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Cost Behavior Analysis Flashcards

Cost Behavior Analysis Flashcards
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Find your mixed cost if you are leasing a building and equipment for $2,000 and paying $10 per unit to make cups. You are making 500 cups.

Total (mixed) cost = $2,000 + ($10 x 500)

Total (mixed) cost = $7,000

Got it
Mixed Cost: Formula

Total cost = fixed cost + (variable cost x units of activity)

This is also written as: y = a + bx

You can divide this by the number of units to find the mixed cost per unit.

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Mixed Cost
This kind of cost has two parts, as it includes both variable and fixed costs.
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Net Income
The amount of money a company has left after subtracting all expenses. You can find this by taking your contribution margin and subtracting any fixed expenses.
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Contribution Margin
This takes a company's total sales and subtracts all of the company's variable costs.
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You have a contribution margin of $15,000 and total sales of $45,000. What is your contribution margin ratio?
15,000 / 45,000 = 0.33
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Contribution Margin Ratio
This ratio shows what amount of a company's sales go into the contribution margin. You find this by dividing the contribution margin by your total sales.
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You want to make $2,000 profit on 1,000 cups with a fixed cost of $4,000 and a variable cost of $10 per cup. Find how much you need to charge per cup with cost-volume-profit analysis.

(1,000 x p) = (1,000 x 10) + $4,000 + $2,000

1,000p = $16,000

p = $16,000 / 1,000

Price = $16

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Cost-Volume-Profit Analysis: Formula

(Units sold x Price per unit) = (Units sold x Variable cost per unit) + Fixed cost + Profit

This can be written as: xp = xv + FC + profit

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Cost-Volume-Profit Analysis
A type of analysis that businesses can use to determine how many goods they need to make, or what price they need to charge for their products, to meet a profit goal.
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20 cards in set

Flashcard Content Overview

The flashcards in this set can help you review the cost-volume profit analysis along with target profits. You'll be able to focus on variable, fixed and mixed costs, as well as the importance of operating leverage. These cards also cover the formula for determining a business's break-even point and the unit contribution margin. Additionally, these cards offer you the chance to solve practice problems using cost behavior analysis formulas.

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Back
Cost-Volume-Profit Analysis
A type of analysis that businesses can use to determine how many goods they need to make, or what price they need to charge for their products, to meet a profit goal.
Cost-Volume-Profit Analysis: Formula

(Units sold x Price per unit) = (Units sold x Variable cost per unit) + Fixed cost + Profit

This can be written as: xp = xv + FC + profit

You want to make $2,000 profit on 1,000 cups with a fixed cost of $4,000 and a variable cost of $10 per cup. Find how much you need to charge per cup with cost-volume-profit analysis.

(1,000 x p) = (1,000 x 10) + $4,000 + $2,000

1,000p = $16,000

p = $16,000 / 1,000

Price = $16

Contribution Margin Ratio
This ratio shows what amount of a company's sales go into the contribution margin. You find this by dividing the contribution margin by your total sales.
You have a contribution margin of $15,000 and total sales of $45,000. What is your contribution margin ratio?
15,000 / 45,000 = 0.33
Contribution Margin
This takes a company's total sales and subtracts all of the company's variable costs.
Net Income
The amount of money a company has left after subtracting all expenses. You can find this by taking your contribution margin and subtracting any fixed expenses.
Mixed Cost
This kind of cost has two parts, as it includes both variable and fixed costs.
Mixed Cost: Formula

Total cost = fixed cost + (variable cost x units of activity)

This is also written as: y = a + bx

You can divide this by the number of units to find the mixed cost per unit.

Find your mixed cost if you are leasing a building and equipment for $2,000 and paying $10 per unit to make cups. You are making 500 cups.

Total (mixed) cost = $2,000 + ($10 x 500)

Total (mixed) cost = $7,000

Break-Even Point
The number of products you have to sell in order to cover the cost of producing the products. Cost is equal to revenue at this point.
Break-Even Point: Formula
Break-even point in units = Your fixed cost / your unit contribution margin
Unit Contribution Margin: Formula
Sales price per product - variable cost per product
Your company makes cups that you sell for $10 each. Each cup has a variable cost of $5. Your fixed costs are $1,000. What is your break-even point?

Find unit contribution margin: $10 - $5 = $5

Divide fixed cost by unit contribution margin: $1,000 / $ 5 = $200

Operating Leverage
This assesses a company's fixed and variable costs and looks at how risky the company is. Companies with high fixed costs have a higher level of this, and are considered riskier.
Variable Cost
Costs that will move up or down based on the number of products a company produces.
Fixed Cost
Costs that stay in one spot no matter how many products a company creates.
Profit Target / Target Profit
A goal companies set that tells them how much profit they want to make. Businesses can use this number to figure out how many products they need to sell.
Target Profit: Formula with Sales Dollars
(Fixed costs + target profit) / contribution margin ratio
You want to earn a profit of $50,000 on your cups. Your fixed costs are $20,000 and your contribution margin ratio is 35%. How much money do you need to make on your cups?
($20,000 + $50,000) / 35% = $200,000 profit on cups

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