Card Set Information
Accounting test terms
The activity that causes changes in the behavior of costs.
The level of activity at which total revenues equal total costs.
The amount of revenue remaining after deducting variable costs.
The amount of revenue remaining per unit after deducting variable costs; calculating as unit selling price minus unit variable cost.
Contribution margin per unit
The percentage of each dollar of sales that is available to apply to fixed costs and contribute to net income; calculated as contribution margin per unit divided by unit selling price.
Contribution margin ratio
The study of how specific costs respond to changes in the level of business activity.
Cost behavior analysis
The study of the effects of changes in costs and volume on a company's profits.
Cost-volume-profit (CVP) analysis
A graph showing the relationship between costs, volume, and profits.
Cost-volume-profit (CVP) graph
A statement for internal use that classifies costs as fixed or variable and reports contribution margin in the body of the statement.
Cost-volume-profit (CVP) income statement
Costs that remain the same in total regardless of changes in the activity level.
A mathematical method that uses the total costs incurred at the high and low levels of activity to classify mixed costs into fixed and variable components.
The difference between actual or expected sales and sales at the break-even point.
Margin of safety
Costs that contain both a variable and a fixed cost element and change in total but not proportionately with changes in the activity level.
The range of the activity index over which the company expects to operate during th eyear.
The income objective set by management.
Target net income
Costs that vary in total directly and proportionately with changes in the activity level.
A costing approach inwhich all manufacturing costs are charged to the product.
The relative proportion of fixed versus variable costs that a company incurs.
A measure of the extent to which a company's net income reacts to a change in sales. It is calculated by dividing contribution margin by net income.
Degree of operationg leverage
The extent to which a company's net income reacts to a change in sales. Operating leverage is determined by a company's relative use of fixed versus variable costs.
The relative percentage in which a company sells its multiple products.
A specific approach used to identify and manage constraints in order to achieve the company's goals.
Theory of constraints in order to achieve the company's goals.
A costing approach in which only variable manufacturing costs are product costs, and fixed manufacturing costs are period costs (expenses).
A formal written statement of management's plans for a specified future time period, expressed in financial terms.
A group responsible for coordinating the preparation of the budget.
The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.
A projection of financial position at the end of the budget period.
Budgeted balance sheet
An estimate of the expected profitability of operations for the budge period.
Budgeted income statement
A projection of anticipated cash flows.
A projection of the quanity and cost of direct materials to be purchased.
Direct materials budget
Indicidual budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.
A formalized process of selecting strategies to achieve long-term goals and developing policies and plans to implement the strategies.
An estimate of expected manufacturing overhead costs for the budget period.
Manufacturing overhead budget period
A set of interrelated budgets that constitutes a plan of action for a specific time period.
The estimated cost of goods to be purchased by a merchandiser to meet expected sales.
Merchandise purchases budget
Individual budgets that result in a budgeted income statement.
A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate.
A projection of the units that must be produced to meet anticipated sales.
An estimate of expected sales revenue for the budget period.
The projection of potential sales for the industry and the company's expected share of such sales.
A projection of anticipated selling and administrative expenses fo rthe budget period.
Selling and administrative expense budge
Determines the profitability of a capital expenditure by dividing expected annual net income by the average investment.
Annual rate of return technique
The process of making capital expenditure decisions in business.
Identifies the time period required to recover the cost of a capital investment from the net annual cash flow produced by the investment.
Cash payback technique
The rate of return that management expects to pay on all borrowed and equity funds.
Cost of capital
Considers both the estimated total net cash flows form the investment and the time value of money.
Discounted cash flow technique
The process of identifying the financial data that change under alternative courses of action.
The rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected net annual cash flows.
Internal rate of return (IRR)
Find the interest yield of the potential investment.
Internal rate of return method
The difference that results when the original capital outlay is subtracted form the discounted net cash flows.
Net present value (NPV)
Discounts net cash flows to their present value and then compares that present value to the capital outlay required by the investment.
Net present value method
The potential benefit that may be obtained form following an alternative course of action.
A cost that cannot be changed by any present or future decision.