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Acct Ch. 5, 6, & 9
Test 2
| Terms | Definition |
|---|---|
| Activity index | the activity that causes changes in the behavior of costs. |
| Break-even point | level of activity at which total revenues equal total costs. Fixed costs/ contribution margin per unit = break-even point in units. |
| Contribution margin | amount of revenue remaining after deducting variable costs. |
| Contribution margin per unit | amount of revenue remaining per unit after deducting variable costs; calculated as unit selling price minus unit variable cost. |
| Contribution margin ratio | the contribution margin per unit divided by the unit selling price. |
| Cost behavior analysis | the study of how specific costs respond to changes in the level of business activity. |
| Cost-volume-profit (CVP) analysis | the study of the effects of changes in costs and volume on a company's profits. |
| Cost-volume-profit (CVP) graph | A graph showing the relationship between costs, volume, and profits. |
| CVP income statement | classifies costs as variable or fixed and computes a contribution margin. |
| Fixed costs | costs that remain the same in total regardless of changes in the activity level. s activity cha |
| High-low method | classifies mixed costs into fixed and variable components; changein total costs/highminus low activity level= Variable cost per unit. |
| Margin of safety | the difference between actual or expected sales and sales at the break-even point. |
| Mixed costs | costs that contain both a variable element and a fixed element |
| Relevant range | range of the activity index over which the company expects to operate during the year. |
| Target net income | The income objective for individual product lines |
| Variable costs | costs that vary in total directly and proportionately with changes in the activity level. |
| Incremental analysis | The process of identifying the financial data that change under alternative courses of action. |
| Joint costs | For joint products, all costs incurred prior to the point at which the two products are separately identifiable (known as the split-off point). |
| Joint products | Multiple end-products produced from a single raw material and a common production process. |
| Opportunity cost | The potential benefit that may be obtained from following an alternative course of action. |
| Relevant costs | Those costs and revenues that differ across alternatives |
| Sunk cost | A cost that cannot be changed by any present or future decision |
| Theory of constraints | A specific approach used to identify and manage constraints in order to achieve the company's goals. |
| Budget | Formal written statement of management's plans for a specified future time period, expressed in financial terms. |
| Budget committee | A group responsible for coordinating the preparation of the budget. |
| Budgetary slack | Managers intentionally underestimate budgeted revenues or overestimate budgeted expenses in order to make it easier to achieve budgetary goals |
| Budgeted balance sheet | A projection of financial position at the end of the budget period. |
| Budgeted income statement | This budget indicates the expected profitability of operations for the budget period. |
| Cash budget | Anticipated cash flows |
| Direct labor budget | Contains the quantity (hours) and cost of direct labor necessary to meet production requirements. |
| Direct materials budget | The quantity and cost of direct materials to be purchased |
| Financial budgets | the capital expenditure budget, the cash budget, and the budgeted balance sheet. These budgets focus primarily on the cash resources needed to fund expected operations and planned capital expenditures. |
| Long-range planning | Identifies long-term goals, selects strategies to achieve those goals, and develops policies and plans to implement the strategies. |
| Manufacturing overhead budget | The expected manufacturing over-head costs for the budget period. |
| Master budget | A set of interrelated budgets that constitutes a plan of action for a specified time period. |
| Merchandise purchases budget | The estimated cost of goods to be purchased to meet expected sales. |
| Operating budgets | Individual budgets that result in the preparation of the budgeted income statement. |
| Participative budgeting | advantages of participative budgeting are, first, that lower-level managers have more detailed knowledge of their specific area and thus should be able to provide more accurate budgetary estimates. |
| Production budget | The units that must be produced to meet anticipated sales |
| Sales budget | Sales forecast |
| Sales forecast | Potential sales for the industry and the company's expected share of such sales. |
| Selling and administrative expense budget | This budget projects anticipated selling and administrative expenses for the budget period. |
Created by:
kinah1