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Bus 202

Chapter 18 Glossary

QuestionAnswer
activity index the activity that causes changes in the behavior of cost
Break-even point the level of activity at which total revenues equal total cost
contribution margin the amount of revenue remaining after deducting variable costs
contribution margin per unit the amount of revenue remaining per unit after deducting variable costs; calculated as unit selling price minus unit variable cost
Contribution margin ratio the percentage of each dollar of sales that is available to apply to fixed costs and contribute to net income; calculated as contribution margin per unit/ unit selling price
Cost behavior analysis the study of how specific costs respond to changes in the level of business activity
Cost-volume-profit analysis the study of the effects of changes in costs and volume on a company's profits
Cost-volume-profit graph A graph showing the relationship between costs, volume, and profits
Cost-volume-profit income statement A statement for internal use that classifies costs as fixed or variable and reports contribution margin in the body of the statement
fixed costs costs that remain the same in total regardless in the changes in the activity level
high-low method a mathematical method that uses the total cost incurred at the high and low levels of activity to classify mixed costs into fixed and variable components
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 and fixed costs element and change in total but not proportionately with changes in the activity level
relevant range the range of the activity index over which the company expects to operate during the year
Target net income the income objective set by management
Variable costs Costs that vary in total directly and proportionately with changes in the activity level
Created by: cammccarty