Cost behavior, budgeting, and decision-making concepts from an intro managerial accounting course.
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- What is a fixed cost?
- A cost that remains constant in total regardless of changes in activity level within a relevant range.
- What is a variable cost?
- A cost that varies in total proportionally with changes in activity level.
- Define a mixed cost.
- A cost that has both a fixed component and a variable component.
- What is the contribution margin?
- Sales revenue minus variable costs, representing the amount available to cover fixed costs and generate profit.
- What is contribution margin ratio?
- Contribution margin per unit divided by selling price per unit, or total contribution margin divided by total sales revenue.
- What is breakeven point?
- The activity level where total revenue equals total costs, resulting in zero profit or loss.
- What is the breakeven formula in units?
- Fixed costs divided by contribution margin per unit.
- What is the breakeven formula in sales dollars?
- Fixed costs divided by contribution margin ratio.
- What is the margin of safety?
- The difference between budgeted or expected sales and breakeven sales, expressed as units, dollars, or a percentage.
- What is the relevant range?
- The range of activity levels over which cost behavior assumptions, fixed and variable, remain valid.
- What is a master budget?
- The aggregated set of budgets for the entire organization, including operating budgets and a financial budget.
- What is a sales budget?
- A forecast of expected sales revenue based on expected unit sales and expected selling prices.
- What is a flexible budget?
- A budget prepared for a range of activity levels that adjusts based on the actual activity level achieved.
- What is a static budget?
- A budget prepared for a single, predetermined level of activity.
- What is a relevant cost?
- A cost that differs between alternatives and is therefore important for decision-making purposes.