IU A100 Exam 1

Managerial Accounting

accounting used to provide information and analyses to managers inside the organization to assist them in decision making

What three categories go into Product Costs?

1. Direct Materials-raw materials that go directly into the product

2. Direct Labor-all wages and benefits for employees working on the product

3. Manufacturing Overhead-utilities, insurance

What are examples of Period Costs?

1. selling expenses-advertising, marketing

Three Inventory Accounts

raw materials, work in process, finished goods

Fixed Costs

stay the same in total regardless of the volume produced

Example: fixed amount of rent

Variable Costs

move exactly with level of production

Example: more production can occur to buy in bulk

The Contribution Margin

Sales

- Variable Costs

___________________________

CM

- FC

___________________________

Net Income

Simple Income Statement

revenue-expenses= net income loss

Multi Step Income Statement

Sales

- Cost of Goods Sold

______________________________________

Gross Profit

- Operating Expenses

______________________________________

Net Income

Variable behavior in total____

varies with volume

Fixed behavior in total____

stays the same

Variable behavior per unit____

stays the same

Fixed behavior per unit____

varies with volume

Breakeven Point

Fixed Costs/Contribution Margin per unit

Margin of Safety

the amount expected/actual units sold less the number of its units needed to breakeven

Target Profit

(total fixed costs + target profit)

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Contribution Margin per Unit

In the context of a make or buy decision which of the following are relevant costs?

total product costs per unit

Return on Investment ROI

Operating Income

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Average Operating Assets

Gross Profit

revenue - cost of goods sold

Relevant Costs (avoidable costs)

direct materials to make the component

Irrelevant Costs (unavoidable costs)

insurance expense on the factory building

Opportunity Costs

potential benefits given up when a company choses one alternative over another

Decentralization

allows lower level managers to make key decisions pertaining to their responsibilities

Benefits of Decentralization

1. lead to more timely decisions

2. managers to be more motivated

3. "ownership" in organization

Negatives of Decentralization

1. duplication of activities

2. managers lack goal congruence

RI Residual Income

net operating income-(minimum return rate x AOA)