Accounting

Total cost of WIP

Beg WIP + Total Manufacturing costs

COGM

Total cost of WIP - Ending WIP

Goods available

Beg Finished goods + COGM

COGS

Goods available - Ending finished goods

Gross profit

Sales - COGS

Contribution Margin

Sales - Variable costs

CM per unit

Selling price - Varaible cost per unit

Total Manufacturing costs

DM + DL = MOH

Variable costs

Variable cost per unit * Units

CM Ratio

CM / Sales

Break -even point in units

Fixed costs / CM per unit

Break-even point in $’s

Fixed costs / CM Ratio

Margin of safety

actual sales - Break even sales

Margin of Safety Ratio

MOS / Actual sales

Operating Leverage

CM / Net operating income

Financial accounting

• External users

• follow GAAP

• focuses on the whole company

Managerial Accounting

• Internal decision-making

• Focuses on segments, products, departments

Product costs

• Direct materials

• Direct Labor

• Manufacturing Overhead

Direct Materials

Raw materials that become a part of the product

Direct labor

Factory workers physically making the product

Manufacturing overhead

All other factory costs

Manufacturing overhead examples

• Indirect materials

• Indirect labor

• Factory utilities

• Depreciation on Factory equipment

Period costs

Selling and administrative expenses

Variable Cost definition

Changes with activity level

Fixed cost definition

Stays the same in total within the relevant range

Relevant Range

Fixed costs stay constant, variable cost per unit stays constant

High-low method

Used to separate mixed costs into fixed and variable components

Step one of High low method

• Choose the highest and lowest activity levels

Step two of the high low method

Compute variable cost

• change in cost/ change in activity

Step three of the high low method

Find fixed cost

• Total cost = (Variable x Units) + Fixed

Flow of Costs

1. Raw materials

2. Work in process

3. Finished Goods

4. COGS

Purchase Raw Materials

Debit: Raw Materials

Credit: Accounts payable

Use Direct Materials

Debit: WIP

Debit: MOH

Credit: Raw materials

Record Labor

Debit: WIP

Debit: MOH

Credit: Wages Payable

Apply Overhead

Debit: WIP

Credit: MOH

Complete Job

Debit: Finished Goods

Credit: WIP

Sell Job

Debit: AR

Credit: Sales

Debit: COGS

Credit: Finished Goods

Predetermined Rate

Estimated Overhead / Estimated Activity