer 3

contain both variable and fixed components

Question 4

relevant range

Answer 4

band of volume where total fixed costs and variable costs per unit remain constant. cost behavior may change if they are making decisions outside the range of volume where you normally expect to operate

Question 5

step costs

Answer 5

fixed over a small range of activity and then jump to a new fixed cost level

Question 6

total variable cost

Answer 6

variable cost per unit of activity (v) x volume of activity (x)

Question 7

total fixed cost

Answer 7

fixed amount over a period of time (f)

Question 8

total mixed cost

Answer 8

vx + f

Question 9

high low method

Answer 9

one way to estimate the cost equation for the data in a scatterplot

Question 10

low data point in high low method

Answer 10

data for the period with the lowest volume

Question 11

high data point in the high low method

Answer 11

data for the period with the highest volume

Question 12

steps in the high low method

Answer 12

1. identify the highest and lowest volume
2. find slope of the mixed cost line (variable cost component)
   Slope = Variable cost per unit (v) =
   cost (high) - cost (low)
   ——————————–
   volume (high) - volume (low)
3. vertical intercept - where the line intersects the y axis
   total mixed cost (low) = [v x volume (low)] + fixed costs or
   total mixed cost (high) = [v x volume (high)] + fixed cost (f)
4. write the cost equation using the costs determined
   y (total mixed cost) = vx + f

Question 13

regression analysis

Answer 13

uses all datapoints to determine the cost equation - because all data points re considered, the impact of any outliers should be less making this the most accurate method

Question 14

dependent variable in regression analysis

Answer 14

amount you want to predict is based on the amounts of the independent variables

Question 15

independent variable in regression analysis

Answer 15

activity that is expected to explain the cost (cost driver)

Question 16

difference between absorption costing and variable costing

Answer 16

how they expense fixed MOH

Question 17

absorption costing method

Answer 17

revenue - COGS (product cost) = gross profit - selling and admin expense (variable and fixed) = operating income

Question 18

variable costing method

Answer 18

revenue - variable costs (DM, DL, VOH, and S&A) = contribution margin - fixed costs (fixed MOH, S&A)

Question 19

four key assumptions of cost volume profit (CVP) analysis

Answer 19

1. managers can classify each cost as fixed or variable and determine the fixed and variable components of mixed costs
2. costs are linear within the relevant range
3. units produced are sold (inventory levels will not change)
4. the sales mix of products remains constant

Question 20

sales mix

Answer 20

the proportion of sales that come from different products

Question 21

contribution margin

Answer 21

the revenue that is left over to contribute to fixed costs and operating income after paying for variable costs

Question 22

contribution margin =

Answer 22

sales revenue - variable costs

Question 23

contribution margin per unit =

Answer 23

contribution margin per unit (%) / selling price per unit
(it is good when contribution margin is higher as it means that sales prices can be higher)

Question 24

breakeven point

Answer 24

the sales point at which operating income is zero - anything below is a loss, anything above results in profit

Question 25

contribution margin income statement approach:

Answer 25

sales revenue - variable expenses - fixed expenses = operating income or (sales price x units sold) - (VC per unit x units sold) - fixed expenses = operating income for units sold

Question 26

sales in units =

Answer 26

(fixed expenses + operating income) / contribution margin per unit

Question 27

sales in dollars =

Answer 27

(fixed expenses + operating income) / contribution margin ratio

Question 28

breakeven point in units =

Answer 28

fixed expenses / weighted average contribution margin per unit

Question 29

weighted average contribution margin per unit =

Answer 29

(number of units x contribution margin per unit for each product) / total units for all products

Question 30

breakeven point in dollars =

Answer 30

fixed costs / weighted average contribution margin ratio

Question 31

weighted average contribution margin ratio =

Answer 31

(number of units x contribution margin per unit for each product) / (number of units x selling price per unit for each product)

Question 32

margin of safety

Answer 32

how far expected sales are from the breakeven point acting as a cushion or buffer - larger margin of safety means lower operating risk

Question 33

margin of safety units =

Answer 33

expected or actual sales units - breakeven sales units

Question 34

margin of safety dollars =

Answer 34

expected or actual sales - breakeven sales

Question 35

margin of safety ratio =

Answer 35

margin of safety / expected or actual sales

Question 36

operating leverage

Answer 36

refers to the mix of fixed and variable costs incurred by the firm - high operating leverage indicates relatively more fixed costs, low is more variable costs - higher operating leverage means more risk

Question 37

operating leverage factor =

Answer 37

contribution margin / operating income

Question 38

percent change in operating income =

Answer 38

operating leverage x percent change in sales