Ch 9

  1. Break-even analysis
    A technique to analyze the relationship among revenues, costs, and volume. It is also called cost-volume profit or CVP analysis
  2. Relevant Range
    The range of activity over which total fixed costs or per unit variable cost (or both) do not vary.
  3. Fixed costs
    Costs that stay the same in total over the relevant range but change inversely on a per unit basis as activity changes
  4. Step-fixed costs
    Costs that increase in total over wide, discrete steps
  5. Variable costs
    Costs that stay the same per unit  but change directly in total with a change in activity over the relevant range. Total variable cost= Variable cost per unit X Number of units of activity
  6. Target Costing
    Controlling costs, decreasing profit margins, or both to meet or beat a predetermined price or reimbursement rate
  7. Break-even point
    The point where total revenues equal total costs
  8. Contribution Margin Per unit
    Per unit revenue minus per unit variable costs
  9. Incremental Costs
    Additional costs incurred solely as a result of an action or activity or a particular set of actions or activities
  10. Total contribution Margin
    Total revenues minus total variable costs
  11. Contribution Margin Rule
    If the contribution margin per unit is positive and no other additional costs will be incurred, then it is in the best financial interest of the organization to continue to provide additional units of that service even if the organization is not fully covering all of its other costs. On the other hand, if it is negative it is not in the best interest of the organization
  12. Avoidable Fixed cost
    A fixed cost that is avoided if a service is not provided. Example: Full-time nursing costs save if a service were closed
  13. Nonavoidable Fixed Costs
    A fixed cost that will remain even if a particular service is discontinued. Example: Full-time nursing costs in an organization that will continue, even though one of several services is dropped
  14. Common Costs
    Costs that benefit a number of services shared by all. Example: rent, utilities, and billing. Also called joint costs
  15. Product Margin
    Total contribution margin - Avoidable fixed costs. It represents the amount that a service contributes toward covering all other costs after it has covered the costs that are there solely because the service is offered (its total variable cost and avoidable fixed costs) and would not be there if the service were dropped
  16. Product Margin Decision Rule
    If a service's product margin is positive, the organization will be better off financially if it continues with the service, ceteris paribus. Conversely, if a service's product margin is negative, the organization will be better off financially if it discontinues the service, ceteris paribus
Card Set
Ch 9
h353 CH 9 cards