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Managerial Accounting Chapter 6 Quiz Notes

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Cost behavior
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how costs change as volume changes
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Common Cost Behaviors (3)
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Fixed cost, Variable Cost, Mixed Cost
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Ways to describe cost behavior
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cost graph + cost equation
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Fixed Cost (definition, equation, examples)
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is constant and/or doesnt change in relation to volume y = f rent, cable bill, straight line depreciation
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Variable Cost (definition, equation, examples)
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Changes in direct proportion to volume y = vx direct material, direct labor, units of production depreciation
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Mixed Cost (definition, equation, examples)
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contains both variable and fixed cost components y = f + vx sales commissions, utilities
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Y Axis X Axis
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Cost Volume
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Fixed Costs (Total vs Per Unit)
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remain constant (do not change in volume) Vary Inversely with changes in volume
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Variable Costs (Total vs Per Unit)
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change in direct proportion to changes in volume remain constant (do not change in volume)
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Account Analysis
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use every cost account to determine whether fixed, variable, mixed
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Scatter Plots
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(particular for mixed costs) is the graph of historical cost data on the y axis and volume data on the x axis, helping managers to visualize the relationship between cost and volume of activity
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High-low method
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(particular for mixed costs) is a method to estimate the variable and fixed cost components of a mixed cost it fits a mixed cost line through the highest and lowest VOLUME data points
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High-low method Steps
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1. identify highest and lowest VOLUME 2. Find the slope(v) (cost/volume) of those points^ 3. Find f by plugging in v, y, x in equation 4. write the equation
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Traditional Income Statement
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Sales Revenue (COGS) Gross Profit (Operating Expenses) Net Income
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Contribution Margin Income Statement
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Sales (Variable Costs) Contribution Margin (Fixed Costs) Net Income
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Contribution Margin Income Statement organized by…
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cost behavior
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Traditional Income Statement organized by…
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cost function
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Contribution Margin
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sales revenue – variable costs
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Contribution Margin shows..
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managers how much profit has been made on sales before considering fixed costs
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Above the contribution margin line
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variable costs
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Below the contribution margin line
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fixed costs
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Operating income will
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always be the same regardless of the income statement format used
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Fixed Cost Graph
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——————— (HORIZONTAL)
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Variable Cost Graph
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45 DEGREE ANGLE
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Mixed Cost Graph
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combo of fixed + variable