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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 judgement 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 costs 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 (not a straight line).

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.

HighLow 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
Cost incurred for every unit of activity. As a result, total variable cost change in 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.

