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