Managerial Accounting

Direct Costs

Costs that can be easily traced to a specific product, service, or department (e.g., direct materials, direct labor).

Indirect Costs

Costs that cannot be easily traced to a specific product (e.g., factory rent, utilities).

Manufacturing Costs

Costs associated with producing goods: direct materials, direct labor, and manufacturing overhead.

Nonmanufacturing Costs

Costs not directly tied to production, such as selling and administrative expenses.

Product Costs

Costs included in inventory; expensed as cost of goods sold when sold.

Period Costs

Non-inventory costs expensed in the period incurred (e.g., office rent).

Fixed Costs

Costs that remain constant regardless of activity level (e.g., rent).

Variable Costs

Costs that vary in direct proportion to changes in activity level (e.g., raw materials).

Mixed Costs

Costs that have both fixed and variable components.

Job Order Costing

A system for assigning costs to specific jobs or batches.

Process Costing

A system used when identical or similar products are mass produced.

Activity-Based Costing (ABC)

Assigns overhead costs based on activities that drive costs.

Overhead Allocation

Assigning indirect costs to cost objects using a predetermined rate.

Cost of Goods Manufactured (COGM)

Total cost of goods completed during a period.

Cost of Goods Sold (COGS)

Cost of inventory that was sold during the period.

Contribution Margin

Sales revenue minus variable costs; helps determine profitability.

Break-Even Analysis

Determines the sales level at which total revenue equals total cost.

Margin of Safety

The amount by which sales can drop before reaching the break-even point.

Relevant Costs

Costs that will be directly affected by a decision.

Opportunity Cost

The benefit foregone by choosing one alternative over another.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Master Budget

A comprehensive financial plan including all supporting budgets.

Operating Budget

Budgets related to the operations of the business (e.g., sales, production).

Capital Expenditure Budget

Plans for long-term investments in assets.

Flexible Budget

Adjusts for different levels of activity.

Variance Analysis

Comparing actual results to budgeted figures to find deviations.

Standard Costing

Using predetermined costs for materials, labor, and overhead.

Responsibility Accounting

Assigning accountability for revenues and costs to managers.

Return on Investment (ROI)

Profitability measure that evaluates the efficiency of an investment.

Residual Income

Net income minus a charge for the cost of capital.

Balanced Scorecard

A strategic performance management tool evaluating financial and non-financial metrics.

Financial Statement Analysis

Reviewing and analyzing financial statements to evaluate company performance.