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Managerial Accounting Chapter 4 Quiz

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Break-even point
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the point where total sales revenue = total cost; at this point neither profit or loss is earned
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Common fixed expenses
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fixed expenses that cannot be directly traced to individual segments and that are unaffected by the elimination of any one segment
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Contribution margin
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sales revenue – total variable cost OR price – unit variable cost
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Contribution margin income statement
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the income statement format that is based on the separation of cost into fixed and variable components
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Contribution margin ratio
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contribution margin/ sales revenue it is the proportion of each sales dollar available to cover fixed cost and provide for profit
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Cost-volume-profit (CVP) analysis
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estimates how changes in cost (both variable and fixed), sales volume, and price affect a company’s profit
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Cost structure
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a company’s mix of fixed costs relative to variable costs
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Cost-volume-profit graph
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a graph that depicts the relationships among costs, volume, and profits. It consists of a total revenue line and a total cost line
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Degree of operating leverage (DOL)
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a measure of the sensitivity of profit change to changes in sales volume. It measures the percentage change in profits resulting from a percentage change in sales
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Direct fixed expenses
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fixed costs that are directly traceable to a given segment and consequently, disappear if the segment is eliminated.
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Indifference point
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the quality at which two systems produce the same operating outcome
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Margin of safety
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the units sold, or expected to be sold, or sales revenue earned, or expected to be earned, above the break-even volume
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Operating leverage
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the use of fixed costs to extract higher percentage changes in profits as sales activity changes. Leverage is achieved by increasing fixed cost while lowering variable cost
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Profit-volume graph
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a graphical portrayal of the relationship between profits and sales activity in units
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Sales mix
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the relative combination of products (or services) being sold by an organization
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Sensitivity analysis
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the “what if” process of altering certain key variables to asses the effect on the original outcome
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Variable cost ratio
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variable cost/ sales revenue it is the proportion of each sales dollar needed to cover variable cost