Cost Accounting – 12^th Edition

Ch 3 Terms

Breakeven point (BEP) – quantity of output sold at which total revenues equal total costs, that is where the operating income is zero

Choice criterion – objective that can be quantified in a decision model

Contribution income statement – income statement that groups costs into variable costs and fixed costs to highlight the contribution margin

Contribution margin – total revenues minus total variable costs

Contribution margin per unit – difference between the selling price and the variable cost per unit

Contribution margin percentage – contribution margin per unit divided by selling price (also called contribution margin ratio)

Contribution margin ratio – see Contribution margin percentage

Cost-volume-profit (CVP) analysis – examines the behavior of total revenues, total costs, and operating income as changes occur in the output level, the selling price, the variable cost per unit, and/or the fixed costs of a product

Decision table – summary of the alternative actions, events, outcomes, and probabilities of events in a decision

Degree of operating leverage – contribution margin divided by operating income at any given level of sales

Event – a possible relevant occurrence in a decision model

Expected monetary value – see expected value

Expected value – weighted average of the outcomes of a decision with the probability of each outcome serving as the weight

Gross margin percentage – gross margin divided by revenues

Margin of safety – amount of budgeted revenues over and above breakeven revenues.

Net income – operating income plus non operating revenues (such as interest revenue) minus non operating costs (such as interest cost) minus income taxes

Operating leverage – effects that fixed costs have on changes in operating income as changes occur in units sold and hence in contribution margin

Outcomes – predicted economic results of the various possible combinations of actions and events in a decision model

Probability – likelihood or chance that an event will occur

Probability distribution – describes the likelihood (or probability) that each of the mutually exclusive and collectively exhaustive set of events will occur

PV graph – shows how changes in the quantity of units sold affects operating income

Revenue driver – a variable such as volume, that causally affects revenues

Sales mix – quantities of various products or services that constitute total unit sales

Sensitivity analysis – a what-if technique that managers use to examine how a result will change if the original predicted data are not achieved or if an underlying assumption changes

Uncertainty – the possibility that an actual amount will deviate from an expected amount