Activity Base is the activity that causes cost to change
Relevant range is the range of activity over which the changes in costs are not of interest.
Variable costs consist of DM, DL, and all FOH costs.
For Variable costs, what happens to cost per unit and total cost? Do they change or stay the same with changes in production?
Cost per unit decreases, Total cost stays the same.
Cost per unit increases, Total cost decreases.
Cost per unit stays the same, Total cost changes in proportion to activity base.
For Fixed Cost, how do total cost and cost per unit react to changes in activity base?
Cost per unit increases as activity level increases; Total cost remains the same regardless to production
Cost per unit decreases as activity level decreases;Total cost changes in proportion to changes in activity level
Cost per unit decreases as activity level increases;Total cost remains the same regardless of production
What method is used to separate variable and fixed costs for mixed costs?
Break-Even point
High-low
Margin of Safety
Operating Leverage
What are some examples of variable costs?
straight-line depreciation
Direct materials cost
rent
sales commission
shipping costs
What are some examples of Fixed Costs?
Straight-line depreciation
Rent
Sales commission
Plant manager salary
The formula: Difference in Total Cost/Difference in units produced comes from which method?
Break-Even Method
Operating Method
High-low method
Variable Method
The formula for Fixed Cost after using High-low method is: Total costs-(variable cost per unit x units produced)
The formula for Total Cost = (Fixed cost x units produced) + variable cost per unit
How do we find Contribution Margin?
variable costs - sales
sales - variable costs
sales - fixed costs
How do we find Contribution Margin Ratio?
contribution margin / sales
sales / contribution margin
unit contribution margin / sales
How do we find Unit Contribution Margin?
unit selling price - variable costs
fixed costs - unit selling price
unit selling price - unit variable costs
How do we find Break-Even Point (units)?
fixed cost/ unit contribution margin
fixed cost / contribution margin
variable cost / contribution margin ratio
fixed cost / contribution margin ratio
How do we find Break-Even Point (dollars $)
Fixed cost / unit contribution margin
Fixed cost / contribution margin ratio
Fixed cost / unit contribution margin ratio
Variable cost / unit contribution margin
Break-Even Point is affected by?
changes in fixed costs
changes is variable costs
changes in unit variable costs
changes in unit selling price
An increase in fixed costs increases break-even point with a direct relationship
A decrease in fixed cost increases break-even point
An increase in unit variable cost will increase the break-even point, and a decrease in unit variable cost will decrease the break-even point.
An increase in the unit selling price will decrease the break-even point, and a decrease in the unit selling price will increase the break-even point.
