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break-even point
Output level at which sales equal fixed plus variable costs; where income equals zero
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Composite unit
Generic unit consisting of a specific number of units of each product; unit comprised in proportion to the expected sales mix of its products
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Contribution margin per unit
Amount that the sale of one unit contributes toward recovering
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Contribution margin ratio
Product’s contribution margin divided by its sale price
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Cost-volume-profit (CVP) analysis
Planning method that includes predicting the volume of activity, the cost incurred, sales earned, and profits received
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Cost-volume-profit (CVP) chart
Pg. 764
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Curvilinear cost
Cost that changes with volume but not at a constant rate
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Degree of operating leverage (DOL)
Ratio of contribution margin divided by pretax income; used to assess the effect on income of changes in sales
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Estimated line of cost behavior
Line drawn on a graph to visually fit the relation between cost and sales
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High-low method
Procedure that yields an estimated line of cost behavior by graphically connecting costs associated with the highest and lowest sales volume
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Least-squares regression
Statistical method for deriving an estimated line of cost behavior that is more precise than the high-low method and the scatter diagram
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Margin of safety
Excess of expected sales over the level of break-even sales
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Mixed cost
Cost that behaves like a combination of fixed and variable costs
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Operating leverage
Extend, or relative size, of fixed costs in the total cost structure
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Relevant range of operations
Company’s normal operating range; excludes extremely high and low volumes not likely to occur
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Sales mix
Ratio of sales volumes for the various products sold by a company
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Scatter diagram
Graph used to display data about past cost behavior and sales as points on a diagram
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Step-wise cost
Cost that remains fixed over limited ranges of volumes but changes by a lump sum when volume changes occur outside these limited ranges
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Weighted-average contribution margin
For multi-product firms, the sum of each product’s unit of contribution margin multiplied by that product’s sales mix percentage
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