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ACCT 132 Chapter 5


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A method for analyzing cost behavior in which each account under consideration is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.
Account analysis
A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is an activity base that explains the total cos
Activity base
Those fixed costs that are difficult to adjust and that relate to investment in facilities, equipment, and basic organizational structure.
Committed fixed costs
An income statement format that is geared to cost behavior in that costs are separated into variable and fixed categories rather than being separated according to the functions of production, sales, and administration.
Contribution approach
The amount remaining from sales revenues after all variable expenses have been deducted.
Contribution margin
The relative proportion of fixed, variable, and mixed costs found within an organization.
Cost structure
A relationship between cost and activity that is a curve rather than a straight line.
Curvilinear costs
A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y = a + bX.
Dependent variable
Those fixed costs that arise from annual decisions by management to spend in certain fixed cost areas, such as advertising and research.
Discretionary fixed costs
A detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs.
Engineering approach
A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels.
High-low method
A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y = a + bX.
Independent variable
An analytical method required in those situations where variations in a dependent variable are caused by more than one factor.
Multiple regression
A measure of goodness of fit in least-squares regression analysis. It is the percentage of the variation in the dependent variable that is explained by variation in the independent variable.
The range of activity within which assumptions about variable and fixed cost behavior are valid.
Relevant range

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