Ardoin ACCT 2000 Exam 3 Questions and
Correct Detailed Answers (Verified
Answers)
Activity Index - ✔✔The activity that causes changes in the behavior of costs: volume/rate
of production
Variable Costs - ✔✔costs that vary directly and proportionately with changes in the
activity level; remain the same per unit at each level of activity
Examples of Variable Costs - ✔✔Direct Materials and Direct Labor
Fixed Costs - ✔✔costs that remain the same in total, no matter the activity level. fixed
costs per unit vary inversely with activity: as volume increases, unit cost decreases, as volume
decreases, unit cost increases
Examples of Fixed Costs - ✔✔depreciation, insurance, property taxes, rent,
supervisory salaries
Mixed Costs - ✔✔Costs that contain both a variable and a fixed cost element and change
in total but not proportionately with changes in the activity level.
must be classified into their fixed and variable elements.
High-Low Method Definition - ✔✔uses the total costs incurred at the high and low levels
of activity to classify mixed costs into fixed and variable components
, High Low Method Formula - ✔✔(high cost - low cost) / (high activity - low activity) =
variable cost per unit
Cost-volume-profit (CVP) analysis - ✔✔The study of the effects of changes in costs
and volume on a company's profits.
Important for profit planning as it details 1. selling prices 2. determining product mix and 3.
maximizing use of production facilities
Assumptions underlying CVP analysis - ✔✔1. both costs and revenues are linear
throughout the relevant range
2. costs can be classified as either variable or fixed
3. changed in activity are the only factors that affect costs
4. all units produced are sold
when more than one type of product is sold, the sales mix will remain constant
CVP income statement - ✔✔classifies costs as variable or fixed and computes a
contribution margin
- reports same net income as tradition income statement
- for internal users only
Contribution Margin definition - ✔✔amount of revenues (sales) remaining after deducting
all of the variable costs to cover fixed costs and contribute to net income
Unit Contribution Margin Formula - ✔✔unit selling price - unit variable costs
**also, fixed costs + net income
Contribution Margin Ratio (CMR) Definition - ✔✔used to determine sales dollars needed
to cover costs
Correct Detailed Answers (Verified
Answers)
Activity Index - ✔✔The activity that causes changes in the behavior of costs: volume/rate
of production
Variable Costs - ✔✔costs that vary directly and proportionately with changes in the
activity level; remain the same per unit at each level of activity
Examples of Variable Costs - ✔✔Direct Materials and Direct Labor
Fixed Costs - ✔✔costs that remain the same in total, no matter the activity level. fixed
costs per unit vary inversely with activity: as volume increases, unit cost decreases, as volume
decreases, unit cost increases
Examples of Fixed Costs - ✔✔depreciation, insurance, property taxes, rent,
supervisory salaries
Mixed Costs - ✔✔Costs that contain both a variable and a fixed cost element and change
in total but not proportionately with changes in the activity level.
must be classified into their fixed and variable elements.
High-Low Method Definition - ✔✔uses the total costs incurred at the high and low levels
of activity to classify mixed costs into fixed and variable components
, High Low Method Formula - ✔✔(high cost - low cost) / (high activity - low activity) =
variable cost per unit
Cost-volume-profit (CVP) analysis - ✔✔The study of the effects of changes in costs
and volume on a company's profits.
Important for profit planning as it details 1. selling prices 2. determining product mix and 3.
maximizing use of production facilities
Assumptions underlying CVP analysis - ✔✔1. both costs and revenues are linear
throughout the relevant range
2. costs can be classified as either variable or fixed
3. changed in activity are the only factors that affect costs
4. all units produced are sold
when more than one type of product is sold, the sales mix will remain constant
CVP income statement - ✔✔classifies costs as variable or fixed and computes a
contribution margin
- reports same net income as tradition income statement
- for internal users only
Contribution Margin definition - ✔✔amount of revenues (sales) remaining after deducting
all of the variable costs to cover fixed costs and contribute to net income
Unit Contribution Margin Formula - ✔✔unit selling price - unit variable costs
**also, fixed costs + net income
Contribution Margin Ratio (CMR) Definition - ✔✔used to determine sales dollars needed
to cover costs
