Accounting Flashcards on Cost Behavior

Cost Behavior

• Cost behavior refers to how costs change in relation to variations in activity levels.
• Three primary classifications of cost behavior are fixed costs, variable costs, and mixed costs.

Fixed Costs

• Fixed costs remain unchanged in total dollar amounts despite fluctuations in activity levels.
• Per unit fixed costs decrease as production increases.

Variable Costs

• Variable costs change in total according to the level of activity, varying proportionally with production levels.
• Per unit variable costs remain constant regardless of the activity level.

Direct Materials

• Direct materials cost remains constant in total as production units are increased.

Cost Volume Profit Analysis

• This analysis examines the relationships among selling prices, sales volume, production, costs, and profits.
• Costs are categorized into variable and fixed for comprehensive analysis.

Contribution Margins

• Contribution margin represents the surplus of sales revenue after deducting variable costs.
• The contribution margin ratio indicates the percentage of each sales dollar available to cover fixed costs or generate profits.

Differential Analysis

• Differential revenue is the anticipated change in revenue due to specific actions compared to alternatives.
• Differential costs refer to the expected increase or decrease in costs from different courses of action.

Financial Statements

• A balance sheet provides a snapshot of a company's financial position at one specific time.
• An income statement reflects the financial performance over a designated time period.
• The statement of retained earnings indicates financial growth over a specific timeframe.

Business Fundamentals

• Assets are resources owned by a company, expected to enhance operational benefits.
• Liabilities include debts incurred through borrowing or purchasing on credit.
• Owners' equity signifies the owner's stake in the business, including capital stock and retained earnings, the latter being reinvested profits.

Profit Distributions

• Dividends are distributions of profits made to stockholders.
• Revenues represent the income generated from selling goods and services within a specific time frame.
• Expenses are costs incurred in the process of generating those revenues.

This quiz explores key concepts in cost behavior in accounting. It includes definitions for fixed costs, variable costs, and mixed costs, as well as the relationship between costs and activity levels. Test your knowledge of these fundamental accounting principles.