## Managerial Accounting Exam 2

Absorption costing
The costing method where products “absorb” both fixed and variable manufacturing costs.
Account Analysis
A method for determining cost behavior that is based on a manager’s judgment in classifying each general ledger account as a variable, fixed or mixed cost.
Committed Fixed Costs
Fixed costs that are locked in because of previous management decisions; management has little or no control over these costs in the short run.
Contribution Margin
Sales revenue minus variable expenses.
Contribution Margin Income Statement
Income statement that organizes costs by behavior (variable or fixed costs) rather than by function.
Cost Behavior
Describes how costs change as volume changes.
Cost Equation
A mathematical equation for a straight line that expresses how a cost behaves.
Curvilinear Costs
A cost behavior that is not linear.
Discretionary Fixed Costs
Fixed costs that are a result of annual management decisions; fixed costs that are controllable in the short run.
Fixed Costs
Costs that do not change in total despite wide changes in volume.
High-Low Method
A method for determining cost behavior that is based on two historical data points: the highest and lowest volume of activity.
Mixed Cost
Costs that change , but not in direct proportion to changes in volume. Mixed costs have both variable cost and fixed cost components.
Regression Analysis
A 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 points.
Relevant Range
The 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.
Scatter Plot
A graph that plots historical cost and volume data.
Step Costs
A cost behavior that is fixed over a small range of activity and then jumps to a different fixed level with moderate changes in volume.
Outliers
Abnormal data points; data points that do not fall in the same general pattern as the other data points.
Variable Costs
Costs incurred for every unit of activity. As a result, total variable costs change n direct proportion to changes in volume.
Variable Costing
The costing method that assigns only variable manufacturing costs to products. All fixed manufacturing costs (Fixed MOH) are expensed as period costs.
Breakeven point
The sales level at which operating income is zero. Total revenues = Total Expenses.
Contribution Margin Per Unit
The excess of the unit sales price over the variable cost per unit; also called unit contribution margin.
Contribution Margin Ration
Ration of contribution margin to sales revenue.
Cost-Volume-Profit (CVP) Analysis
Expresses the relationships among costs,volume, and profit or loss.
Indifference Point
The volume of sales which a company would be indifferent between cost structures because they would result in the same total cost.
Margin of Safety
Excess of expected sales over breakeven sales; the drop in sales a company can absorb without incurring an operating loss.
Operating Leverage
The relative amount of fixed and variable costs that make up a firm’s total costs.
Operating Leverage Factor
At a given level of sales, the contribution margin divided by operating income; the operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in sales volume.
Sales Mix
The combination of products that make up total sales.
Sensitivity Analysis
A “what-if” technique that asks what results will be if actual prices or costs change or if an underlying assumption changes.
Avoidable Fixed Costs
Fixed costs that can be eliminated as a result of taking a particular course of action.
Constraint
A factor that restricts production or sale of a product.
Contract Manufacturers
Manufacturers who make products for other companies.
Cost-Plus Pricing
An approach to pricing used by price-setters; cost plus pricing begins with the product’s total costs and adds the company’s desired profit to determine a cost-plus price.
Offshoring
Having work performed overseas. Offshored work can either be performed by the company itself or by outsourcing the work to another company.
Opportunity Cost
The benefit foregone by choosing a particular alternative course of action.
Outsourcing
A make-or-buy decision. Managers decide whether to buy a product or service or produce it in-house.
Product Line Income Statement
An income statement that shows the operating income of each product line, as well as the company as a whole.
Relevant Information
Expected future data differs among alternatives.
Segment Margin
The income resulting from subtracting only the direct fixed costs of a product line from its contribution margin. The segment margin contains no allocation of common fixed costs.
Segment Margin Income Statement
A product line income statement that contains no allocation of common fixed costs. Only direct fixed costs that can be traced to specific product lines are subtracted from the product line’s contribution margin. All common fixed costs remain unallocated, and are shown only under the company total.
Sunk Cost
A past cost that cannot be changed regardless of which future action is taken.
Target Costing
An approach to pricing used by price-takers; target costing begins with the revenue at market price and subtracts the company’s desired profit to arrive at the target cost.
Unavoidable Fixed Costs
Fixed costs that will continue to be incurred even if a particular purse of action is taken.
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