Managerial Accounting Chap 5

True

True

True

True

False Within the relevant range of activity total variable costs remain constant per unit and change in total.

Variable Costs - Contribution Margin= Sales Revenue

Vary in total Remain constant per unit

Contribution format income statement

Fixed Costs

Variable Cost

Relevant Range

the variable cost per unit of activity and slope of the line

Within the relevant range, VARIABLE COSTS remain constant on a per unit basis.

Contribution Margin

Cost assumptions are reasonably valid within the RELEVANT RANGE of activity

A fixed cost remains fixed IN TOTAL within the relevant range of activity.

A contribution Margin income statement Separates costs into their fixed and variable components Can assist with management decision making

Variable cost per unit is

activity increases.

activity increases

activity increases

fixed over a fairly wide range of activities

rise in multiple steps across the relevant range

a fixed portion that is incurred and a variable portion that increases with usage. Utilities typically behave in this manner.

as activity increases.

activity increases

Use least-squares regression

A statistical method used to analyze mixed costs The goal of this method is to minimize the sum of the squared errors. y = a + bx

total cost, which is plotted on the vertical axis, and is called the dependent variable

he slope of the line, the unit variable cost, which tells us how much the total cost (y) will increase for each unit increase in activity (x)

Intercept Total fixed cost, an amount that will be incurred regardless of the activity level, and is called the intercept or the constant

the activity that causes total cost (y) to change. Activity (x) is also called the cost driver, or the independent variable

sales price of a product - variable costs = Contribution margin

Revenues- Variable Costs= Contribution Margin ratio

Are those that change in total in direct proportion to changes in activity. Variable costs are the same per unit, but of course the total variable costs rise/fall as number of units rise/fall.

Remain the same in total, regardless of activity level. Again, assuming we are in the relevant range. Fixed costs per unit change (rise/fall), depending upon the fall/rise in the number of units.

are fixed over a range of activity and then increase in a step-like fashion. Mixed costs (aka semi-variable costs) have both a fixed and variable component.

Y (TOTAL COST) = Total Fixed Costs + (Variable Cost per Unit)* # units of activity. Y is the dependent variable and the # units is the independent variable.

Total variable cost per unit = total VC/# units (per unit, this will remain constant when # of units change..........total VC will change as # of units change

Pick the highest and lowest level of volume and their total costs. Calculate the difference in the total costs and divide by the difference in volume: (Total cost high volume) - (Total cost low volume) =Variable Cost Diff (High volume level) - (Low volume level) =Volume Difference

Total Costs = VC/unit (# units) + Total Fixed Costs