Chapter 3 closed book

Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.

When graphed, total costs curve upward.

The unit-­‐‑selling price is variable as it is subject to demand and supply.

Total costs can be divided into inventoriable and period costs with respect to the level of output

forecast the cost of capital for a given period of time

to study the behavior of and relationship among the elements such as total revenues, total costs, and income

estimate the risks associated with a given job

analyse a firm'ʹs profitability and help to decide wealth distribution among its stakeholders

Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)

Contribution margin ratio = Contribution margin percentage × Fixed costs (in dollars)

Contribution margin ratio = Contribution margin percentage × Variable costs (in dollars)

Contribution margin ratio = Contribution margin percentage × Operating leverage

total fixed costs increase

total fixed costs decrease

variable costs per unit increase

variable costs per unit decrease

fixed costs are more than the contribution margin

contribution margin and operating income are inversely related

there is a higher possibility of net loss than a higher-­‐‑leveraged firm

less risk is assumed than in a highly leveraged firm

increase its sales relative to its fixed costs

increase its sales relative to its variable costs

increase its variable costs relative to its fixed costs

increase its fixed costs relative to its variable costs