Ch 21 Managerial Accounting Flashcards

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Cost behavior
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the manner in which a cost changes as a related activity changes.
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True
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Cost behavior is useful to managers because knowing how costs behave allows managers to predict profits as sales and production volume change. T/F
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Activity bases
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the activities that cause the cost to change
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Relevant range
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The range of activity over which the changes in the cost are of interest
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True
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Understanding the behavior of a cost depends on: 1. Activity bases 2. Relevant range T/F
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True
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Costs are normally classified as variable costs, fixed costs, or mixed costs T/F
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Variable costs
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costs that vary in proportion to changes in the activity base.
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Fixed costs
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costs that remain the same in total dollar amount as the activity base changes.
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Mixed costs
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costs that have a characteristic of both a variable and a fixed cost. This cost is also sometimes called semivariable or semifixed costs.
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High low method
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a cost estimation method that uses the highest and lowest activity levels and their related costs to estimate the variable cost per unit and the fixed cost.
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Variable cost per unit
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Difference in total cost / Difference in units produced
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Fixed cost
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Total costs – (Variable cost per unit x Units produced)
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Variable costing
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only the variable manufacturing costs (DM, DL, variable FOH) are included in the product cost.
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Cost volume profit analysis
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the examination of the relationships among the selling prices, sales and production volume, costs, expenses, and profits
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True
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Cost volume profit analysis is useful for managerial decision making T/F
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Contribution margin
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the excess of sales over variable costs Sales – Variable costs
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True
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Sales – Variable costs = Contribution margin Contribution margin – Fixed costs = income from operations T/F
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Contribution margin ratio
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(sometimes called profit-volume ratio) indicates the percentage of each sales dollar available to cover fixed costs and to provide income from operations. Contribution Margin / Sales
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Unit contribution margin
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Useful for analyzing the profit potential of proposed decisions Sales prices per unit – Variable cost per unit
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Break even point
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the level of operations at which a company’s revenues and expenses are equal.
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True
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At break-even, a company reports neither an income nor a loss from operations T/F
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Break even sales in units
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Fixed costs / Unit Contribution margin
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Break even sales in dollars
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Fixed costs / Contribution margin ratio
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True
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If fixed costs go up, then break even point goes up If fixed costs go down, then break even point goes down T/F
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True
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If unit variable cost goes up, break even point goes up If unit variable cost goes down, break even point goes down T/F
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True
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If unit selling price goes up, break even point goes down If unit selling price goes down, break even point goes up T/F
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Cost volume profit chart
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(sometimes called a break-even chart) graphically shows sales, costs, and the related profit or loss for various levels of units sold
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True
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Cost volume profit chart assists in understanding the relationship among sales, costs, and operating profit or loss T/F
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Profit volume chart
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plots only the differences between total sales and total costs (or profits)
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True
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The profit-volume chart allows managers to determine the operating profit (or loss) for various levels of units sold T/F
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Sales mix
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the relative distribution of sales among the products sold by a company
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Operating leverage
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The relationship between a company’s contribution margin and income from operations Contribution margin / Income from operations
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True
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The difference between contribution margin and income from operations is fixed costs. Companies with high fixed costs will also have high operating leverage T/F
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Percent change in income from operations
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Percent change in sales x Operating leverage
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Margin of safety
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indicates the possible decrease in sales that may occur before an operating loss results Sales – Sales at break even point / Sales
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True
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If the margin of safety is low, even a small decline in sales revenue may result in an operating loss T/F

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