Chapter 1: Managerial Accounting & Cost Concepts – IVY-LEVEL STUDY GUIDE 📖 Harvard-Wharton-Stanford Tier Breakdown for Maximum Retention & Exam Succe

What are the 3 biggest differences between managerial and financial accounting?

1. Managerial Accounting → Internal users, no GAAP, decision-making focus. 2. Financial Accounting → External users (investors, SEC), follows GAAP/IFRS, historical focus. 3. Managerial Reports → Specific to departments/jobs, not required by law.

Define direct and indirect costs with examples.

Direct Costs: Can be traced directly to a product (e.g., cost of leather for a handbag). Indirect Costs: Cannot be traced directly to a specific product (e.g., factory manager’s salary).

What is the key difference between variable and fixed costs?

Variable Cost: Changes with activity level (e.g., raw materials cost per unit). Fixed Cost: Does not change with production (e.g., factory rent).

What are the 3 main types of manufacturing costs? Give examples.

1. Direct Materials → Example: Glass for a car windshield. 2. Direct Labor → Example: Assembly-line worker’s wages at Tesla. 3. Manufacturing Overhead → Example: Factory electricity.

Define product costs and period costs. Where do they appear on financial statements?

Product Costs: Assigned to inventory (e.g., raw materials, factory labor). Period Costs: Not tied to production (e.g., marketing expenses). Product costs are capitalized in inventory, while period costs are expensed immediately.

What are the 4 key inventory accounts in manufacturing?

1. Raw Materials Inventory. 2. Work-in-Process (WIP) Inventory. 3. Finished Goods Inventory. 4. Cost of Goods Sold (COGS).

How does a contribution margin income statement differ from a traditional income statement?

Traditional (GAAP Required): Sales - COGS = Gross Profit - Operating Expenses = Net Income. Contribution Margin: Sales - Variable Costs = Contribution Margin - Fixed Costs = Net Income.

What is the formula for Total Manufacturing Cost?

Total Manufacturing Cost = Direct Materials + Direct Labor + Overhead.

What is the formula for Cost of Goods Manufactured (COGM)?

COGM = Direct Materials Used + Direct Labor + Overhead + Beginning WIP - Ending WIP.

What is the formula for break-even analysis?

Break-even Units = Fixed Costs / CM per unit, where CM per unit = Selling price - Variable cost per unit.