ACC CH 6 – Flashcards
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Absorption Costing
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Product absorb both fixed and variable manufacturing costs
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Account Analysis
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Method for determining cost behaviors that is based on a managers judgment in classifying each general ledger account as a variable, fixed or mixed cost
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Committed Fixed Costs
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Fixed costs that are locked in because of previous management decisions - Management has little/no control over these costs in short run
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Contribution Margin
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Sales revenue minus variable expenses
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Contribution Margin Income Statement
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Income statement that organizes cost by behavior, variable/fixed cost, rather than by function
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Cost Behavior
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Describes how costs change as volume changes
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Cost Equation
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Mathematical equation for a straight line that expresses how a cost behaves
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Curvilinear Costs
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Cost behavior that is not linear
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Discretionary Fixed Costs
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Fixed costs that are a result of annual management decision are controllable in the short run
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Fixed Cost
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Cost that do not change in total despite wide changes in volume
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High-Low Method
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Method for determining cost behavior based on two historical data points = Highest and Lowest volume of activity
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Mixed Cost
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Both variable cost and fixed cost components. Cost that change, but not in direct proportion to changes in volume.
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Outliers
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Abnormal data points that do not fall in the same general patter as other data points
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Regression Analysis
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Statistical procedure for determining the line that best fits the data by using all of the historical data points, not just the high and low data.
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Relevant Range
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Band of volume where total fixed costs remain constant at a certain level and where the variable cost per unit remains constant at a certain level
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Scatter Plot
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Graph that plots historical cost and volume data
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Step Costs
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Cost behavior that is fixed over a small range of activity and then jump to a different fixed level with moderate change in volume
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Variable Costs
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Costs incurred for every unit of activity Total variable costs change in direct proportion to changes in volume
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Variable Costing
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Costing method that assigns only variable manufacturing cost to products All fixed manufacturing costs are expensed as period costs
