Key Terms: Chapter Eighteen
The level of activity where revenues equal total expenses, producing a zero net income; also the point where the contribution margin is said to cover fixed costs
Costs that arise from an organization's commitment to engage in operations; unavoidable elements like depreciation, rent, insurance, property taxes
Revenues minus all variable expenses, whether related to production or selling and administration (not to be confused with gross profit)
(CVP) Analysis focusing on the interplay of pricing, volume, variable and fixed costs, and product mix
Fixed cost resulting from yearly spending decisions; proper planning can result in avoidance of these costs as necessary (e.g., advertising and training)
Efficiencies associated with increases in volume
A total cost that is the same regardless of volume; total cost is constant and per unit cost decreases with volume increases
A simple means for separating costs into fixed and variable components, based upon the difference between costs at the highest and lowest observed levels of activity
A complex means for separating costs into fixed and variable components, based upon minimizing the variances between all observations and the resulting assumed cost function
A cost that has both fixed and variable components
The level of activity for which assumptions underlying CVP are expected to hold true
A simplistic mapping of observed data points, where a line is "visually" drawn to represent the estimated cost function
A cost function that is fixed over a range, and then increases by a measured step to a new level at the next higher increment of activity
A level of income that is to be obtained; CVP projects activity levels necessary to achieve this benchmark
A per unit cost that is the same regardless of volume; total variable cost increases with volume increases