Accounting Flashcards on Cost Behavior

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Questions and Answers

What is cost behavior?

Cost changes as the related activity changes (correct)

Cost is fixed at all times

Cost decreases as activity increases

Cost remains constant regardless of activity

What are the three most common cost behavior classifications?

Fixed costs, variable costs, mixed costs

What is a fixed cost?

Costs that remain constant in total dollar amount as the level of activity changes

What are direct materials?

Cost that remains the same in total as the number of units produced changes Signup and view all the answers

How does fixed cost per unit behave with increases in production?

Decreases Signup and view all the answers

What are variable costs?

Costs that vary in total in direct proportion to changes in the activity level Signup and view all the answers

What is the behavior of variable cost per unit with changes in activity level?

Remains constant Signup and view all the answers

What is cost volume profit analysis?

The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profit Signup and view all the answers

How are costs classified in cost volume profit analysis?

Fixed costs and variable costs Signup and view all the answers

What is a contribution margin?

The excess of sales revenue over variable cost Signup and view all the answers

What does the contribution margin ratio indicate?

The percentage of each sales dollar that is available to cover fixed cost and provide a profit Signup and view all the answers

What is differential revenue?

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative Signup and view all the answers

What are differential costs?

The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative Signup and view all the answers

What does a balance sheet measure?

Financial state at a certain time Signup and view all the answers

What does an income statement measure?

Financial performance at a certain time Signup and view all the answers

What does the statement of retained earnings measure?

Financial growth at a certain period of time Signup and view all the answers

What are assets?

Economic resources owned by the business expected to be used to benefit the operations of the business Signup and view all the answers

What are liabilities?

Debts of the business, either borrowing money or buying on credit Signup and view all the answers

What is owner's equity?

Represents owner's investment in business Signup and view all the answers

What is capital stock?

Paid capital by owners Signup and view all the answers

What are retained earnings?

Earnings reinvested in the business instead of being distributed to owners as dividends Signup and view all the answers

What are dividends?

Distribution of profits to stockholders (owners) Signup and view all the answers

What are revenues?

The price of goods sold and services rendered in a given time period Signup and view all the answers

What are expenses?

The cost of goods and services used up in the process of generating revenue in a given time period Signup and view all the answers

What does per unit variable cost generally do as the production level increases?

Remain constant Signup and view all the answers

Study Notes

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.

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Description

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.