Exam 3! (good luck)

Managerial Accounting vs. Financial Accounting

Managerial accounting focuses on internal decision-making with detailed, frequent data, while financial accounting provides standardized reports for external users.

Fixed Costs Behavior

Total fixed costs remain constant; per unit decreases as activity increases.

Variable Costs Behavior

Total variable costs increase with activity; per unit remains constant.

Mixed Costs Behavior

Mixed costs show a combination of fixed and variable behaviors.

Contribution Margin

Sales minus variable costs, used for internal decisions.

Gross Profit

Sales minus cost of goods sold, used in financial accounting.

Contribution Margin Ratio Formula

CM Ratio = Contribution Margin / Sales Revenue.

Break-Even Analysis in Units

Break-Even Units = Fixed Costs / CM Per Unit.

Break-Even Analysis in Sales Dollars

Break-Even Sales = Fixed Costs / CM Ratio.

Components of Product Costs

Composed of Direct Materials, Direct Labor, and Factory Overhead.

Period Costs

Non-manufacturing costs such as selling, administrative, or office expenses; not tied to production.

Flow of Manufacturing Costs

Direct Materials, Direct Labor, and Factory Overhead → Work in Process → Finished Goods → Cost of Goods Sold.

Types of Inventory Sub-Classifications

Includes Direct Materials, Work-in-Process, and Finished Goods.

Absorption Costing

Includes all fixed and variable costs in product costs.

Variable Costing

Includes only variable costs in product costs; fixed costs are treated as period expenses.

Relevant Costs

Costs that affect a decision.

Differential Costs

Costs that differ between alternatives.

Sunk Costs

Costs already incurred and not recoverable.

Key Consideration for Special Pricing Decisions

Ensure the price covers variable costs and contributes to fixed costs.

Make-or-Buy Decision Considerations

Compare in-house production costs with outsourcing costs, considering opportunity costs and quality.

Continue or Discontinue a Segment Evaluation

Focus on the contribution margin and avoidable fixed costs.

Short-Term Allocation of Resources

Maximize contribution margin per unit of constrained resource (e.g., labor hours or machine time).