Cost Accounting & Management Flashcards

What is the difference between fixed costs and variable costs?

Answer: Fixed costs remain constant regardless of production level; variable costs change proportionally with output

Fixed costs (like rent) remain constant within a relevant range regardless of output, while variable costs (like raw materials) change in proportion to production volume.

What is the contribution margin?

Answer: Revenue minus variable costs, representing the amount available to cover fixed costs and profit

Contribution margin (revenue minus variable costs) shows how much each dollar of sales contributes to covering fixed costs and generating profit.

In cost accounting, what is absorption costing?

Answer: Costing that assigns both fixed and variable manufacturing overhead to products

Absorption costing (full costing) assigns all manufacturing costs — direct materials, direct labor, and both fixed and variable overhead — to products.

What is activity-based costing (ABC)?

Answer: A system that assigns costs to products based on the activities that consume resources

ABC assigns overhead costs to products based on the actual activities (cost drivers) that cause those costs, providing more accurate product cost information than traditional methods.

What does break-even analysis determine?

Answer: The sales level at which total revenues equal total costs and profit is zero

Break-even analysis calculates the sales volume (in units or dollars) at which total revenues exactly equal total costs, resulting in zero profit or loss.

What is standard costing?

Answer: A cost control system that sets predetermined costs and measures variance against actuals

Standard costing establishes predetermined (standard) costs for materials, labor, and overhead, then compares them to actual costs to identify variances for management action.